Article by Revix
Many who have kept their eye on the cryptocurrency markets since the meteoric rise of Bitcoin to $20,000 in 2017 have been paying close attention over the past few weeks because of the mini-rallies that have resulted in most cryptocurrencies getting a sizeable bump up in price.
This has excited both the active community and onlookers as they hope for another parabolic rise in the price of their favourite coin or token, giving them the opportunity to multiply their investment or to start riding the crypto wave.
2019 is a very different year, we are back to a five to ten percent price variation per day, which scalpers and day traders can, and happily do take advantage of. However, this comes with a lot of risk.
In a market as immature as the cryptocurrency one, where whales are able to easily manipulate the price for fun and profit, day trading and scalping just isn’t the best way for the average person to invest in cryptocurrencies.
For those who are risk-averse, a more passive method of investment, with lower fees and fewer transactions might be the answer.
Active vs Passive Investing
Active investing is the hands-on approach and requires you, or someone on your behalf act as a portfolio manager. The main objective of active money management is to beat the market’s average returns and take advantage of short term price fluctuations. This involves deep diving into the token or coin, and the experience to know when to in or out of a particular asset.
Active investing requires confidence that you will know exactly the right time to buy or sell, and also requires your attention 24/7 because cryptocurrency markets don’t close.
Passive investment, however, puts you in a long term commitment and since there are considerably fewer trades happening with passive investment, you are charged fewer fees, making it more cost effective over time.
Passive investment does come with its own challenges, the biggest being the challenge of trying to not trying to anticipate or react to market movements, which at times can make even the strongest traders crumble.
Successful passive investors keep their eye on the prize and ignore short-term setbacks and even sharp downturns. While active investment may work for some, passive investment is the best way to make an investment for those who can’t spend that much time on their portfolio or don’t have the expertise to constantly evaluate a projects progress.
Passive investment — The best way to go?
The cryptocurrency sector is incredibly small, its entire market capitalisation today is around $270b, while Amazon has a market cap of around $568b. That’s right, The entire market cap for every cryptocurrency is currently half of that of one company!
The market is young, laws are unclear and the technology is still developing, so while there may be opportunities for parabolic price movements such as those that happened in 2014 and 2017, there is still a long way to go for the various organisations involved in each respective currency to engineer systems, processes and applications to realise the goals that they set out.
A great example of this is Bitcoin.
In 2017 Bitcoin experienced a hard fork, resulting in two cryptocurrencies, Bitcoin (BTC) and Bitcoin Cash (BCH). Many BCH proponents claimed that the block size on the BTC chain was too small, resulting in slower transaction times and the BTC mempool to become clogged up.
This prediction came true later that year when transactions on the Bitcoin network reached up to $50 if you wanted to have your transaction mined (processed) faster. This caused many people to find other means of investing in cryptocurrencies, by buying Ethereum, Bitcoin Cash, Monero etc.
It’s important to note however, that the Bitcoin developers were aware of the issue and had started on the implementation of SegWit, which is in its most basic description was a means to reduce the size of a transaction (in kilobytes, not monetary size) to allow more transactions to fit into a block, thereby speeding up transactions.
SegWit was an optional upgrade or a “soft fork”, meaning that exchanges, wallet providers and the like were not forced to adopt SegWit.
After SegWit, many of the Bitcoin developers started working to develop the Lightning network, a second-layer to Bitcoin which is best suited for microtransactions, allowing you to send 0.00000001 Bitcoin at virtually no cost.
It took time for exchanges, startups, wallets and vendors to adapt to these changes, and add them to their products and services.
These changes have now resulted in new products and services that make using Bitcoin easier today than it was a year ago. For example, after the lightning network went live, it was quite difficult for a nontechnical person to run a lightning node, now, however, there are companies that have built off the shelf solutions that require very little technical knowledge.
To further add context, an off the shelf lightning node solution will allow more merchants to accept Bitcoin easily, in turn, making it easier for customers, resulting in an increase in adoption.
Adoption is key to the growth of the entire ecosystem, and adoption can only be achieved if the entry points are made as easy as the current systems that are in place. This is a lengthy process, Bitcoin is 10 years old, and It’s still not easier to use than a credit card or cash.
Bitcoin is currently settling close to half of the settlements that Mastercard makes on a daily basis. This is a massive achievement, and shouldn’t be taken lightly. Imagine for a second what the cryptocurrency markets would look like if spending a cryptocurrency was as easy as swiping your Mastercard?
Any good team behind a cryptocurrency will have a long term plan, and it’s important that as an investor, you assess your needs and means, and evaluate whether your needs and goals match theirs before making a long term commitment, you will want to assess how they have handled new and unexpected hurdles, their progress, roadmap, team and many other factors that can affect not only the price of the cryptocurrency but also the longevity of the team behind it. You want to build a strategy that aligns with your views, timeline and risk profile and then make sure that your investment fits into it all as well.
A long term investment strategy is also not unique to cryptocurrencies. World-renowned investor and cryptocurrency critic constantly talks about long term investments coupled with patience and restraint being some of the most important aspects that contributed to his success.
How do I start?
You have a few options when it comes to long term investment in cryptocurrencies. One of them is that you can evaluate the cryptocurrencies that seem interesting, look at their ambitions, the technology they are working with, their teams and the market needs (current and future) to decide if it is a cryptocurrency that you would be comfortable holding over a long period of time.
Another option, which is gaining popularity are index funds, An index fund is a type of mutual fund that provides a broad market exposure, often favoured as core holdings retirement accounts. Recently Quartz published that half of US stock fund assets are now invested in index funds, this is a trend that has gradually been growing since 2006 and this seems to lead back to investors realizing that portfolio managers are seldom able to beat the broad benchmarks of stock market performance.
The same can be said for cryptocurrencies, Revix offers four bundles; Top Ten, Payments, Platform and Privacy, which evenly distributes your investment to the cryptocurrencies in each respective bundle.
This solves the problem of the average investor not being able to evaluate these projects due to time or technical constraints.
The Top Ten bundle takes smart investment further by allowing the market to decide which coins are included in the Top Ten, eliminating the need for an individual investor to constantly reevaluate their portfolio, they can instead allow the market decide which assets are valuable, and as the market changes, so does your portfolio, exposing you to the most favorable cryptocurrencies on offer, and dropping less profitable cryptocurrencies.
Looking at it from another perspective, the Revix platform is essentially taking the market capitalisation of all of the cryptocurrencies available and then balances your portfolio accordingly.
The simple way to look at market cap is to take the number of coins in circulation and multiply it by the average price of the coin, giving you the total circulating value of the cryptocurrency.
Going deeper, and looking at how the average price is determined, most exchanges provide an API which allows you to call the last price that a coin was bought or sold for, to calculate the average price, when calculating the average, we look at every exchange that makes that data available, and average it out.
This means that when you’re purchasing the Top Ten bundle from Revix, you are in fact buying the best cryptocurrencies as agreed by essentially every active trader, analyst, and investor in the world, because their actions determine the market cap, thereby giving you as an investor exposure to the most attractive investment available.
This puts the investor at the forefront of the cryptocurrency space, exposing their investment to trend and sentiment changes before their exposure to a cryptocurrency causes too a significant loss, and inversely, gives them access to new cryptocurrencies that are increasing in popularity and value, possibly before they have even heard of it.
Long term, passive investment is a growing trend which has yielded favourable results in markets globally, and with cryptocurrencies like Bitcoin slowly catching up to the same daily settlement amounts as Mastercard, governments accepting cryptocurrencies for taxes, banks looking at using cryptocurrencies for settlement and the invaluable amount of (relative) stability they have given to unstable regions of the world, cryptocurrencies are proving their use and value on a daily basis, and with Revix making it easy to manage your risk and exposure to the market, a long term investment in cryptocurrency looks to be a lucrative one.
Sign up with Revix or get in touch to discuss the Crypto Bundle that suits your needs.
This post is intended for informational purposes only. The views expressed in this post are not, and should not be construed as, investment advice or recommendations. This document is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. All opinions in this post are my own and do not represent, in any manner, the views of Revix or affiliated companies.