2021: The Year Of Crypto
2021 seemed to be the year that brought mass awareness to cryptocurrencies. News about Bitcoin, Ethereum, Dogecoin, Shiba Inu, and other tokens had many folks wondering how, and if, they should enter the crypto market. Since I made my first investments in both Bitcoin and Ethereum in November 2020, I found myself fielding a lot of questions from family and friends as to how to approach this entirely new financial opportunity.
For me, the decision to invest in crypto was initially based almost entirely on use case, as opposed to investment speculation. I could see that the efficiencies, reduced friction, and dissolution of middlemen made possible by blockchain technologies (which enable the existence of cryptocurrencies) would change the world as we know it. And that is no exaggeration.
…an investment of $1,000 made in Shiba Inu on January 1, 2021, would have ballooned to $994,144,083 by the 1st of November that same year!
After I made my first crypto purchases and began to research the market, I started to see how parabolic the potential returns could be. For example, a $1,000 investment in Bitcoin on January 1, 2021, was worth $2,077 on November 1, 2021. The same $1,000 investment in Ethereum during the same time period would have grown to $5,921. Had you allocated that sum to Dogecoin on January 1, 2021, it would have been worth $47,797 on November 1st that year. And, most earth shattering, is the realization that an investment of $1,000 made in Shiba Inu on January 1, 2021, would have ballooned to $994,144,083 by the 1st of November that same year! Talk about life changing, generational wealth!
Those results are what have so many people interested in crypto. In fact, more than 55% of all crypto users entered the market in 2021. This statistic is incredible considering that Bitcoin, the very first cryptocurrency, became public in 2009. It took one year to more than double the users of an asset that had already existed for 12 years.
It’s All About Strategy
My crypto investment strategy was all about time horizon. I wasn’t looking for a get rich quick opportunity. I also wasn’t looking for a lottery ticket. So, I approached my investments in crypto with a longer-term time frame in mind. I feel strongly that the current cryptocurrency market capitalization, or overall value, of more than $1.8 trillion will be worth substantially more in the next 5 to 10 years. Some experts suggest that that number could grow by 50 times, or more, in that time.
We’re still very early in crypto and blockchain technologies. While no one can predict the future, consider this:
He bought two Dominoes pizzas for 10,000 BTC…
On May 22, 2010, became the first person to use bitcoin in a commercial transaction. He bought two Dominoes pizzas for 10,000 BTC (bitcoin tokens). At the time, the total value of the transaction was $41. Today those bitcoins are worth $340 million. Can you imagine making that purchase 12 years ago? The opportunity cost of purchasing those two pizzas that day versus holding the bitcoin was $340 million?!
The Future Of Crypto
The largest determent of the growth and success of crypto is network adoption. The more people that participate in the network, the more the the industry will grow. There are currently around 300 million crypto users. Research implies that the total number of crypto users is snowballing toward 1 billion by 2024. Some even think it could possibly reach that number by the end of 2022.
Crypto’s growth is comparable to the early growth of the internet. In 1994, very few people believed, or could even conceive, that the internet would be so widely adopted and used as it is today.
In March 2000, there were 300 million internet users. Today there are almost 5 billion people online. That’s tremendous growth! The early stage of internet usage saw a growth rate of 63% per year. The crypto user growth rate is 113% per year at a comparable stage in the industry’s evolution.
Even if crypto’s usage rate slowed to a level comparable to the growth of the internet, there will be 4 billion users by 2030. Either way, as more and more individuals, institutions, and governments adopt cryptocurrencies the total market value will rise accordingly.
It’s early. Investing in solid crypto projects with sound fundamentals, and holding them, will ensure that you don’t relinquish what could potentially be millions of dollars of future value for a couple of slices of pizza.
The First Step
When I made the decision to invest in crypto, the first thing I did was open a Coinbase account. Coinbase is a secure online platform for buying, selling, transferring, and storing cryptocurrencies. An account can be open on either desktop or mobile, Mac or PC. It’s pretty easy to set up a Coinbase account. If you choose to use your mobile phone, you can simply download the free Coinbase app. On a desktop, go to the Coinbase website and sign up for a free account.
After entering basic information such as your name, email address, password, home address, last four digits of your social security number, etc., you’ll also need to link your bank account. If you already use online banking this will be a simple process. The reason that you need to connect your bank account to your Coinbase account is so that you can draw funds to purchase crypto. I’ve included a video below that walks through the entire set up and purchase process on mobile.
COINBASE ACCOUNT SETUP (VIDEO DEMONSTRATION)
Fear Of Missing Out
Meme coins, such as Dogecoin and Shiba Inu, are just as likely to wreck a portfolio as they are to take it to the moon.
A little earlier in this issue I detailed the return on investments that would have been achieved by purchasing Bitcoin, Ethereum, Dogecoin, and Shiba Inu in 2021. While it is easy to be tempted by 1000x returns, the reality is that crypto can be quite volatile. Meme coins, such as Dogecoin and Shiba Inu, are just as likely to wreck a portfolio as they are to take it to the moon.
The term “FOMO” (Fear Of Missing Out) is used in the industry to describe the act of jumping into a crypto investment based on the hype surrounding said investment. When a cryptocurrency is realizing a parabolic rise in price, and people are starting to talk about it on social media, reddit, the news, etc. it can create anxiety and panic that causes others to rush in so as not to miss the opportunity. That is what it means to FOMO into an investment.
Unfortunately, FOMOing can get you wrecked. Typically, the faster the price of a cryptocurrency rises, the faster it crashes back down to earth. And usually those who FOMO’d in at the end of the hype cycle are left holding the bag. So be careful!
Risk Versus Reward
As you know, The Coles Report is not a guide to investing, or meant to be investment advice. It is information and education that is based on my own personal experiences. The first two cryptocurrencies that I purchased were Ethereum and Bitcoin, in that order. Those are the Big 2 in crypto. They have the highest market caps (market capitalization) which is calculated by multiplying the total number of coins in circulation by the price per coin. Bitcoin’s current market cap is $844.9 billion. Ethereum’s market cap is $362.3 billion. Analyzing the market cap of cryptocurrencies is one way that I’ve been able to determine the risk of an investment. I knew that I couldn’t go wrong if I initially focused on the top 10 coins based on market cap.
Mid-caps, which have market caps between $1 billion to $10 billion, can reveal some hidden gems with untapped potential. But they also pose more risk than large-caps (greater than $10 billion). Small-cap cryptocurrencies (less than $1 billion) can yield huge rewards, but also come with dramatic price swings based on market sentiment. This could result in huge losses if one is not careful. A great resource to find the market caps of cryptocurrencies is Coinmarketcap.com.
Crypto has presented a new opportunity for both novice and seasoned investors. At the time that I invested in Ethereum and Bitcoin I didn’t have any stocks in my investment portfolio. So, crypto made me feel like I was “getting into the game”, so to speak. It’s been 15 months and I haven’t regretted it. I’ve learned a lot, and I still have a lot more to learn. My goal is to achieve intergenerational wealth. I believe investing in crypto and blockchain technologies is the way to do it. Only time will tell.
Disclaimer: All information contained in this newsletter is intended for educational and information purposes only. The Coles Report doesn’t offer any investment advice. Be sure to do your own research if your intent is to get involved in the cryptocurrency or blockchain technology markets.