Sep 24, 2020
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Cryptos Are Gaining Credibility — But Can You Really Make Money?

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Shutterstock I first heard about cryptocurrencies in 2013 when a pal from San Francisco proudly declared I just bought an electronic currency for $200 dollars! It s like real money but it isn t. He of course was talking about Bitcoin. Since our conversation Bitcoin and a myriad of different cryptocurrencies have gone from an obscure payment method used by underground hackers to becoming one among America s favorite dinnertime conversations


There are actually more than 800 different cryptocurrencies with an aggregate market capitalization of over $200 billion. Cryptos have become so ubiquitous and accessible you could buy and sell them from your mobile phone while waiting in line for a latte. Despite their popularity and the eye-popping returns they appear to endlessly deliver — bitcoin is up roughly 3 000% since I first heard about it — I will t bring myself to purchase any cryptos


And the cause of that is simple. I will t answer the largest question in investing: How will this investment generate a return for me? Should You Invest In Cryptocurrencies? It sure appears like everyone s doing it. Last month 8 500 enthusiasts ponied-up roughly $2 000 per ticket to hear the various 250 presenters who shared their insights or hawked their wares at CoinDesk s must-attend conference Consensus 2018


Even the New York City Economic Development Corporation got involved inside the event. Plus there were three Lamborghinis parked outside the conference. PROMOTED Civic Nation BRANDVOICE | Paid Program
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Manuel Pastor And Amelia Ransom With all this excitement and because seeing is believing surely cryptos are a superb investment — right? Before taking the plunge and investing in cryptos consider asking and answering investing s predominant question: How will you generate a return? Below is a short review of the five ways an investment can deliver you a return


Perhaps you ll find a route to the pot of gold at the end of the rainbow but I will t. Five Methods To Generating Returns For long-term fundamental equity investors like myself there are just (broadly speaking) three sources of return: shareholder earnings dividends and multiples expansion. That s it


And assuming I ve bought my stock at an affordable price these sources either individually or collectively will in some unspecified time in the future deliver me a return. But cryptocurrencies don t offer any of these. They don t pay shareholder earnings (because there aren’t any shareholders or earnings) they don t pay dividends (because they don t have cash flow) and nor do they have multiples (after all they re a currency)


In other words identical to a couple of used sneakers cryptos are worth only what someone is willing to pay. Maybe you re wondering: If those methods don t work and yet I hear stories of people who ve made money investing in cryptos how is it done? The remainder two methods for generating returns are the get lucky and short-term trading strategies


The 1st strategy the get lucky method is popular one of the newly-initiated crypto crowd but this is mostly confused with short-term trading skill. Unfortunately this rarely ends well. The second one method is short-term trading and I know a few people who consistently make money with this strategy. However they re career traders who ve spent decades inside the industry


And frankly they make money whether they re trading cryptocurrencies or pork bellies. Could short-term trading work for you? It s possible but it s difficult. In short-term trading you re betting that you know which direction an asset s price is going to move in and that the full market (in other words buyers and sellers from round the world) will consider you inside the immediate future


If this doesn t sound difficult try betting on what your spouse wants for dinner. Maybe you ll get lucky the 1st night or two but don t confuse this with having forecasting skills. I ll wager if you try this for per week you ll have a losing record


How will you generate your return? It s easy to get caught up inside the excitement of Wall Street s latest thrill-seeking activities. No one wants to fail to see the action. In spite of everything who among us doesn t want a bit more excitement? Add to this the possibility of quickly and easily pocketing enormous riches and suddenly investing in cryptos has each of the allure of a genie in a bottle


But successful investing requires a clear path toward realizing a return. Above I ve listed the five ways investors can generate returns — shareholder earnings dividends multiples expansion getting lucky and short-term trading. So if you re considering an investment in cryptos before you make your purchase be sure you answer the largest question in investing: How will this investment generate a return for me? Forbes Finance Council is an invitation-only organization for executives in successful accounting financial planning and wealth management firms


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