Cryptocurrencies for Beginners
I always say knowledge is the new money. Knowledge doesn’t go away, it stays with you and it evolves with you. No one can take it from you.
I start with that because we’re seeing it right now. Your money is being taken from you. As the Federal Reserve keeps printing money, money becomes devalued. Is your paycheck going up to match the disappearing value? Probably not. Your money is being stolen.
Banks are not giving any real interest rates. Taxes are getting higher and will continue to do so.
But whiler your money is vanishing, your knowledge is not. Some of the people most respected in the finance world see this and they are moving to cryptocurrency as one of their solutions.
Why? Because cryptocurrencies are outside of the Federal Reserve’s control and thus safe from their games and deceptions. If you follow me on Twitter you know I recommend taking the stimulus check you receive and buy real assets like gold, silver, and Bitcoin for this very reason.
Paul Tudor Jones is a billionaire hedge fund manager. He’s pretty much the “top dog” in the game. He recently declared the cryptocurrency as the best hedge against inflation and compares investing in Bitcoin now to investing in early tech stocks, like Apple and Google.
To quote Paul Tudor Jones: “I think we are in the first inning of Bitcoin and it’s got a long way to go,” he said.
So it’s not just me. Cryptocurrencies appear to have gained incredible acceptance into our society, but as Warren Buffett famously advised never to invest in anything you don’t understand. Bitcoin investors don’t seem to be heeding that advice.
To my generation, the idea of Bitcoin and cryptocurrencies is scary. It does not make sense to us. Not understanding something is not an excuse to ignore it. It is a reason to get educated.
Why is Bitcoin Popular?
Are you confused by what you’re reading and hearing?
Don’t worry, so are most people — even the ones who are investing in cryptocurrencies. There’s so much buzz floating around about this phenomenon, I thought I’d take a moment and simply describe what makes Bitcoin so popular:
#1 Decentralized blockchain technology
Blockchain is simply a digital ledger that no one person controls. It is a fully decentralized system.
Satoshi Nakamoto, the founder of Bitcoin, chose to remain anonymous, and he disappeared after the blockchain network attracted a significant number of users in 2011.
#2 Online trading sites
Bitcoin was “first to the market” and as a result, it is accepted on a majority of trading sites adding to its popularity. Other cryptocurrencies that are launched still need to earn their place in the market, and you have fewer choices when it comes to picking a trading site to invest in new crypto.
#3 Bitcoin protocols
Satoshi Nakamoto programmed the Bitcoin halving. Bitcoin halving is when it splits in half impacts the supply of Bitcoin. Nakamoto capped the number of Bitcoin that can ever come to existence at 21 million.
Bitcoin halving also slows down the rate at which new Bitcoin are released in the market. Due to scarcity, the price grows exponentially.
Bitcoin Isn’t the Only Coin
Even though Bitcoin has become a household name and synonymous with the word cryptocurrency, there are thousands of other cryptos.
And where there are options, there are opportunities, one of them being Ethereum.
Right now the big question I get a lot is, “What is the better investment, Bitcoin or Ethereum?”
What Bitcoin has going vs Ethereum
- Name recognition, most people only know of Bitcoin and nothing else.
- Media recognition, it’s all over the place now (which are signs we are near a top), so everybody knows about it.
- Institutions think of Bitcoin more so than other cryptos as a dollar/inflation hedge.
- Limited supply. There are only 21 million Bitcoins ever to exist. Currently, we’re at 18.55 million.
What Ethereum has going vs Bitcoin
- Ethereum 2.0 has a roadmap of exciting updates coming.
- As a part of Ethereum 2.0, much ETH will be locked up to stake, reducing the supply of ETH and pushing up the value.
- Much smaller market cap, even if Ethereum goes 5x in price, it would still be valued less than Bitcoin currently (this has closed from 6x, Ethereum is outpacing Bitcoin this year in growth, as predicted).
- Decentralized Finance (Defi) is primarily on Ethereum, nothing else has come close on the other blockchains yet in terms of ecosystem and adoption.
Focusing on the Fundamentals
Let’s say you’ve never stepped foot in a kitchen. You certainly wouldn’t start off making a tricky eggs benedict dish for your first foray into cooking. You’d probably start with something more fundamental — perhaps some scrambled or sunny-side-up eggs — because they have fewer components and timing considerations. Once you have the fundamentals of cooking an egg nailed, you can set your sights on a more challenging recipe.
The same can be said for investing in Bitcoin or other cryptocurrencies. After the housing crash and the stock market crash a decade ago, there were more people than ever warning that “investing is risky.” The problem was that not everyone defined “investing” the same way.
Most people think of investing as any situation where you put down money with the expectation of getting a return on your money. Unfortunately, what many people think of as investing is actually gambling. This is why so many people were burned when Musk tweeted how Tesla would no longer accept Bitcoin. Many so-called “investors” bought into Bitcoin when it was hot, prices were soaring, and they invested in the hope that the price would keep rising.
In any kind of investing, what sets the gamblers apart from the true investors is an understanding of the fundamentals. Knowing and following the fundamentals takes much of the risk out of investing. There’s always some risk, but by sticking to sound investment strategies and planning for ways to cover the downside, the risk can be greatly reduced.
Play it smart,
Editor, Rich Dad Poor Dad Daily