Crypto can be a seemingly attractive investment opportunity after last year’s rally in the market. However, 2018 has been a more flat experience so far. Last week I spoke at “Wo///men invest”, an event in Zurich about a few ways to approach investing in the crypto market. Here are my thoughts and a few entry points for how to get started with crypto investments.
So, today I want to talk about a few things that I mentioned in a talk last week at an event called “Women Shape Tech.”
It was called “Women Invest,” that is an event dedicated to different ideas on investments.
I went there and had the opportunity to talk a few minutes about the basics of investing in cryptocurrencies.
This is, by no means, any financial advice, investment advice or personal advice, or just my personal view on what kind of steps you could go through when you’re assessing a cryptocurrency investment.
And with that welcome to Inside DFINITY Episode Number Zero Zero Two!
Inside DFINITY Episode Number Zero Zero Two
So, I’m sure if you’re listening to this, you’ve probably thought about investing into cryptocurrencies, into tokens and coins, or if not, you have such an incredible curiosity for the space that, at least, that’s something that has crossed your mind or at some point surfaced in your newsfeed.
Last year was an incredible year for anyone who invested in crypto-currencies.
Just Ethereum alone, I think, did about hundred X from start of the year till the end of the year interests in various ICOs that have seen huge gains.
Of course, it can always continue like that.
And the market this year is a lot flatter without checking the actual price of today at about 50 percent of last year’s high which was in December.
I think that’s a great development because things cannot just always keep moving upwards and, kind of like, almost approach a vertical increase.
So I think it’s great that things have cooled down a bit without actually crashing to like a tenth or a hundredth of the value of the last year.
It has just gone back to something that is a bit more normal and stable compared to what was going on last year.
Okay, so let’s say you heard of this and you wanted to invest in this new space, you believe that all these new internet computers coming out and all these different technologies will largely appreciate in value over the next few years and you would like to get an idea of how can you actually invest in those coins and if so, on a very high level of what are some websites and information to look at. So the first website is called CoinMarketCap.com.
CoinMarketCap pretty much does what the name says. It lists the whole market capitalization in this market.
So, it shows you a number of cryptocurrencies, coins and tokens; and it gives you their current price amongst many-many different exchanges, it shows you a recent development over the past 24 hours or longer, and a few more info.
Now this is how CoinMarketCap looks like, if you were to go there right now.
And what you see is at the beginning it shows you the top 100 crypto-currencies by market cap, i.e. meaning by size.
So if you take all coins times their current value, you end up with the market capitalization for a certain coin or token. Now let’s look at a few numbers in the areas on this site that you’ll see.
So, at the very top you see a few numbers: you see cryptocurrencies, fifteen hundred and ninety-six.
What that means is there is a total of 1500 or almost 1600 different projects that are currently listed on CoinMarketCap.com that are indexed on this site.
One of the most frequent questions that I’m asked is “Why do we need so many different coins?”
I think the simple answer is “We don’t. We’ll probably need some variety of tokens and coins to do different things with them. But it’s also very easy to launch a coin and to copy current technology, and just launch your own network and give it a new name”.
So there’s definitely a lot of them that are in the long tail meaning that vast majority of the market capitalization of the total value of the space is comprised of very-very few crypto-currencies and tokens.
Number Two. The second number that you’ll see there is markets: 11302. So, even more than different coins, there are different markets.
What that means it’s places where you can go and exchange one coin for another, or even fiat for a token or a coin.
We’ll briefly touch on the subject later on.
But again here, I think, there are some very-very large players that occupy far more than 80% of the market, and then there are kind of smaller exchanges that occupy remaining 20% of the market.
Okay. Next number is Market Cap.
On this screenshot, it was 246 billion dollars.
What that means is if you take those 1,500 coins and you multiply each and every coin in those different networks by the current price, you end up with 250 billion dollars.
Now does that mean if everyone were to sell their tokens a total of $250 will change hands? Probably not.
With supply and demand if suddenly there was so much supply of all these tokens, markets will become completely illiquid and prices will crash.
The Forth Number: 24 hour volume.
So on this day here: there’s roughly 10 billion in 24-hour value, meaning about 10 billion dollars, worth of coins and tokens on that day actually changed hands, i.e. were exchanged at one of these exchanges.
And last numbers that are super interesting to look at – Bitcoin dominance: forty-two point five percent.
What that means is that out of the two hundred and forty six billion dollars that a total market is worth, more than forty percent is dedicated to Bitcoin.
So, Bitcoin is still even though it’s old technology, even though it’s been around for almost ten years now, it’s still the most valuable crypto asset in this space. Okay.
Coins and Tokens
You’ve probably heard me say “coins and tokens” a ton of times and you might be confused why that is like the terms, at first, sound very-very similar, it’s easy to confuse them.
Here’s the difference: a coin means it’s its own network, it’s its own technology, and it’s its own separate blockchain. So something like Bitcoin, and Ethereum, and Stellar, and Ripple – they’re all separate blockchains and that’s why they’re called coins. On the other hand, we have tokens.
Tokens are basically just fixed and are launched on top of an existing blockchain.
So, for example, on the Ethereum blockchain you have smart contracts that can govern ICO, i.e. they receive ETH and, in return, they dedicate a certain amount of their own token to your project.
An example could be EOS: until they launch their real network, they’ve launched something what’s called an ERC20 token, which means that token lives on top of Ethereum.
Now, why do I point this out?
I think it’s important to understand the difference especially when it comes to an investment.
What’s important is that a token for me is always a multiplied risk.
It means that the underlying infrastructure needs to succeed plus the project, on top of it, needs to succeed.
Now with the EOS it’s different because they only launch this until they launch their own blockchain.
But there’s plenty of projects and protocols and ideas that launch on Ethereum and plan to stay on top of Ethereum for the next few months or years.
So, it’s important to keep in mind that in these kinds of projects tokens are usually more risky because they live on top of another technology.
In a way, you multiply the risk of that infrastructure to succeed times the risk of that particular project to succeed.
That’s one of the reasons why I am personally not very convinced of investing into applications on blockchain right now because I think the fundamental infrastructures are just not there
yet or, at least, it’s not clear which player will gain most of the market share.
Guide to CoinMarketCap.com
Now, let’s look at the actual list with front and center if you go to CoinMarketCap.com.
So what you’ll see is a list of tokens currently ordered by their market capitalization.
And you’ll find a lot of the numbers that we’ve already discussed in the header – in each row for each crypto-currency.
So, you’ll see that Bitcoin currently is at the top, Ethereum comes in second when it comes to market cap, and third is Ripple.
And you’ll see the market cap, you’ll see the last price for each of those coins, you will see the volume.
So, interesting here as well is that we earlier said that there’s a 10-billion, 24-volume overall and Bitcoin that has in terms of market cap has a dominance of 42 percent.
But if we look here now, Bitcoin only had about 32% dominance when it comes to volume. So other coins were more heavily traded proportional to their market cap.
Circulating supply is an interesting number because you’ll see that there’s a vast difference in how many tokens a certain network has.
So looking at the token price is never a good indicator to understand if that’s a good buy or not.
Market capitalization is a much better indicator of how widespread and how big a token already is, and how much the project is worth.
Imagine like there’s Bitcoin which currently is worth about $6,000 and there’s a total of 17 million Bitcoins outstanding right now.
Now, imagine someone launches the exact same technology, the exact same parameters just like Bitcoin but makes it so that what was previously one Bitcoin is now ten Bitcoins.
That would mean – there’s a hundred and seventy million Bitcoins out there, outstanding and the price would only be six hundred dollars.
But it’s the exact same technology, it’s the exact same mechanics.
The total market cap has not changed, so always make sure to double check these two things: market cap and a token price before you make a decision.
And, then, of course you’ll see that there’s also 24-hour change and a small price graph.
Now the 24-hour change. What’s interesting is that you’ll see how many coins follow Bitcoin.
Or, let’s say generally, top five – they – have a lot of influence on the rest of the market: if Bitcoin, Ethereum and Ripple dropped then rest of the market will also be in the reds; whereas, if these do well, chances are all the other tokens and coins will do well as well.
All right, moving on.
So, now we’re clicking on one of these coins.
Case of Stellar
And in this case I clicked on Stellar. Stellar is another smart contract platform.
I think it’s quite promising.
You’ll see here one example for a token price that is far-far lower than Bitcoin.
It’s only about 18 cents right now, but you’ll also see that there’s almost a thousand more Stellar out there than there are Bitcoins: there’s about 18 billion Stellar’s well there’s
only about 17 million Bitcoins that have currently been mined.
And, then, on the left side here you see all the other name that CoinMarketCap that will give you access to – you can jump to their website, to their announcements, a messaging board, and a few more things.
But now we’re going to go back and choose in the header and go to Markets.
Now this page is also super interesting, it lists all the markets that currently trade Stellar.
What you’ll notice here is when you think of the Forex market, you will mostly see stocks against some currencies, some fiat currency.
Let’s say Nestle against Swiss francs, or US dollars or Euros, or I don’t know Lufthansa against yours.
What you will almost never see something like Lufthansa against Nestle.
That’s quite common in the crypto world – so, most of these tokens and the vast majority of them, they’re not tradable on an exchange that trades them directly against fiat but they are tradable on cryptocurrency exchanges that allow you to trade them against other cryptocurrencies, coins and tokens.
And so you’ll see here.
It’s ordered by Volume, you’ll see that almost 12 million dollars of Stellar changed hands within the last 24 hours, but they weren’t changed against dollars: they were exchanged against Bitcoin on an exchange called Binance.
Also very important to see here, in third place, it’s also Binance and there is a roughly 3 million exchange of Stellar against USDT.
USDT & Tether
Now, USDT is not the US dollars that’s Tether.
Tether is a company that mirrors the real-life fiat currency like US dollar onto the blockchain.
So in this case, their idea is that one token is a token because it lives on Ubik, i.e. it’s one of these projects that sit on top some other technology.The idea behind Tether is to provide a stable coin because in theory there’s one U.S. dollar in a bank account for every USD Tether that exists.
The idea is that this coin should always have a value of pretty much one U.S. dollar.Historically, that’s proven to be true but there’s also all kinds of mysteries, ideas and myths about whether or not this bank account with such a large US dollar supply actually exists.
All right, moving on.
So, we’ve talked about where you can acquire your Cryptos in case you’ve made a decision to buy.
You can head over to exchanges. Here are a few of the big ones: Coinbase, Kraken, and Binance.
These all have huge volumes, they all list ton of coins and tokens, these all allow you to exchange fiats vs. crypto, and vice versa.
But, of course, there’s also a more peer-to-peer way to do this.
For example, you could buy and sell bitcoins or any other crypto currency over a page called Local Bitcoins, or Local Ethereum, or they have many derivatives depending on which currency they’re selling.
Where if you own some Ethereum, you can go on there and say “Hey, I’m offering this and that” and then someone else can say “I’m buying some bitcoins, and I want to pay off to this or that price”.
It’s kind of like an eBay with a fixed price like, i.e. it’s a marketplace to bring two people together: one selling, one buying.
You can also buy crypto from your friends out of two reasons: one – if someone of your friends has invested a lot of money in crypto over the past few years and gotten rich, he might be buying stuff that he really doesn’t need, like this oversized melon.
And then, two, there’s a crypto currency called Melon emitted by a company called MelonPort which is actually a Swiss company.
Right now, I think they’ve shrunken back to the size of a golf ball roughly but sometime last year they’ve grown to this oversized melon.
A few more thoughts in case you want to dive in further and see how much selling is going on where and what prices.
Here’s a good website you can go to cryptowat.ch.
This page offers in-depth prices and books for a lot of currencies and a lot of exchanges – the ones that offer them in an interface that you might know if you’ve traded stocks before, and you’ll find a lot of this similar indicators and tools built into this website.
Last but not least, I think your first investment into crypto, you should always see it as an investment into knowledge.
If the price goes up and goes through the roof and makes you a lot of money – great, but be prepared that this is a very volatile market: anything can crash in a moment.
There’s some very good questions about how much value that actually is behind each and every one of those tokens and coins.
There are definitely also some projects that do not deserve that market cap they currently have.
So, what I would always suggest is if you want to invest in crypto, seed as money that you pay towards learning.
And one great way that I found in the past is to dive into a certain coin is download this application called Blockfolio.
It lets you track crypto-currency holdings on your phone, you can set alarms and certain triggers.
And that way you can monitor your crypto current holdings on the go, and I found that a great opportunity for myself to be constantly in mind to check up on a project, to learn more, to dive in.
Blockfolio is now connected to any of the exchanges.
So you can also just set up a virtual portfolio and see how well you would do in case you were to buy X, or Y, or C coin this weekend.
And that’s it.
This was Inside DFINITY Episode Two: my thoughts on how to assess cryptocurrency investments.
As always, if you have comments, questions or anything else that you would like to know, please let me know in the comments.
If you share this video with anyone that you think could get value out of it.
And with that, I’ll see you soon.