The other day, I attended a college alumni party.
I planned to catch up with old friends and share memories from our student years.
However, none of them showed up… and I found myself in a room full of strangers.
It was an unpleasant feeling.
But, since I was there, I decided to open up to the situation and do some networking.
Who knew what I could learn, right?
If you’ve ever been to such events, then you know that within the first couple of minutes, anyone you talk to asks the inevitable question:
“So, what do you do for a living?”
I’ve come to dread those words.
Because when I say that I’m a stock market specialist, I get flooded with questions.
“What do you think of Apple?”
“Are we in for a recession?”
“Should I sell my portfolio and buy real estate?”
And so on…
Surprisingly, though, the question I am asked most often has nothing to do with stocks.
Rather, the thing I am asked about more than anything else, including from Cashflow For Retirement readers, is my opinion on cryptocurrencies.
Seems time for me to address the topic.
Let’s start with the technical picture.
Technical Analysis–The Bear Market Is Losing Steam
As I’ve mentioned, I was an early cryptocurrency investor.
After working for a blockchain startup, I witnessed firsthand the hype surrounding blockchain technology.
This allowed me to recognize the growing trend and to make a nice profit from the subsequent boom.
Back then, I wasn’t worried about specific different cryptocurrencies. I relied on technical analysis to identify the best trades.
While the environment has changed since, I still consider that the best strategy when investing in cryptocurrency.
Let’s see what this approach tells us right now…
If you look at the total market capitalization of all cryptocurrencies, you see that, since the bubble burst, it’s been contracting.
However, since that point—as Facebook was hit with criticism from regulators and politicians—the market has turned down again.
I generally advise against investing during a downtrend and trying to time the bottom.
That said, when you look at the declines of this market, you see that they are becoming smaller and smaller.
Which could signal that the bearish sentiment is running its course… and that a turnaround could happen soon.
This is an important point, because the fundamental picture has been improving overall, as well.
Fundamental Analysis–The Demand Is Increasing
The cryptocurrencies chart above does a poor job representing the positive developments happening in this industry right now.
First, institutional money, which has been trying to get into crypto for years, has finally found a way to do so.
Two weeks ago, a company called Bakkt launched the first CFTC (Commodity Futures Trading Commission)-regulated cryptocurrency investment platform.
Meaning, the door for institutional money is finally open.
Moreover, cryptocurrencies’ hash rates—the measure of how many times miners attempt to complete the blockchain puzzle every second—is increasing.
This is an excellent barometer of demand. It indicates that miners are dedicating more resources to maintaining the blockchain infrastructure.
Finally, the number of daily transactions for all major cryptocurrencies is up compared with last year, indicating mainstream adoption.
Given the robust fundamental picture and historically low prices, cryptocurrencies seem like a sensible investment right now.
If you’re looking to get in, I would recommend waiting for the downtrend to end. A safe time to enter the market would be after the total market capitalization of all cryptocurrencies bounces back by 30% from the most recent bottom.
However, I won’t be buying.
The real problem I have with cryptocurrencies is that I don’t know how to value them.
There are no metrics to reference—no earnings, free cashflow, dividends, etc.
And they have a short and volatile history.
So it’s challenging to estimate the right price.
In the investing world, it’s always better to be safe than sorry… which is why I prefer to stay with stocks.
My last True Retirement Wealth pick, for example, is already up 11.68% in just over two weeks. It’s got an excellent business model and will profit massively from the coming 5G revolution.
And I have many more double-digit winners in my True Retirement Wealth portfolio.
This is why my answer to the inevitable question, “What do you think about cryptocurrencies,” is always the same…
They’re not worth the risk.