Understanding different kinds of cryptocurrencies
Cointest Archive - (Pros and Cons of various coins.)
Altcoin Top 70: The problems they're looking to solve.JonHQ.com.
First, read Satoshi Nakamoto's Bitcoin Whitepaper: https://bitcoin.org/bitcoin.pdf
"Sorry to be a wet blanket. Writing a description for this thing is bloody hard. There is nothing to compare it to" --Satoshi Nakamoto
Anyone that tells you they understood Bitcoin on the first read through is a liar. The paper is full of concepts only a sprinkling of humans on the planet had knowledge of and had never been coalesced into a single concept before Satoshi.
It will get easier after this, but IMHO, reading the whitepaper is an essential step to help you filter through a lot of the mis-conceptions and dis-information you'll run into while trying to find good information.
After that, I recommend looking up some of Andreas Antonopoulis' intro videos. https://www.youtube.com/c/aantonop/playlists Andreas is more successful at relating crypto to simpler, more familiar concepts than any other crypto explainer I have come across. The older the videos, the better, because they are more focused on the core concepts and not minutia around the state-of-the-art. Current videos from anyone are mired in crypto politics.
Hopefully, at some point, you'll have the epiphany around cryptocurrencies that keeps all of us here and you can use this foundation to go off the direction you think is best.
One last tip: Buy a little Bitcoin. Not a lot until you have a better understanding, just enough to make you pay attention and keep seeking more knowledge.
Good luck!
Edit: Also, don't worry about other cryptos yet. You cannot understand any of them until you understand Bitcoin. Every one is an attempt to evolve Bitcoin, some viable and many not. You cannot split the good from the bad without first understanding Bitcoin at its core.
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I have been trying to simplify crypto for beginners. This is an attempt to create a learning path of the articles I have written. This is no way a complete guide to the vast crypto world. Just the basics to get you started.
There are no ads, no affiliate links, no sales products, no financial advice, no shilling. Hope beginners would find it helpful.
Where it all started
What is Bitcoin? And How Does It Work?
Not just transfer money. Lot of other use cases as well. Ethereum – Looking beyond Bitcoin
How intermediary is eliminated? How intermediary is eliminated?
Start your Crypto Journey. Cryptocurrency Wallet – How Does It Work?
Taking things into own hands Centralized vs Decentralized Exchanges (DEX) Decentralized Finance (DeFi) – A Revolution
Why a digital art was sold for $69 million? NFTs – Beyond the hype
Organisations also decentralised? What is a DAO?
Avoid Scams Common Crypto scams and How to stay safe?
Few other reads. ICO, IEO & IDO – How Crypto projects raise funds? Cardano – A simple high level explanation
Experts here if any feedback on the sequence or any suggestions on what else can be added for the beginners, would be of great help.
HODL
If it helps anyone. I was down on my initial investment about 90% 1-2 years ago. I didn't do anything. Wouldn't even look at prices. Still haven't done anything at all. And now I'm up 600%. Even after the dip.
I watched a YouTube video, don't have the link, in which Warren Buffet talks about the great depression. Those who sold during the depression, which is warranted given that it was the depression, lost almost everything. Those who held for 10-20 years not doing anything made a huge profit. I can't say that this is the same thing, but so far the investment strategy of not doing anything at all has worked for me.
*I should also mention that I did a lot of research on the projects that I held. I recognized their potential in the long term, and they are all projects that have continued to develop and achieve their long term goals. I made mistakes early on and got hit by exchange transfer fees, gas fees, and icos. Lost some money in the process. This is another reason I decided to just not do anything. It's too expensive to be jumping around right now.
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How to construct your portfolio going forward
Rather than seeing the correction as a disaster see it as a time to start fresh. If you have been FOMO-ing into bad cryptos and losing money now is a time to start a systematic long term approach to investing rather than gambling.
Follow a methodology for evaluating each cryptocurrency
Memes and lambo dreams are fun and all, but I know many of you are investing thousands of dollars into crypto, so it's worth it to put some organized thought into it as well. I can't stress enough how important it is to try and logically contruct your investment decisions. If you follow a set methodology, a checklist and template you will be able to do relative comparisons between cryptocurrencies, to force yourself to consider the negatives and alternative scenarios and also sleep comfortably knowing you have a sound basis for your investment decisions (even if they turn out to be wrong).
There is no ideal or "correct" methodology but I can outline mine:
1) Initial information gathering and filtering
Once I identify something that looks like a good potential investment, I first go to the CoinMarketCap page for that symbol and look at the website and blockchain explorer.
Critically evaluate the website. This is the first pass of the bullshit detector and you can tell from a lot from just the website whether it's a scam. If it uses terms like "Web 4.0" or other nonsensical buzzwords, if it's unprofessional and has anonymous teams, stay away. Always look for a roadmap, compare to what was actually delivered so far. Always check the team, try to find them on LinkedIn and what they did in the past.
Read the whitepaper or business development plan. You should fully understand how this crypto functions and how it's trying to create value. If there is no use case or if the use case does not require or benefit from a blockchain, move on. Look for red flags like massive portions of the float being assigned to the founders of the coin, vague definition of who would use the coin, anonymous teams, promises of large payouts...etc
Check the blockchain explorer. How is the token distribution across accounts? Are the big accounts holding or selling? Which account is likely the foundation account, which is the founders account?
Read the subreddit and blogs for the cryptocurrency and also evaluate the community. Try to figure out exactly what the potential use cases are and look for sceptical takes. Look at the Github repos, does it look empty or is there plenty of activity?
2) Fill out an Investment Checklist
I have a checklist of questions that I find important and as I'm researching a crypto I save little snippets in Evernote of things that are relevant to answering those questions:
What is the problem or transactional inefficiency the coin is trying to solve?
What is the Dev Team like? What is their track record? How are they funded, organized?
Who is their competition and how big is the market they're targeting? What is the roadmap they created?
What current product exists?
How does the token/coin actually derive value for the holder? Is there a staking mechanism or is it transactional?
What are the weaknesses or problems with this crypto?
3) Create some sort of consistent valuation model/framework, even if it's simple
I have a background in finance so I like to do Excel modeling. For those who are interested in that, this article is a great start and also Chris Burniske has a great blog about using Quantity Theory of Money to build an equivalent of a DCF analysis for crypto.
Once you have a model set up the way you like in Excel you can simply alter it to account for various float oustanding schedule and market items that are unique to your crypto, and then just start plugging in different assumptions. Think about what is the true derivation of value for the coin, is it a "dividend" coin that you stake within a digital economy and collect fees or is it a currency? Use a realistic monetary velocity (around 5-10 for currency and around 1-2 for staking) and for the discount rate use at least 3x the long term return of a diversified equity fund.
The benefit is that this forces you to think about what actually makes this coin valuable to an actual user within the digital economy its participating in and force you to think about the assumptions you are making about the future. Do your assumptions make sense? What would the assumptions have to be to justify its current price? You can create different scenarios in a matrix (optimistic vs. pessimistic) based on different assumptions for risk (discount rate) and implementation (adoption rates).
If you don't understand the above thats perfectly fine, you don't need to get into full modeling or have a financial background. Even a simple model that just tries to derive a valuation through relative terms will put you above most crypto investors. Some simple valuation methods that anyone can do
Metcalfe's Law which states that the value of a network is proportional to the square of the number of connected users of the system (n2). So you can compare various currencies based on their market cap and square of active users or traffic.
Another easy one is simply looking at the total market for the industry that the coin is supposedly targeting and comparing it to the market cap of the coin. Think of the market cap not only with circulating supply like it's shown on CMC but including total supply. For example the total supply for Dentacoin is 1,841,395,638,392, and when multiplied by its price in early January we get a market cap that is actually higher than the entire industry it aims to disrupt: Dentistry.
If its meant to be just used as just a currency: Take a look at the circulating supply and look at the amount that is in cold storage or set to be released/burned. Most cryptos are deflationary so think about how the float schedule will change over time and how this will affect price.
Once you have a model you like set up, you can compare cryptos against each other and most importantly it will require that you build a mental framework within your own mind on why somebody would want to own this coin other than to sell it to another greater fool for a higher price. Modeling out a valuation will lead you to think long term and think about the inherent value, rather than price action.
Once you go through this 3-step methodology, you'll have a pretty good confidence level for making your decision and can comfortably sit back and not panic if some temporary short term condition leads to a price decrease. This is how "smart money" does it.
Think about your portfolio allocation
You should think first in broad terms how you allocate between "safe" and "speculative" cryptos.
For new investors it's best to keep a substantial portion in what would be considered largecap safe cryptos, primarily BTC, ETH, LTC. I personally consider XMR to be safe as well. A good starting point is to have between 50-70% of your portfolio in these safe cryptocurrencies. As you become more confident and informed you can move your allocation into speculative small caps.
You should also think in terms of segments and how much of your total portfolio is in each segment:
Core holdings - BTC, Ethereum, LTC...etc
Platform segment - Ethereum, NEO, Ark...etc
Privacy segment - Monero, Zcash, PivX..etc
Finance/Bank settlement segment - Ripple, Stellar...etc
Enterprise Blockchain solutions segment -VeChain, Walton, WABI...etc
Promising/Innovative Tech segment - Raiblocks, IOTA, Cardano...etc
You should also think about where we are in the cycle, as now given so much uncertaintly its probably best to stay heavily in core holdings and pick up a few coins within a segment you understand well. If you don't understand how enterprise solutions work or how the value chain is built through corporations, don't invest in the enteprise blockchain solutions segment. If you are a technie who loves the technology behind Cardano or IOTA, invest in that segment.
Think of your "circle of competence"
This is actually a term Buffet came up with, it refers to your body of knowledge that allows you to evaluate an investment. Think about what you know best and consider investing in those type of coins. If you don't know anything about how supply chains functions, how can you competently judge whether VeChain or WaltonChain will achieve adoption?
This where your portfolio allocation also comes into play. You should diversify but really shouldn't be in much more than around 12 cryptos, because you simply don't have enough competency to accurately access the risk across every segment and for every type of crypto you come across. If you had over 20 different cryptos in your portfolio you should probably think about consolidating to a few sectors you understand well.
Continually educate yourself about the technology and markets
If you aren't already doing it: Read a bit each day about cryptocurrencies. There are decent Youtubers that talk about the market side of crypto, just avoid those that hype specific coins and look for more sceptical ones like CryptoInvestor. If you don't understand how the technology works and what the benefits of a blockchain are or how POS/POW works or what a DAG is or how mining actually works, learn first. If you don't care about the technology or find reading about it tedious, you shouldn't invest in this space at all.
I predicted a few days ago that we would have a major correction in 2018 specifically in the altcoins that saw massive gains in Decemeber/early January, and it seems we've already had a pretty big one. I don't think we'll have a complete meltdown like some are predicting, but some more pain may be incoming.
Basically take this time to think about how you can improve your investment style and strategy. Make a commitment to value things rather than chasing FOMO, and take your time to make a decision. Long term investment will grant you much more returns as will a systematic approach.
Take care and have fun investing :)
Edit March 2018: Lol looking back I'm regretting starting the title with "Why we won't have a long term bear market" now, I was more karma whoring with that catchy title than anything. We recovered up to 11K from this post, but then crashed again hard later in February-March because of a slew of reasons from Tether subpeona to unforseen regulatory issues.
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YOUTUBE
Will always recommend: Youtuber Coin Bureau
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There are some great Youtubers who can teach you about the technology behind cryptos and various coins. TheChartGuys is where I learnt whatever little TA I know.
Some other good ones I like are CoinBureau, The Modern Investor , Aantonop and Bankless .
There are a few more in my list but these guys are all great to start with. Let me know if you want me to share more.
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For YouTube channels I regularly watch Coin Bureau for general crypto stuff and Benjamin Cowen for technical analysis. I use tradingview to do technical analysis, and I also use messari.io to find detailed information on various crypto projects quickly
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Whiteboard Crypto channel on youtube has very good, simple video explanations of certain aspects in crypto. For instance search YouTube with "what is bitcoin whiteboard crypto". Good little start. Not boring vids either.
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