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It’s fall 2018 – is it too late to buy into crypto?

I see this question appear every so often on just about any of the cryptocurrency groups and message boards I lurk, and I’ve been banned for giving an honest answer to it at least once.

Someone comes along and posts something like:

The fact that this person is talking about “owning projects” and their “portfolio”, even though they are fictitious, is actually something I see more often than not, and it makes my skin crawl.

For the less familiar, the idea of “owning projects” is a comment people make out to mean that you own tokens related to this or that blockchain project (LTC, XRP, BTC are three examples). I really don’t like this idea because it misleadingly applies part ownership of the actual project in the same way that a traditional share investment on the stock market represents a partial ownership of the company in question.

For example, if you own 10,000 shares of Tesla (NASDAQ: TSLA), you actually own 0.000058620083241% of the actual company.  Yes, that number is ridiculously small, and in effect gives you virtually no power over the company’s decisions, but that ownership is a binding legal contract which comes with rights and responsibilities on both sides, and more importantly, the rights you are granted by owning the shares can be enforced by a court of law and the local judiciary system of wherever the stock exchange you are dealing with is located. What does that mean for you? Well if TESLA was to file for bankruptcy tomorrow, a judge would look over their assets and could determine that a percentage of their assets should be liquidated (sold on the market) and the money left over should be paid out proportionally to shareholders.  This is kind of really important.

Let’s consider another example, a very popular one among people who are just getting into cryptocurrencies: XRP.

XRP, the token produced by the operation of the Ripple blockchain, is quite popular and has been around for some time, picking up momentum and often appearing in the spotlight as different news outlets report on the progress toward their stated goal: to provide a modern, ultra-efficient and rapid international settlement system.  In simpler terms, let banks and financial institutions move huge amounts of money internationally way faster than they currently can and at a much lower cost.

So someone getting into crypto may see the price of XRP at 0.291325$ USD and think, and I’m not kidding about this, “OH MAN! This thing is only 29 cents and all the banks are looking into using it?! I can buy like 1000 of these for 300$ but if it goes like bitcoin and hits 1000$ a piece, I’ll be a millionaire FOR LIFE!”.

I’ve had many people come to me asking for advice and instructions on how to buy cryptos and how to get into the market, and on many occasions, when I’ve asked them to explain WHY they want to buy cryptos, that’s the exact reasoning they’ve given me. Worse yet, many of them intended to borrow money and pay interest on the loan in order to do this.

Can you already tell how wrong this thought process is on so many levels?

The first thing to consider is that the price of XRP was 0.17 USD a year ago in October of 2017, only spiked to just over 3.00 USD 9 months ago, and has been dropping ever since, to find itself sitting at 0.29 USD.

If someone had bought 300$ worth of XRP in October 2017, they would have about 511$ worth today.  Is that a bad return? Definitely not, it IS 70% return in a year, after all, but we are very far from the dream of having XRP hit BTC prices (currently 7000 USD +/- 300 daily fluctuation).

I hear you asking “What’s wrong with all that? That sounds great! I wish my RRSP had made me 70% last year instead of losing 3%!”. I’m right there with you, I agree, it looks awesome and if you were among the knowledgeable who could take advantage of that growth, then I’d be very happy for you if you did.

However, here are some things to consider:

  • XRP is NOT a financial instrument and no one is under any obligation to do anything with it if they don’t want to
  • No legal authority in the world would ever come to your help if there was an issue with XRP, the wallet you hold it in, the exchange you bought it from
  • Ripple can decide, if it suits their business plan, to generate any number of additional tokens at any given time and sell them at any given price, effectively drastically altering the value of your holdings

What does that mean for you? Well for instance, if Ripple closed up shop and decided they no longer care about the XRP project, the value would almost certainly make a dive towards 0 and there would be no bankruptcy hearing about what amount of the cash or cash-equivalent held by the actual Ripple team should go to the token-holders.

Secondly, if you made a mistake and lost the wallet you were holding your XRP in, if your exchange got hacked, if your exchange turned out to be malicious, the amount of recourse you would have to recover any of your money would be alarmingly close to nothing.

With all that, lesson 1: When you own cryptocurrencies, you own tokens, the exact same way that if you own baseball cards, you own baseball cards. Nothing more, nothing less.

On the second keyword, “portfolio”, I don’t even want to go into detail because a portfolio in this context is specifically and ONLY about investments, and as you are beginning to see, cryptocurrencies and tokens, to me, are simply a collection of “stuff” and do not fit the definition of investments.

As you’re reading this, you may be feeling a bit of information overload, with the data I listed earlier on, or you may be wondering what point I’m about to make because you already understood the thought process I was illustrating.

Well, my point is that no, it is definitely not too late to get into cryptos, and for as long as cryptos have a market, there will still be some profit to be made by some people.

The real question is: are you one of the people who can make profit?

The advice I’ve posted on forums and groups to people asking the question on how to get into cryptos that has gotten me banned a few times goes like this:

No, it isn’t too late but you really have to be serious so make sure you do the following:

  • Figure out how much your time is worth in dollars per hour. If you work for 12$ an hour and that’s the best you can do right now in your life, then you may consider that your value.
  • Figure out how much money you’re willing to “invest” given that if you were to lose every last penny, you could get over it and move on with your life without any drama.
  • Figure out how many hours of your life the amount of money you want to “invest” is worth. For example, at 12$ an hour, 1000$ is worth 83 hours and 20 minutes.
  • Whatever amount of time your “investment” is worth, spend that amount of time educating yourself about finances and cryptocurrencies before you do anything else. As a matter of fact, I would even say double that amount of time! So if you’re my 12$/hour example person and you are planning to put down 1000$, I recommend that you spend preferably 167 hours educating yourself on the material before you even make a transaction on the market.  If you’re thinking of taking that money out of your credit card where you pay interest, or putting it towards cryptocurrencies instead of paying off your loans and debts, then I’d tell you to spend at least three times the time studying, and yes that does mean 250 hours of education for the person in our example.
  • Get a mentor. A real one. Not one of those people who run a Telegram group and claim to be mentoring you because they post what they buy and sell when, and throw around big words like “resistance”, “bull run”, “bears”, “breakthrough” which sound fancy to you because you don’t really know what they mean but they sound important.
  • Again, GET A MENTOR, but someone whom you’ve actually met, who has some experience to show for their claims, someone who understands economics, finance, technology and who just as importantly understands you and can meet you on your level, speak to you in terms you understand, and who is genuinely willing to coach you because they believe in the cause and want to help people be successful. Forget people who need you to pay them for the service before they say anything sensible, forget people who won’t show you their experience or resume. In fact, forget anyone who doesn’t have the patience to have you basically interview them as if they were applying for a job. I know it’s a tall order, but when it comes to your hard-earned money, don’t walk into a relationship that will empty your pockets just because someone sounded impressive.

For those of you who have followed me on social media or met me at events, none of these will come as a surprise.  As with everything, the only real investment you are making that can never be taken away from you is your own knowledge and skill.  If you want to “invest” in cryptocurrencies, don’t be fooled by big words and big percentage gains, you’re just gambling away your savings and you will continue to do so until you make the only real investment that matters: your own education, your own knowledge, your own experience.

The bottom line for me is that the knowledge, skill and wisdom that will allow you to turn a profit in the cryptocurrency market are things that can actually serve you well in other areas of your life.  Understanding market dynamics and economics will help you understand a great many things, from the reason why your land lord raised rent this year, to why the price of gas at the pump keeps going up and down, to why so many people think they are brilliant investors for having made money on Bitcoin in 2016-2017.

If you’re going to be buying cryptocurrencies in this market and do not want to call yourself a gambler, then learn to be a profitable trader, and once you’ve got that down, you’ll be well on your way to becoming a truly profitable investor!