When my first transaction completed on the blockchain in early 2020 I had no idea whether I’d make money with cryptocurrency.
I just new that the world had changed overnight, and I wanted a hedge. So I bought some Bitcoin at $7800 and some Ethereum at $222.
I’d wager a bet that there are many crypto curious investors out there today that want to make this same leap but haven’t. You might be one of them.
You’re worried about the volatility of crypto assets. Perhaps you’re concerned that the market has topped. Maybe you’re torn so you’re sitting on the sidelines waiting for some kind of sign that it’s safe to invest…
In this post we’ll try to help answer the one question that you and other new investors want to know before jumping in:
Can you really make money with cryptocurrency?
Spoiler alert! The answer is Yes but it’s not guaranteed of course….. Now let’s find out why.
7 legit reasons you can make money with cryptocurrency
The macro investing environment is increasingly accepting crypto as a new investment class. Are you picking up the signs? Check these 7 legit reasons you can make money investing in crypto:
- You’re investing in disruptive technology not cryptocurrency
- Institutional, corporate and venture capital investors are getting in now
- The technology is still early on in its adoption
- Monetary and fiscal policy may not help you any time soon
- Surveys show record numbers of retail investors plan on jumping in
- Profits have been strong for many early investors
- The barriers to investing can be overcome with good risk management
1. You’re investing in disruptive tech not cryptocurrency
Cryptographic currency really started as a way of incentivising and enabling the operation of online ledgers so that two parties could exchange value without middlemen like banks. It’s technology that automates the decentralised exchange of value. Because of this, crypto is more about the tech than it is about the coins and the tokens. It’s important to understand this if you’re searching for greater assurance about investing in crypto.
The ability to automate and decentralise the process of exchanging value will disrupt and transform multiple industries and create new ones.
Ark Invest, one of the world’s top innovation investment funds managers, sees cryptocurrencies as enabling a new paradigm for monetary systems and mechanisms to store and transfer value. Think banking, finance, money markets, logistics, gaming, health, food, and the list goes on. There are real use cases for blockchain technology in most of these industries today.
The upshot? Blockchain tech and crypto are not going anywhere.
2. Institutional, corporate and venture capital investors are getting in now
We wrote a post in April where we offered up 7 reasons why Bitcoin should be on your radar. It’s worth a read before you go any further.
One of the reasons we raised back then was the money flowing into cryptocurrency from corporations, venture capitalists and more speculative institutional investors. As an indicator of this, investments in Grayscale’s Bitcoin fund jumped 18X from $500 million to $6 billion in 2020. Mainstream institutional investors are not even invested yet due to a lack of regulatory clarity according to this Forbes article.
Since when have you had the chance to get in on the ground floor and front run mainstream institutional investors?
Add to that recent reports from Bloomberg that venture capital funds have made a $17 billion bet on cryptocurrency and blockchain.
Our point is, if you follow the money flows at some point you’ll end up in crypto.
3. The tech is still early on in its adoption
How many people do you think own cryptocurrency today?
It’s a simple question, but one that’s difficult to answer because the holdings and data is decentralised by design. You’ll find different answers to the question of how many people own crypto depending on where you look.
One NYDIG survey of cryptocurrency investors estimates that 46 million Americans now own Bitcoin. And that’s just one cryptocurrency (albeit the most ubiquitous one).
For Australia, that number is roughly one in six adults or 17%.
And the thing about crypto is that it’s borderless. It’s literally global, which makes for a huge potential market for use and adoption.
What this all means is, we’re still early! If you’re familiar with innovation adoption S-curves, here’s a graph that demonstrates how early we are when compared to other disruptive tech adoption throughout recent history:
If surveys indicate adoption rates at below 20% for retail investors, this means we’re still right at the beginning of the S-curve. That doesn’t mean all blockchain projects will make you money. But if you get it right the risk to reward ratio can be asymmetrical for early investors (small risk, large reward).
4. Monetary and fiscal policy may not help you any time soon
Governments have been printing money and kicking the fiscal and monetary policy can down the road since the GFC in 2008. It’s gotten worse since 2020. The purchasing power of retail investors is being systemically eroded on a global scale across major economies. Some estimate to the tune of 15% a year. People are literally watching their hard earned wealth erode in front of their eyes.
But did you know that Bitcoin was borne from the GFC to remedy this very scenario?
We think that cash is trash and we chose to need to have our wealth in other value vehicles. As monetary policy continues to play out, our view is that more people may see crypto as a hedge against monetary policy – just as we did in 2020.
5. Survey’s show record numbers of retail investors plan on jumping in
It’s no coincidence with the flow on effects of rubbish fiscal policy that a number of surveys now show retail investors continuing to buy in to crypto in record numbers in the coming 12 months.
So why are they planning on investing?
The Gemini Study found that 69% of crypto investors today see it as a long term investment strategy and 36% of investors trade crypto to make a profit.
For early investors, continued retail interest in crypto assets means rising demand for coins and strong network effects for key blockchain networks.
6. Profits have been strong for many early investors
How does that old caveat go? Historic returns are not an indication of future performance. But we always look at it anyway because none of us have a crystal ball right? So let’s look at the performance stats for some core cryptocurrencies.
According to blockchain analytics firm intotheblock, in late 2020 at the peak of the market, 97% percent of all Bitcoin wallets and 88% of all Ethereum wallets were in profit. Here’s the data:
Large price corrections in crypto in May 2021 will have dampened these numbers. And keep in mind, what goes up can always come down. Markets are cyclical and prices move accordingly. The overwhelming long term trend of large market cap crypto like BTC and ETH has continued on an upward trajectory since their inception around 13 years ago.
7. The barriers to cryptocurrency investing can be overcome with risk management
Here are 5 common barriers to cryptocurrency investing raised in surveys and in the mainstream media, as well as ideas for how to overcome them:
- Volatility – It’s true that crypto is a volatile asset. Prices for large cap coins can move 20% in a single day. It seems that this volatility is the single biggest deterrent from new investors getting into the crypto asset class. Volatility can be managed like volatility in other stocks. How? These are the methods we’ve researched on the internet 1) Dollar cost average in to your investment. 2) Don’t bet the ranch all on crypto – only invest what you can afford to lose. 3) Don’t short term trade unless you know what you’re doing – the graph below indicates returns as high as 300% annualised for those that have held their Bitcoin for 5 years.
- It’s complex – crypto is still early stages so it’s not user friendly to transact with. When you’re sending your wealth around in cyberspace it can be downright scary for some people. But there are ways to overcome this by learning the technical basics. Start with the information we have posted about how to make money with cryptocurrency here and here. Start with more ubiquitous assets like Bitcoin which is easy to buy through Paypal, and start with interest earning Stablecoin products.
- Fear of buying the top – cryptocurrency prices have retraced from their historic highs of May 2021. Some investors are fearful that May was the top for crypto. Investors that bought crypto between early February and early May 2021 and in late 2021 are likely underwater. But the counterfactual is that if you bought at the top of the last crypto bull run in 2018, you’d be ahead today by almost 30%. Check out the graph of Bitcoin annualised returns over 5 years below from New York Digital Investors Group.
- Its a bubble – you’ll hear commentators in the news: cryptocurrency is a huge bubble just like the dot com era. Crypto is hugely overvalued and all bubbles burst. Ask yourself though, overvalued compared to what? If it’s fiat currency we are comparing with then everything’s a bubble – the stockmarket, commodites, real estate. Start comparing assets ratios with reserve bank holdings and you’ll get a different picture. This kind of commentary is a great headline grabber and is bound to create fear in many crypto curious. We think it’s worthwhile doing two things before falling for this old chestnut – 1) take a look at the vested interests of the commentators and whether they heavily tied to existing financial systems and assets; and 2) take a look at what respected investors do not what they say. Then make up your own mind.
- It’s full of scams – there are loads of scams in crypto and understandably this is very off-putting to new investors. But it’s a problem that you can overcome with mindset and by doing your own due diligence. If you come into crypto understanding that its designed to be decentralised and non-custodial, you’ll get that you alone are responsible for the security of your assets. If you get this, you’ll do your own due diligence and only invest in crypto with demonstrated real world use cases. You’ll accept that investing in anything else is purely speculative and could even be a downright scam.
The final word – is it time to rationalise your fears?
We’re not here to convince you to buy cryptocurrency. We’re here to share different information than you might hear or read in the mainstream media, so you can make up your own mind. We’ve made the case that you can make money with cryptocurrency and offered up 6 reasons why. We’ve shown how you can overcome 5 common barriers to investing in crypto. Our plan is to make money with cryptocurrency by focusing on real world use cases and investing for the longer term.
None of this is financial advice peeps – in fact if you asked a financial advisor they’d probably tell you to stay the hell away from cryptocurrency! 🙂 But here at the LLP we’re huge fans of taking control of our own finances and making our own decisions. No-one cares as much about your wealth as you do after all!
If you want to know more about crypto markets, here’s a super useful post about understanding crypto market structure. Please read it before jumping in if you decide to do so!
If you do purchase crypto assets you’ll need to safely secure them. We recommend using this site to get your hands on the best cryptocurrency hardware and seed phrase storage wallets. You’ll need these to protect your assets from theft and cyber attack. They’ve even got some useful FAQs to explain what all that means!