Crypto, bipto, bopto. Etherium, you know. There are a lot of them though. The most popular of these is Bitcoin that has been around the longest I believe. If I’m wrong you all can’t tell me anyway.
How the heck do you make money from crypto?
Today various cryptos have a given value. In the future the value can go up or down from where it is. Mainly this is due to the forces of supply and demand. Supply on many of these cryptos goes up. As they go up there are more to own. If demand stays the same and supply goes up, it’s likely that the dollar value will go down.
But demand can and does vary up or vary down. If more people decide they want to buy, assuming supply remains the same, dollar value will go up. If fewer people decide to buy, dollar value will go down.
Combining these two forces mean that the price of bitcoin will basically go up or down. It can and has done either.
How you make money on crypto, such as bitcoin, is that you buy in the hopes that the value will go up in the future. Then you can sell your crypto for more than you bought it for, making a profit.
Basically, you sell it to the next sucker who is paying too much for basically nothing tangible. Now to be fair, we trade pieces of paper or rounds of metals all the time that are literally worth less than the face value of the “money”. And this money becomes less valuable in a real way over time.
Is Bitcoin (or pick your crypto) fairly valued, over valued, or under valued?
Bitcoin, other cryptos, and other currencies are valued relative to other currencies typically. And most of the time we know the money supplies of all currencies we may compare. We also know the supply of Bitcoin. Yes we do. But in my opinion there is no real way to value any currency in order to make money by buying low then selling high later. It all depends now doesn’t it? If demand spikes for Bitcoin, prices could drastically go up into the stratosphere creating a lot of millionaires and billionaires. If people get tired of this currency in the cloud, demand could drop sending people into serious depressions.
So I guess what you want to know: Is demand building faster than supply? Supply is easy enough to come up with, demand really isn’t.
Just like macroeconomics, the predictions about the future are just crap.
How should you invest in crypto then?
Well, you could just stay away from it. But in the past year, Bitcoin is up nearly 150%. There have been times in the near past when it’s fallen just as fast. Buy at your own risk.
But then another part of me says yes buy, but buy small amounts weekly and just keep buying small amounts. Then you are buying different amounts of Bitcoin with the same number of dollars. This is typically known as dollar cost averaging.
If you put every last dollar into bitcoin, you will likely lose a very painful amount. But if you put smaller amounts that you can afford to lose… well it’s like going to the casino and being happy when you get to play longer, but still lose money. And there is a very real possibility that you will make a decent amount of money. Maybe not millions but enough to feel really good about. Like a good day at the casino.
Hedge Funds and Bitcoin
I have heard that several larger hedge funds have been buying a lot of bitcoin lately. This is a very good sign that bitcoin’s value will go up. Still, they can decide that bitcoin is overvalued and sell a lot. This is likely a game that they will win and you will lose.
I hope you are all as confused as I am at this point. Seriously big problem: valuing your crypto. Stocks are a different story, you can determine what a stock should be worth and buy appropriately. You know, real investing.