The 4 Pillars of (Crypto) Investing #illumedati 1


Hey everyone, it’s Finance Fridays again… and I’ve been posting wayyyyy to much about Crypto lately. However, that’s kind of what is interesting right now and people seem to want to know more about. So today I’m going to talk about “The 4 Pillars of (Crypto) Investing”.

The 4 Pillars of (Crypto) Investing

Stock Photo from: Pexels

The 4 Pillars of (Crypto) Investing?

Yea.

This is a play-on-words, since there are a lot of books which use the term “pillars”, and more specifically it refers to:

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William Bernstein

I haven’t actually read this book, but I have heard it’s pretty good and its 4 pillars are:

  • Pillar 1: The Theory of Investing
  • Pillar 2: The History of Investing
  • Pillar 3: The Psychology of Investing
  • Pillar 4: The Business of Investing

Here are my “The 4 Pillars of (Crypto) Investing”

  • Pillar 1: Don’t Do It
  • Pillar 2: No, Really – Don’t Do It
  • Pillar 3: I’m Serious Guys, Don’t Do it
  • Pillar 4: See Pillars 1-4

???? Well, that wasn’t very helpful…

I’m being serious. Cryptocurrency as an investment is just not a good idea. Very few truly understand how cryptocurrency (or its variation) works, and honestly, even those who have a good grasp of it will admit they aren’t experts. I would imagine even the experts don’t agree with one another which is why we have various PhDs with stellar credentials making different forms of crypto.

Cryptocurrency is Gambling.

Ok, so now that we’re clear… let’s get to the real thing:


“The 4 Pillars of Crypto Gambling”

A good friend of mine have been talking about Cryptocurrency for the majority of 2017. For the sake of full disclosure, he does have some money currently invested in cryptocurrency, although it pales in comparison to his normal retirement. For all intents and purposes, any money he has in crypto is “play money”. I would recommend anyone trying to get into crypto view it the same way.

As in, if I lose all this money, will it matter to me? If the answer is no, then basically you understand this is gambling and very similar to heading down to Las Vegas and trying your luck at the tables.

You may remember back when I was first talking about crypto that my friend and I thought that Waves and Ripple were good buys. I still believe that to be true. Also, my dark horse pick of BAT (Basic Attention Token), hasn’t done much — and I don’t think it will do much. So, why did we choose those? I spoke with him yesterday and we talked about “different buckets” for crypto speculation, and I’ve converted them into the “4 pillars” here.

1st Pillar

The first pillar consists of the front-runners. In this category are Bitcoin (BTC) and Ethereum (ETH). At this point, I don’t see Bitcoin or Ethereum going anywhere. What their true value is remains to be seen, but I think it is unlikely for them to go to $0. As I’ve said before, I think both of these cryptos will be able to coexist.

Of course, Bitcoin is ridiculously volatile, just yesterday it had a sudden drop:

Bitcoin 12-15-2017 to 12-22-2017

From: coinmarketcap.com

It was nearly $20k December 17th and dropped to less than $12k briefly last night. That’s insane. However, it’s now “recovered” back to ~$14k. For those who bought Bitcoin back when it was less than $5k or so, they will probably continue to HODL. However, you can imagine if you bought at $20k you’d be sweating bullet right now, praying that it will recover. So that’s kind of how Bitcoin is. Ethereum saw a similar dip from nearly $900 to $550. Pick your poison I guess.

2nd Pillar

I consider the second pillar to be the “cash alternative” coins. Bitcoin has widely known problems with being a transactional crypto. The transactions are slow and the fees are too high because of its price. This space is occupied by BitcoinCash (BTC) and LiteCoin (LTC) mostly.

Whichever of those above three coins which becomes the de-facto “cash alternative” will survive and hang out with Bitcoin and Ethereum forever. While you may have a knee jerk reaction to just trust BitcoinCash because of the name, that’s not a good idea. Any of the above could “win”.

In this 2nd Pillar, you must also mention the more private coins, such as Monero (XMR) or zCash (ZEC). Monero is considered the “untraceable” crypto whereas zCash is just more geared toward some increased privacy over BitcoinCash or Litecoin.

I think we will see 1 “cash alternative” which eventually wins out and 1 “private coin” which eventually wins out.

3rd Pillar

The 3rd Pillar is kind of hard for me to explain. I guess the best way to explain them are the “commercialized” coins that have potential scalability. The face of this pillar is Ripple (XRP) which has seen a recent run-up to around $1.30 or, then dropping down to $0.70 or so during the same time when Bitcoin nosedived. It has sense recovered to $1.10.

There is an inherent disconnect with most crypto users and Ripple. The reason for this is because Ripple is not a completely decentralized coin. It’s almost like a go-between for the current centralized banks and a “somewhat” decentralized cryptocurrency. In the recent past, Ripple has gained steam by gathering banks to back them, and I see this as a way for banks to ease into cryptocurrency — and retain some amount of “power”. You can see the disconnect in ideologies here. However, it remains to be seen whether this is a “temporary truce” or it will all fall apart. However, you can’t argue that having the backing of banks is helping prop it up currently.

I also include Waves (WAVES) in this pillar as well. It calls itself the “blockchain for the people” because it makes creating your own token relatively easy. This is interesting, but it remains to be seen whether it will catch on or not. However, you can imagine the scalability if the idea of creating your own token becomes commonplace. A recent use case would be Burger King (Russia) trying out their “Whopper Coin” using Waves.

Essentially, this pillar is what I consider as “coins with scalability and long term potential”.

Update: For a quick intro into Ripple, my daughter made a short 5 minute video (with my help of course) highlighting what makes it special, but simple enough for a 4 year old to understand. I’d recommend giving it a watch to start out:

This video is designed to be simple enough to share with your non-cryptocurrency friends for them to understand the big picture.

4th Pillar

This 4th Pillar is basically what my friend and I have deemed “paradigm shift” coins. These are the long shots. Basically, these coins are trying to be radically different from the current crypto landscape. You might consider them as “startups” trying to “disrupt”.

In this pillar I consider these coins: Cardano (ADA) and Steem (STEEM). I also cautiously include Iota (MIOTA) in this list as well. However, after reading a little more, I am less inclined to believe it will be successful.

If you cut through all the hype, basically Cardano is trying to be a better Ethereum. Cryptocurrency is still in its infancy, but time marches on, programmers get better, the coding gets better, etc. Cardano uses something called “Proof of Stake” rather than the currently common “Proof of Work“. If Cardano can deliver on being the “better Ethereum” then you can imagine it will do pretty well. It’s also interesting that Ethereum is trying to change from its current Proof of Work to Proof of Stake using the “Casper Protocol”.

Steem, on the other hand, is trying to monetize social media. It allows for the creation of a Social Media Token (SMT). It also has its own social media platform called steemit, which looks remarkably similar to medium. Overall, Steem is approaching the usage of crypto in a different way, which I find interesting.

Iota is trying to be the ecosystem for the IOT (Internet of Things)– handling microtransactions without fees. It utilizes a “blockless” blockchain called Tangle. Sounds great right? However, so far, it hasn’t been able to deliver all that much on their idea. If it can deliver on its promises, then Iota will be a true paradigm shift. However, it really depends on whether it can deliver or not.

Update: For a quick intro into Cardano, my daughter made a short 7 minute video (with my help of course) highlighting what makes it special, but simple enough for a 4 year old to understand. I’d recommend giving it a watch to start out:

This video is designed to be simple enough to share with your non-cryptocurrency friends for them to understand the big picture.


Hmm, the 4 Pillars eh? Any other commentary?

Yes.

You can consider the 1st Pillar to be like the “Large Caps”, then 2nd Pillar to be “Medium Caps”, the 3rd Pillar to be “Small Caps”, and the 4th Pillar to be “MicroCaps”. That may help you to understand their relative stability compared to one another. However, this is crypto, not the stock market. When your “Large Cap” (Bitcoin) can drop ~40% in a day, then we’re nowhere near a normal Large Cap.

My friend and I discussed this and it’s kind of like you need to turn the idea on its head.

“Which of these is least likely to go to ZERO dollars?”

If you think about it like that, then the pillars make sense. The 4th pillar is more likely to collapse first and the 1st pillar is more likely to collapse last. Get it?


What are your pick(s)?

It kind of depends on what you’re looking for. However, if you want to truly gamble, I’d just drop some play money into pillars 3 and 4 and see where it goes.

My friend has an acronym for his top 5 “HODL” picks called CREST: Cardano-Ripple-Ethereum-Steem-ioTa

As for me, since I’d just gamble with play money, I’d choose RISC (Ripple-Iota-Steem-Cardano) [no Ethereum] and just let it go for 20 years and see where it ends up.

As you can see, we pretty much agree on what we think has “potential” — although I am a little worried about Iota long term.


TL;DR

Cryptocurrency is gambling.

The 4 Pillars of (Crypto) Investing are different from The 4 Pillars of (Crypto) Gambling

My friend likes CREST and I like RISC. What do you guys like?

Next week will be a “Year in Review” post where I look back on 2017.

Finance Fridays Sensei

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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