The purpose of this post is to remind everyone reading that cryptocurrencies are NOT good investments… and to offer an alternative.
Don’t get me wrong: I LOVE me some crypto, and I see blockchain-based currencies bringing massive disruptions not only financial services, but to our entire way of life. Sure, cryptocurrencies such as Bitcoin, Ethereum, and Ripple are going gang-busters right now, but that only reinforces thoughts of soon-to-be-realized-super-heated-bubble drama.
“The growth is astounding – the aggregate market capitalization of all digital currencies excluding Bitcoin has grown from $2.2 billion to over $71 billion so far this year. That is over 3000% growth in just five months. The growth is prompting many commentators to opine the industry is in a bubble. Indeed, many signs of a bubble are there… new projects are able to raise millions of dollars through “Initial Coin Offerings” (ICOs) before even launching a product. Money is now flowing into the market in seemingly indiscriminate ways… one day last month 99 of the top 100 assets were trading higher than the day before, and by large margins.”
2 Reasons Why Cryptocurrencies Are NOT Good Investments:
1. Cryptocurrencies don’t MAKE money.
Warren Buffett doesn’t like gold. Why? Because gold doesn’t MAKE money. It’s the same with currencies: they ARE money, they don’t MAKE money. Further, currencies are a hedging instrument used by corporations, traders, and big-money people…. that’s not us. Investing in currencies directly is expensive and unnecessary for the average investor, and returns on investment don’t warrant the risk.
Gold is a store of value that grows with inflation. If you consider Bitcoin or the other cryptocurrencies as stores of value (by the way, Ethereum was never designed as such), then they’re STILL not good investments. It’s that simple. Keep in mind, though, that investing is different than trading. Can you make money trading crypto? For sure.
“Volatility yields opportunity for big wins (or losses), but that doesn’t make Ethereum a long-term buy and hold.”
2. Volatility of cryptocurrencies makes them NOT currencies.
And if they’re not currencies, what are they? They are a completely new asset class, which many are putting money into without understanding. It’s the hype that has me scared. I’m not the first one to say it, actually: “It’s not the value I question, but the valuation.” Valuation cannot be infinite, and cryptocurrencies are impossible to properly value.
For many countries, their currencies are greatly impacted by fluctuations and volatility in the prices of the commodities they produce. What’s the best way to invest in commodities? The producers.
Alternatives To Investing Directly In Crypto:
So who are the producers of Bitcoin and the other cryptocurrencies?
In the world of digital, it’s companies like Nvidia ($NVDA) and Advanced Micro Devices ($AMD) that determine how much crypto is produced and how quickly. They control the output, so they control the profit.
In the case of commodities producers, we’d look for companies with the lowest cost of production.
Which company produces cryptocurrency most cost effectively? Is it Nvidia or AMD?
Mining Ethereum is profitable using lower-end Nvidia and AMD GPUs, with the return on investment of a mining rig at around 3 months.
“Choosing between Nvidia and AMD GPUs is a choice based on price. Not just the price of Ethereum, but the price of acquiring the GPU as well. If the price of mid-end GPUs such as the Nvidia GTX 1070 declines, miners can ‘overclock’ the GPU to create more hashes. This is why there is a constant back and forth between AMD vs. NVDA GPUs being the ‘best’ for small-scale mining rigs (4-6 GPUs).”
Trends position AMD as the preferred choice for cryptocurrency mining, but with NVIDIA and AMD releasing GPUs specifically designed for crypto mining, who knows what the future holds?
How Long Will It Last?
“As for AMD shareholders, be warned that any GPU demand coming from this event will be temporary. Indeed, if anything, the GPU side of things is the one segment that’s clearly going wrong at AMD. At this point, AMD seems to be running one generation (one-plus years) behind Nvidia. AMD is still struggling to put out its Vega competitor to Nvidia’s Pascal, just as Nvidia already is moving on to its next-generation Volta.”
Whether the market is in a bubble is still up for debate given the enormous potential of digital currencies, and their currently insignificant size in comparison to government issued currencies. There are many reasons to believe growth could continue at a rapid rate.