Why Cryptocurrencies are Similar to Value Investing
Many see cryptocurrencies as a sort of gamble when compared to the safety and security of trading stocks. Most of this comes from the idea that cryptocurrencies such as Bitcoin and Ethereum are fairly new and highly volatile as well as speculative.
With a rising market cap, the idea on these forms of currency have changed drastically. Currently, the market cap of all cryptocurrencies and their assets combined is around $170 billion. Thats more than twelve times what it was just one year prior.
Value investing is a strategy where one picks certain stocks that are trading lower than their usual amount, thus giving more value to the purchasing of a share. Investors use company information to try and make an accurate guess at a companies valuation and can often make profits after a company’s shares go down drastically. this could occur because of a sell-off or many speculative situations.
With cryptocurrencies, there are no balance sheets or ways to calculate income or even a proper value. Despite this, some of the core ideas are similar to value investing.
The first thing one should do when thinking of investing in cryptocurrency is to understand the entire process. At first it can be difficult with the use of wallets and seemingly complicated processes, but in the end those who are informed end up making the most money.
One of the most volatile aspects of cryptocurrency is the fact that the distribution is quite off. The top 315 Bitcoin addresses for example, own 25% of all circulating coins. This makes any sell of or any similar action, affect the price of bitcoin as a whole.
Using the data, is a large sell order occurs, similar to value investing, one could potentially make money buying up the coins after their value has gone down.