Is crypto a great deal from the insignificant?

A friend of mine sold his house a few weeks ago, after it being on the market for over 6 months. The reason it took so long to sell was that it needed renovation work in the bathroom done, and since it is so hard to get a renovation loan, no one would buy it. Remembering that Finland is in a housing bubble, they sold the house that they have had for 12 years, at a small loss. Crazy.

However, they were also halfway through paying the mortgage which means they got a lump sum payment, part of which they chose to put straight into their current home loan. Fair enough. However, the other part (that I will assume is around 20,000€) is going to go into some investments, and since they didn't know what they should invest in, they went to see a wealth manager at their bank.

A fraction in

I joked with him the other day that he should put it all into a penny-coin crypto claiming to be the next Bitcoin, but I was really only half joking, and he knew it. It is a hard thing of course as crypto comes saddled with a lot of risk, but I wonder which investment would yield the greatest return.

If for example, he decided to invest 10% of the total into crypto (2000€), which would you expect would provide the year on largest gains?

I would say that most investments the wealth manager is going to look at for their money are going to return potentially 10% in a year, so on 18,000, that is 1,800€, which is not bad. This means that in order to compete, the 2000 would have to increase by 90% over the next year.

ATHs and climbs

Bitcoin at this time last year was ~$3500 which means it is currently up ~300% since then. That 2000€ would be worth 6000 for 4000€ of gains. That is of course an easy decision to make in hindsight, but in order to get the same gains from this point, Bitcoin would have to hit 30K and be sold. However, it would "only" need to hit 19,000 for the 2000 to return 1800 to compete with the invested 18,000.

Then there is something like Ethereum, that is only up 200% since a year ago, but is still down ~6x on its $1400 highs. So, if bought today, Eth would have to hit about 480 dollars for that 2000€ to achieve the same as the 18,000 invested for a 10% gain.

What about Steem? Well, similarly to Ethereum, but to a far greater extent, Steem is about 30x down from the ATH, and at the current ~25 cents, would only need to hit about 47 cents for the 2000 to return the same as the invested 18,000. Is it possible? - nah, it'll never happen.

Is it really a real risk?

While capital investment always comes saddled with varying degrees of risk and crypto may seem particularly risky, is it really as risky as people claim? Sure, I do believe that there is a host of projects that are going to die a miserable death, but if one is looking long on Bitcoin, it is near guaranteed to perform as banks themselves seem to be pushing themselves into the market and adding their own gateways.

Considering how small the crypto market capitalization is, the amount of financial institutions making moves is unprecedented. Since banks never go into an investment with the intention of losing money and every dollar they spend is an investment, the sheer diversity of banks looking to get in and build in crypto should be a very large flag for investors to follow suit and do what they can to frontrun.

For all of these banks to get the returns they would seek, the crypto cap is going to have to run well into the many trillions, and sustain it long-term. While it sounds like a great deal to us at the moment, the amount is actually minuscule considering how much they have at their disposal and I do not believe it is going to be very long at all before people like my friend are going to be routinely offered high risk, high yield gains for a small percentage of their investment portfolio. When the banks have access to hundreds of trillions of investment funds globally, just a fraction diverted into crypto sends the marketplace parabolic.

Frontrunning the start of heavy investment into an industry means seeing massive gains for everyone in early, and that is pretty much all in crypto at the moment. Of course, one has to make sure that the crypto held is going to be a target to become an investment vehicle, so it is good to have some diversity.

A known loss, unknown upside

For my friends, they aren't likely to put any in on crypto for the same people most won't at this stage, they don't want to feel foolish if it all goes south. While people want access to the hockey stick upside potential, the ego and social implications of being wrong tend to make the downside seem much greater than it is.

Most people invest where most people invest and as such, those investments do not yield large results as so many people investing provide stability. While people want the gains of volatility, people far prefer the stability for the investments and if it does collapse in price, it doesn't fall too far as there are so many to prop it up, but it also doesn't climb too far up because there are so many people in the marketplace.

The investment institutions however are able to take percentage fees on all of these investors and use their own earnings to manipulate the markets for their own gains and invest percentages into higher yield themselves. It is always better to invest with someone else's money, and then offer the smaller piece of the pie in return.

Insignificantly significant

For me, I do not have any lump sum for investment and while I do put a small amount into a retirement fund like many, I am hoping that the small amounts I siphon into crypto will be enough to make the frontrunning of the coming institutions more than worthwhile and return a far greater amount than the retirement fund will, for much less in.

While I don't actually tell people what they should do with their money, it s common knowledge that investment diversity is part of the risk management. What people don't seem to count is that investment diversity is also to gain access to possible gains. Many people spread their money into what they consider investment vehicles like houses, shares and precious metals, but a small and relatively insignificant amount into the newest investment vehicle on the block has the very real potential to outperform them all.

For my friend, 2000€ is likely less than a couple weeks salary today, an amount that would otherwise be insignificant. I wonder what 2000€ spread across a few key cryptos will look like in 5 years. If Steem did happen to survive that long, what is your price prediction?

Taraz
[ a Steem original ]