How To Think About Cryptocurrencies 🦃
Talking points for your Thanksgiving arguments
Happy Thanksgiving eve everyone.
Cryptocurrency continues to be a hot topic during Thanksgiving, and arguing with your crazy uncle is a lot easier when you have informed talking points. Enjoy the holidays.
If you find this email helpful, feel free to forward it to a friend.
Some Numbers
People tend to buy cryptocurrency due to FOMO around the holidays (except last year, ouch)
The best performing asset over the past year continues to be Bitcoin (BTC), which has more than doubled in value since this time last year (+125%)
Ethereum is finding a niche for “decentralized finance” or DeFi, which involves using contracts without middlemen to recreate existing financial instruments (loans, derivatives, etc). There is nearly $700M USD locked up in various DeFi instruments as of this writing.
Some Talking Points
Cryptocurrencies are a growing class of alternative investments that seem to be somewhat correlated with the broader stock market
Bitcoin dominates the market, with over 70% market cap ($136B)
Exchanges continue to be the best businesses for making money in the industry
Exchanges facilitate the trading of speculative assets, including Bitcoin. Due to strict US regulations, many of these companies are located overseas.
You can read more about the Bitfinex scandal here.
Also, exchanges tend to hold large amounts of cryptocurrencies. This is convenient, but is also how the “hacking” happens
So what?
In summary:
If you had purchased Bitcoin at this time last year you would have doubled your money. Other choices would not have worked out so well, with many cryptocurrencies either disappearing or trending towards zero.
There are new types of financial instruments being explored using Ethereum. You can do things like give loans, offer crypto in collateral for USD, and more.
In my opinion, the best U.S. exchanges to use at this time are Coinbase and Gemini.
Crypto continues to operate as a reserve currency that should find a similar role in your portfolio to gold. Don’t invest anything you aren’t willing to lose, and good luck. If you hit the jackpot, keep us in mind.
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