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November 26, 2013, 03:50:09 AM Last edit: November 26, 2013, 04:18:47 AM by miner2002 |
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For the record, I have only been researching bitcoin/cryptocurrency for 4 days. Below is my analysis of what I believe are the key positives/negatives, and how I plan to trade based on those. I would love some feedback and for people to point out flaws in my analysis.
In short: I believe in the long term potential of crypto currency. There are some potential negatives, but in some form or another I believe crypto will serve a material role in the economy. I believe we are still VERY early in the world of crypto. The total crypto market cap is 10billion (ish), which is frankly nothing, so I think we're still in the "early adopter" stage even if people have already seen huge returns.
I am not smart enough to trade the market. Based on my belief that crypto will have a long term role in the economy, my goal is to acquire coins and hold for the long term while reducing the risk of picking the wrong long term winner. Essentially, I want to pick a strategy that will diversify my holdings among coins knowing that many (and potentially all) of my investments will be worth nothing. If I invest correctly, and crypto really does take off, those few investments I held long term that were correct will more than offset the loses.
Long version:
BTC Advantages: -No central control over the currency. Once you have crypto-currency, you control what you do with it -Money can be sent anonymously -Money can never be frozen or taken away from you -3rd world countries with little to no banking access can now transact among themselves and hold currency without the need for a bank -Money can be sent all over the world instantly -Lower fees will reduce costs for business and lower cost of goods -If/when people lose faith in Fiat, crypto will be an extremely natural alternative. If we get another Cyprus situation, why wouldn't you put your money into crypto? Better risk than leaving it in the bank -People who are not getting returns via stock market, etc will be looking for yield, if crypto continue to soar people will jump in -There is a natural floor in crypto due to illegal/other types of services. IE drugs, prostitution, hiding assets from a spouse, etc so there will always be some kind of future
Issues facing bitcoin/crypto: -Government regs (minor risk) -Large scale competitor enters market (google decides to make a coin) -Large scale miner (google decides to dedicate a fraction of their power to mining all coins) -Mainstream market never adopts crypto fully so it's never a transactional currency -Mainstream market loses faith in the crypto as a currency and it solely functions as illegal/etc types of transactions -Someone break the encryption / somehow the system doesn't work the way everyone thought and fails entirely
Trading Hypothesis: -Crypto is still incredibly young and not established. Bitcoins are more of a store of value than an actual transacting currency. As cryptocurrency grows, there will be other coins created that lend themselves more towards mainstream transactions. I believe bitcoins will exist as a store of value (essentially gold), but other crypto's will take over the market because bitcoin can't handle becoming the main stream option for a number of reasons -Crytocurrency will be used long term in the future in at least some capacity -Other technologies/coins will likely replace or work beside BTC, need to diversify across coins, but keep bulk in the larger cap coins to reduce risk. -Buy and hold rather than trade, you could trade yourself out of something that soars and then never be able to get back in at those prices (happened to people in BTC at least so far) -As the market matures and there's a steady and safe way to get funds in and out of btc/alts, that will substantially increase market cap
Trading Plan: -75% of purchased coin needs to be in top 10 market cap coins, if a coin falls off don't sell just continue to purchase top 10 until you get the % back in line -25% BTC -50% other top 10 market cap coins -25% alt/speculative coins -Get into some Alt coins, highest chance for some profit and prices are low so could hit some lucky wins (99% will probably be worthless) -mine the coins that are easiest to mine with the most potential. Alternate each month/after a big block so that you can build up coins across the board. (Note: Using high gaming computer to mine, not large scale mining) -Keep cash in reserve for big BTC price drops
If a large profit in an Alt coin? Take profits equal to what was invested and move to new investment (new coins) and let the balance ride
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