Dear friends asking me for investing advice on cryptocurrencies,
I can’t say what you should invest in or even if you should invest.
What I can say, from the general knowledge of behavioural economics, is that an investing strategy ought to be idiosyncratic and requires knowing what risk capacity a person has, both financially (which would incorporate goals, life stage, net worth, & cash flow) and emotionally (risk perception, risk preference). Further, an investing strategy requires holistic knowledge of all of our investing options, which there are a myriad of. Investing options aren’t just cryptocurrecies, ICOs, or blockchain entities. You can hold cash, invest in blue chips, ETFs, real estate… And then there’s the “ethical” investment plays and social experiments; for instance, my 15 year-old daughter Taylor, wants to invest $25 of her portfolio in this guy: https://kmikeym.com/. Each investment option has its strengths and weaknesses in aggregate, but there are also individual level differences that matter (eg real estate in Toronto might/might not be good investment for the average guy, but you might have the option to buy the family farm and turn it into condos or your retirement paradise).
And I should also point out that there’s an important subjective element to one’s investing strategy; one can’t just pick “the strategy” with the “best return.” There are no reliable crystal balls and so one’s investment strategy ought to proclaim and reflect beliefs (or your advisors, anyways) about the economy, eg if you’re nervous about the systemic risk presented by activities of central banking authorities (eg central bank authorities have goosed their tools such as the money supply as much as they can to support voracious government spending and unsustainable agendas and now there’s nothing left to use to influence the economy), then that would direct one towards options that counterbalance systemic monetary risk such as gold and crypto. And so, an investment strategy ought to be consistent with one’s own views of the market. And further, there’s two sides to an investment strategy: buying is only one part of the equation. The harder part is knowing when to sell (and following through on it).
I am not a financial advisor, and so i am not qualified to give investment advice, nor is that my thing. But from the lens of behavioural economics, I can confidently say that an investing strategy ought to be a part of an overall financial plan. Some basics I know would be to pay down expensive debt like credit cards first. That’s a sure path to better financial outcomes. But assuming one has cash flow to invest, and you don’t have an investment strategy or investment experts, it might be a reasonable to employ a heuristic: follow what the experts are doing. For me, that’d be Warren Buffett and Charlie Munger. They’ve been right more than the average bear for many, many years so their investment performance is likely not a fluke. And while I haven’t looked at what they’re investing in these days (read the Berkshire Hathaway annual reports; you’ll get brilliant thinking delivered through homespun colloquial language), here’s what Charlie Munger said on December 22, 2017 at a University of Michigan Ross School of Business event, about Bitcoin:
* “It’s bad people, crazy bubble, bad idea, luring people into the concept of easy wealth without much insight or work”
* “I think it is perfectly asinine to even pause to think about them”
And so there’s some advice on Bitcoin. Granted, Bitcoin and the blockchain are very different animals and maybe the old guys are wrong and don’t see the techno-utopia of the future, etc etc. But, again, these old guys are pretty damn smart (and are #2 on the Fortune 500).
Now if you’re still reading and your gut is still going “dammit, I need to be a part of this,” and you already understand the many, many differences between Bitcoin and blockchain, then here’s what I think. First of all, I discourage pure speculation, which is blindly investing without understanding the asset. It’s dangerous and gross. I discourage pure trading. Maybe there’s people that do really well at that stuff, but they have the energy and the tools to watch the performance, likely across multiple markets on multiple exchanges in multiple currencies to drive minutiae wins through aggressive buying and selling. Maybe they know what they’re doing, but that looks like an intense job with serious competition.
Ok, so if those caveats still haven’t sobered you up, then here’s what I recommend you ponder. Blockchain technology promises to be as transformational for business and government as the internet has been. I would suggest that instead of parking one’s money into something, you’re potentially better off thinking about how you could be a part of building blockchain projects. This technology is still new and there is so much work to do: There are many infrastructure projects to support, such as how to make the network faster. The technology needs to be more user-friendly to facilitate adoption, privacy/security behaviours, etc and so there are plenty of UX projects. And there are incredible opportunities for new business models. My “investment advice” then is that you consider investing your most valuable asset, your time, into figuring out how you can be a part of this incredible technological revolution. That could mean starting small by spending your “free” time (there’s always an opportunity cost to your time; you could make money doing other things, or get utility from family, hobbies, etc) researching and attending blockchain community meet ups and dabbling in projects. And then perhaps you could think about that ultimate investment and potentially your largest source of cash flow, your career, and shift to a career working on blockchain projects. Now you might be thinking “but I don’t even know what blockchain is and now you’re advising I get a career in it.” When the web was in its early years, I joined a group of women who met up to discuss what the internet was, what the implications to society and the economy were, and what it meant for us. And few had any form of technical training or interest in coding. But what we did have was a range of skills, like design, writing, sales, and management, that were needed by the growing internet community. Few brought any technical expertise, but we all had a passion for learning, a belief that the web was transformational, and the courage to jump into the community that was mostly deeply technical nerds.
So, my investment advice is to think holistically about your overall financial situation: create a financial plan, pay down debt, and then think about all of your investing options. And secondly, to learn more about how you apply your skills and knowledge to the blockchain revolution and see if that is where your greatest opportunity for returns are.
So, while I won’t recommend a cryptocurrency investment strategy, or some hot ICO, here is what I will suggest as next steps:
* Read (at least skim) anything by Vitalik Buterin. Yes, his writing is mostly technical, but if you slog through it, you will find incredible wisdom on behavioural economics, philosophy, math, cryptography along with great insights on politics and economics, powered by strong and beautiful ethical values: Vitalik Buterin: “If all that we accomplish is lambo memes and immature puns about “sharting”, then I WILL leave. Though I still have a lot of hope that the community can steer in the right direction.” (twitter.com). http://www.vitalik.ca/
* Learn about Smart Contracts. Wiki has a decent page to start with https://en.wikipedia.org/wiki/Smart_contract And read Nick Szabo. A lot of people think he is Satoshi. I think they could be right. Who Is The Real Satoshi Nakamoto? One Researcher May Have Found The Answer”. TechCrunch. 5 December 2013. What matters now is that he coined the term ‘smart contracts” and you ought to learn about it.
* Learn about the concept of decentralisation. In addition to being the paradigm that inspired the creation of bitcoin in the first place, it is the conceptual foundation for many new business models. I will point you to Vitalik again on this, and then encourage you to start explore further. https://medium.com/…/the-meaning-of-decentralization-a0c92b…
* Watch the videos of the devcon events; I’ve “attended” the last three of four virtually while the talks were being streamed.
Devcon 0: https://youtu.be/_BvvUlKDqp0…
Devcon 1 (London): https://youtu.be/_BvvUlKDqp0…
Deccon 2 (Shanghai): https://youtu.be/1wayaZ1-iBE…
DevCon 3 (Cancun): https://youtu.be/Yo9o5nDTAAQ
* Attend blockchain meetups and events (the culture of much of the bitcoin community is different. I am pointing specifically and intentionally to the blockchain community). https://www.meetup.com/topics/ethereum/
* Support the work of Ethereum, the Ethereum Foundation, and if you want to invest something, consider the fuel of the Ethereum blockchain, ETH
* Code: Even if you barely know how to turn a computer on, play with code, specifically with smart contracts, as it will exponentially help your learning process. There are many learning groups you can turn to. When I started in the internet space, I learned to code in Perl, HTML, and handle UNIX. And I made a living for a couple years doing that while simultaneously teaching, consulting, and project managing. I wasn’t a great coder, but it helped me understand the space and communicate better with the technical professionals.
* Track the news at https://cryptopanic.com/
* Follow the business activities of Consensys and watch for its indefatigable leader Joseph Lubin. See if there’s any projects that inspire you. If so, reach out to the folks there, say hello, ask if there are any small projects you can volunteer your time to take on to help you learn while giving back. https://consensys.net/
* There’s more, and I will post as I can.
Keep me posted on your work transforming the economy and society through blockchain.
XO,
Kelly
