As I write this, Bitcoin is currently the king of crypto sitting at a pretty $17,152. There is no doubt it is still the most recognizable coin in existence and probably will for many years to come. When I ask people if they know what crypto currency is, they usually respond with: “You mean that bitcoin thing?”.
Bitcoin has become such a powerhouse, the internet has come up with a term for any coin that is not a bitcoin: altcoin. I am getting flashbacks to when Tiger Woods was at his peak. People would make bets on who was going to win the tournament, Las Vegas gamblers would be given the choice of Tiger Woods… or the “field” (the field being everyone else).
I am not here to say bitcoin is about to fail. In fact, I think it will continue to rank as the top coin (market cap wise) for many years to come. Rather, I am here to spread some light on why I would prefer to take my chances on “the field”, and invest in altcoins.
I think new traders get one main core concept of trading wrong. You are not betting if a stock will go up or go down. You are betting what percentage that stock will go up or go down. Let’s use an example; a dice vs. a quarter.
In game number one I tell you that you will win money if the quarter lands on heads.
In game number two, I tell you that you will win money if the dice lands on the number six.
So which game are you going to play? The initial reaction might be to flip the coin; it does have a 50% chance to win after all. That said, we are failing to ask the most importance question here: “What percentage of return will I get for each win? “
By making this simple mind shift, you move from a position of making bets to win to making bets to win money. Your end goal moves from “being right”, to “being wealthy”. Let’s use an actual crypto coin example with some numbers behind it.
If you would have put all your money into Ethereum on the first day of the year instead of Bitcoin, you would have made 5x as much today (12/13/17). I guess that’s not too crazy, as Ethereum is a pretty well known coin and sits just below Bitcoin in terms of total market cap. But let’s take this analogy a bit further. Let’s look at NEO, coming in at the number 14 coin on the CoinMarketCap scale. If you would have invested just $1000 in NEO at the beginning of the year 2017, you would have made more than if you invested in $17,000 in Bitcoin.
I really dislike the term bubble. By definition, an economic bubble is trade in an asset at a price range that strongly exceeds the asset’s intrinsic value. There is not a doubt in my mind that we could be currently trading bitcoin at a price point that exceeds its intrinsic value. But that is not the issue here.
If you really think about it, everything is always in a “bubble”. The better question is, when we have a correction, how bad will the correction be?
So why do I keep talking about bubbles when I said the reason is utility? Here is why.
Let’s say the world economy was in bubble (very well could be true). When that bubble does finally burst (some like to call this the Apocalypse), what items will still be valuable? I can promise you those Beanie Babies or Pokemon cards you collected since kindergarten won’t be at the top of the list. The value will be in the utilities; food, water, cars, gas, ect.
While Bitcoin is an amazing concept, collectible and current asset, it does not have quite the utility of others like Ethereum (smart contracts) and Litecoin (super efficient transactions). If/when the “bubble” pops, the coins/tokens with utility will be affected the least.
The very first time I bought crypto, I went over to Coinbase and jumped in on the Bitcoin craze, putting a whopping $100 into the coin. The price jumped 50% in one day and I felt like a god. I just made $50 by doing nothing! The next day was not so pretty. Down 75%. I did what any beginner does, I took out all my money with a net loss of 25%. At that moment, I understood the importance of diversifying my investments.
At the current time of writing this, I own about 22 different altcoins. This is not because I think all of them are going to be an amazing success. I do this so that when a bad market day comes around (trust me, they come around), I am not as vulnerable to losing all my money. Even though I am incredibly excited about the volitile world of crypto currency, I am generally risk averse in nature. Altcoins, while bigger upside/downside, help me reduce risk of major catastrophes.
The question to ask yourself. Do you believe crypto currencies are going to change the world, or do you believe in Bitcoin? While both statements can be true, I am more confident in the impact of crpyto currency as an industry than the long term existence of Bitcoin.