If I had a Bitcoin for every time I’ve heard, “But Niiiiiick, cryptocurrency has no real value“… Well, I’d have a lot more Bitcoins than I would otherwise.
It’s a ridiculous argument, and the brutal truth is the folks who’ve bought into it are basically doomed to a lifetime of subpar returns.
Because of course cryptocurrencies can have value. Value is what we make it. Over the past 5,000 years, people have assigned value to gold, glass beads, pretty rocks, cows, inky strips of linen-cotton fiber, tulip bulbs, seashells, SHIB – the list goes on.
Something is valuable because a bunch of us agree it is. That’s it. And value investing is the art and science of finding assets currently selling for less than their true value.
At the end of the day, every great digital asset investor is a value investor. We have to develop that mindset to find those rare coins that’ll 10X, 20X, even 100X our money.
Every single one of my “5 Ts” criteria for cryptocurrency is designed to lock in on and grab coins that haven’t realized their real value yet.
And when you understand how it works, you’ll be a better, richer crypto investor than 99.9% of the competition. Here’s how it works…
A lot of it comes down to asking questions about your potential investments. Learning to ask the right questions is critically important.
I start with five…
Who’s on the development team? First, I want to know if the team is legitimate, or a bunch of con artists selling B.S.. From there, I’m looking at track records – developers and managers who’ve demonstrated the talent and chops needed to create and maintain value. They need to show me that they can create something people will fork over money for to use and, ultimately, not be able to live without.
What about the technology? A valuable cryptocurrency has to work, and bring something to table – to solve a problem that hasn’t yet been solved. It has to be reliable; the crypto has to do its job 24/7/365. Its software needs to make sense, as does the future plot of iterative upgrades. I want to see technological elegance backed by guarantees that make sense.
How’s the timing? A valuable cryptocurrency is something people need now or in the near future. That’s how it will realize its true value. Timing’s a bit of a double-edged sword, though – an idea too far ahead of its time runs a risk of crashing and burning… and a better team will come along and sift through the wreckage for the prize.
Do the tokenomics work? Value is a function of scarcity and demand. What’s the economic proposition? I think the exchange of machine learning resources for money is a particularly good proposition, particularly moving into the future. I also need to know whether or not the development team will water down its own product by generating more and more tokens endlessly, when they should be, at a very minimum, burning to ensure scarcity.
Why is this token even a thing? A good token should be needed to get from A to B or to accomplish some task (like machine learning). It needs to exist for a reason. A coin like Cardano (ADA) is needed to execute smart contracts, for instance. Bitcoin (BTC) is another great example; it’ll be a medium of exchange, but more and more it’s going to be a great store of value and, in the long-term, an inflation hedge. In other words, if your token has no reason for being, it has no business being in a serious portfolio. Looking at you, Shiba Inu (SHIB)
And there you go – 5 Ts. Answer those questions, and you’ve got value on your hands. It takes a lot of information, but the “how” and the “why” are all based on common sense. Develop an inquiring, skeptical mindset – and I don’t mean “We never landed on the Moon”-type skepticism. That’s selective doubt, not real skepticism. If a crypto project is making big claims, it has to bring big evidence and support to the table.
Just as important, though, is avoiding bad investments, with little or no value.
Don’t Take Dead End Roads
Some people are wild about charts, and if that’s their thing, it’s cool. A chart can be useful if you’re making short-term moves, but it’s not for me though. The market is not an eternally repeating fractal pattern. You can’t reliably look at an asset’s past to tell where it will be far in the future. Technical analysts talk about resistance and 30-day lines. Well, an asset is either going to cross over to another side of line or it isn’t. There’s nothing predictive about that. It’s all hindsight.
You can’t pick the right investments by looking at the past. You have to focus on what’s going to happen, and what people are going to do, in the future. That means understanding what people want.
Like I hinted at in the beginning, value is always relative. The more people have something, the less valuable it is. Having a larger number of dollars is not the same thing as making money. If you invest in the stock market, assuming you’re just using a generic diversified portfolio, you’re making the same bets as basically everyone else. The only people you’re gaining any distance on are those too destitute to invest at all.