Cryptocurrency Exploration

Prior to this week, I honestly didn’t know too much about cryptocurrency. I knew the basics, mostly hearing or reading about Bitcoin. I knew there were other types, but had no clue how many. I’ve even got a “if only I would have” story about it; I considered buying some for fun around 2010-2011, but didn’t care enough about it to actually figure out how. Bitcoin was worth around $0.008…if I’d bought $20 worth, at the current price of $3,241.40, that’d be over $8 million now. So, over the past week, I started looking at how this system works, and exploring other types of coins.

First and foremost a disclaimer; even though I’ve now purchased some coins and will share my information here, I’m still definitely not an expert. I’m not an expert on cryptocurrency, nor am I a financial expert. So, take this information for what it’s worth.

So, let’s talk some basics. There are actually hundreds of cryptocurrencies! And their market capitalizations (total number of shares times dollar value of each share) are pretty high, comparable to major companies traded on the stock market. I recommend checking out Coin Market Cap (https://coinmarketcap.com/currencies/views/all/) to learn about the most valuable currencies out there now; they list 843 tradeable cryptocurrencies on the market today. To get into these markets, you’ll need two main things; at least one cryptocurrency wallet, and access to at least one cryptocurrency exchange.

Now, here’s where you have to be a bit careful. You may have read news articles over the past few years about people losing their currency investments, owners of certain sites closing them down and stealing people’s money. Or hackers stealing balances. As far as I can tell, these things happened to exchanges. Everything I’ve read so far says, although you can store your cryptocurrency balances on these exchanges, you shouldn’t keep any significant amounts there. Even though most of these exchanges offer wallets to store your funds, those exchange sites keep the “private key” (https://en.bitcoin.it/wiki/Private_key). Hackers or site owners who have stolen funds from currency exchanges can do this because they hold users’ private keys. From what I’ve read, to secure your balances, you need to use a cryptocurrency wallet that allows you to maintain control of your private keys.

In this cryptocurrency experiment, I tried two exchanges; Coinbase and Bittrex. Both of these exchanges seem pretty secure to me, using two factor authentication (Password plus SMS message/Google Authentication app), and are often recommended in forums. Coinbase only allows you to purchase Bitcoin, Ethereum, or Litecoin (three of the biggest currencies), but provides straightforward transactions using a credit card or bank account. You can also convert from Bitcoin/Ethereum/Litecoin into U.S. dollars. Bittrex is more diverse, allowing access to the “altcoin” market (the hundreds of other coins out there). Altcoins are what interest me, because these are the coins that are cheap now like Bitcoin was eight years ago. My thought was to pick some cheap ones, buy a couple dollars worth, and hold them for a few years.

Here’s where the logic I used when selecting what to buy doesn’t make much sense. I thought I should buy some coins that were cheap and had a high market cap. In hindsight, this strategy is meaningless because that combination just means that coin has a higher number in circulation. I don’t see now how that would be a predictor of future growth. Regardless, here are some visuals for market cap and total shares (as of August 2017):

Market Cap, Currencies over $10M

Table 1. Coin Market Capitalization over $1 Million, from coinmarketcap.com Data.

Circulating Supply Greater than 100M

Table 2. Circulating Supply of Coins Greater than 100 Million, from coinmarketcap.com Data

Overall, this is what I was aiming for; a collection of currently cheap coins that I can hold for a few years in a secure wallet (that I own the private keys for). As I mentioned above, I focused mostly on currencies in the top 100-200 market cap and were under $1 per coin. I recommend browsing through various cryptocurrency web forums to see which wallets are recommended by other users. The more popular ones include Coinomi, Copay, Jaxx, and a few others. There are also some off-line storage options that require purchasing some hardware/dongle stuff.

I ended up with a collection of 19 coins, including four very cheap ones that would be home runs if they rose in price. Here’s how I allocated my purchases:

Percentage of Holdings

Table 3. Percentages of my Initial Cryptocurrency Purchase in U.S. Dollars.

Because cryptocurrencies are so volatile in price, performance after one week probably isn’t worth anything at all. But, I did want to include how the prices have fluctuated on the coins I purchased. I’ll post an update in a few months, to see if the price trends continued.

% Change Initial to Current

Table 4. Price Changes for my Coin Portfolio After One Week.

As you can see, this week Feathercoin, Vertcoin, and Blackcoin haven’t done too well. Myriad has done really well, which is great because it’s a super cheap one and I bought quite a few. The top coins out there, Bitcoin and Ethereum, have also done well this week. Several of my coins didn’t change in price at all. As mentioned above, we’ll check back on this experiment in a couple of months.

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