Skin in the Game – Catching Exponential Price Moves
Cryptocurrency – The Emerging Asset Class
Millionaires are emerging in the cryptocurrency sphere. Traditional markets are well matured and by all accounts artificially inflated through government and central bank printing of huge amounts of paper money. The chart below shows the huge growth in money supply of the US Dollar, particularly since the late 90’s.
The result is an emerging asset class called cryptocurrencies. Emerging asset classes appear at the cutting edge of society, where innovation and entrepreneurship meet to solve some of the fundamental challenges we face: How can we gather resources to tackle these problems? How can we attract the best talent available to work on these problems? But most importantly, with this revolution, how can we create a value system which is not run by an elite few and which benefits all of humanity?
I highly recommend that any student of the crypto revolution read the excellent white paper on the emergence of bitcoin as a new asset class by Chris Burniske & Adam White.
Skin in the Game
And so we come to the fundamental point of this article, any emerging technology has incredible risks associated with it but also incredible upside potential investment gains! Anybody who’s ever tried to start a business or chase an ambitious dream will tell you that you have to risk losing it all to achieve your goal. You need skin in this game if you want to achieve exponential returns from this market.
Tales from the Market
Let’s take a look at a simple example. Readers of this blog will know I hold Stratis in my portfolio and am a huge fan of this crypto.
If you had held Stratis for 6 months since it’s listing in 2016 you would have made a 360% return. If you had held it for 9 months you would have made a whopping 49 000%. In other words, most of the gains over this 9 month period came in the last 3 months. There are some important lessons here if you are planning to invest in cryptocurrencies:
- Patience is key
- Risk is unavoidable
- You need to have skin in the game
- Do your own research (DYOR)
The period between March and June of 2017 is what we call exponential price growth. This is where you, as a potential investor, can see returns in excess of 10, 20 or even 100 times your initial investment. But, and this is a very big but!, you need to have skin in the game – in other words, cryptocurrency in your possession/portfolio. It’s particularly difficult to see these kind of moves coming which is why many fans (myself included!) will tell you that a buy and HODL strategy is really the way to go if you are looking to build long term wealth from crypto. Exponential moves happen quickly and are often only observed once completed.
Right now, as of publication of this article (18 May 2018), the market is consolidating. During these quiet periods, people tend to lose interest in the markets. This is exactly when, you being the stealthy investor that you are, need to be shopping for bargains! And again, patience is key. The drawback of the internet revolution has been the creation of the instant gratification culture.. must.. have.. now..
Good luck catching those moves. Let me know what’s in your portfolio and if you have skin in the game?