As many cryptocurrency enthusiasts know, bitcoin started at less than $1 in 2009. By 2012, it was a little over $6. Between 10 to 12 April 2013, it dropped 83% to $45. By early January 2014, it exceeded $880. At the start of 2017, it stood at about $985. It grew to $17,500 in December 2017. Today, it is hovering under $10,000.

Despite the stomach-wrenching rise and fall of prices, many remain attracted to cryptocurrencies, bitcoin being only one of the 1,500-plus digital currencies and assets in circulation. I am using bitcoin as an example here because it is one of the most popular digital coins and has the highest market capitalization of its kind at around $155 billion.

If the world will eventually turn cashless and transition to a crypto-ready economy, should we start investing in cryptocurrencies now, despite price volatilities? If Yes, how do we pick the potential winners?

Crypto What?

Let me backtrack a bit by explaining cryptocurrencies in contrast to the money we keep in our pockets. Cryptocurrencies, because they are virtual, only exist in digital form. There are no physical banknotes or coins, unlike our traditional money.

We also know that traditional money is issued by a central bank, the one body that has the authority to create the currency or remove it from circulation. On the other hand, most cryptocurrencies similar to bitcoin are not controlled by any central body, but the technology behind—called blockchain—allows secure transacting among parties, where the network of peers (computers) are the ones that record and validate every transaction in a public ledger. These transactions are cryptographically secured. Bitcoin is thus considered the first “decentralized” cryptocurrency.

The blockchain technology is partly the basis for how cryptocurrencies are classified: There are the altcoins, which could be either those using bitcoin-derived blockchain such as litecoin, or those using native blockchain such as ethereum and ripple; and then there are the tokens. Tokens, unlike altcoins, reside on top of another blockchain.

The Rise of Tokens

Although classified in many reports as cryptocurrencies, some tokens are not currencies by definition because they do not function as stores of value nor mediums of exchange. Those that are not purely cryptocurrencies may instead be classified as security tokens.

The third type of tokens is used as a payment method on a specific platform or a means to access the features of a network/service (much like how arcade tokens work). These are called utility tokens.

Today, we find a slew of tokens and coins being introduced in the market via initial coin offerings (ICOs) or crowdsale events. Unfortunately, some ICOs can be exit scams or will never make some traction after their crowdsale, leaving investors in a daze, at the very least.

 Reason People Put Their Money On Utility Tokens

The “pump-and-dump” investors aside, the serious utility token investors put their money on issuer-companies with the best potential to scale due to what Skillshare founder Michael Karnjanaprakorn calls the “token network effects”*. It goes like this:” As the network grows, the token adds value to the platform and accelerates network effects.” Thus, the value of the token increases as the utility of the project/network increases.

Finding those gems from among the token issuers requires, like any other investment, some research. Before joining ICOs and crowdsale, there are a few things to keep in mind:

Think About Your Investment Objective: Think about why you want to invest in cryptocurrencies, what your timeframe is, and if you and your pockets can handle the price swings.

Do Your Due Diligence. With so many shiny coins and tokens being offered, how does one evaluate them? According to Ann Cuisia-Lindayag, CEO of Traxion.Tech, there are seven proofs to look for in tokens. I have reclassified these into three:

• Mechanics – what are the systems in place that validate the identity of crypto token buyers? How strict is its whitelisting process? Does the company aim to comply with the regulations in its location? Does it specify its governance framework? How does it secure its network?
• Token Metrics – Does the white paper indicate the purpose or utility of the token? What will be the pricing, soft and hard caps, supply, token sale allocation, lockup periods? Is the whitepaper clear on what the company will do with the unsold tokens? Token metrics relevant as they can influence the rise in your token’s value after the sale.
• Milestones – Clearly, issuers that already have some of their infrastructure in place are way ahead of the ICOs that are yet to start working on their proof of concept. Ideally, whitepapers should show the company’s roadmap, which must include timeframes and completed milestones.

Check Who Runs the Team and Its Network. Cuisia also identified the competence of the team—or its proof of capability—as an important factor to assess, and I cannot stress this enough myself. The whitepaper should be able to tell you if the executive team members have the track records, and domain expertise in the industry and technologies of their product. Likewise, a check on partners and clients can give you an idea on how much traction the company has made.

Know the Difference between IPOs and ICOs, crowdsale versus crowdfunding. Token crowdsale and ICOs are not a sale of shares in a company, but in its coins or tokens, which entitles holders to join the issuer’s project or system. This being the case, do manage your expectations.

Know Your Risk Tolerance: Can you stomach potential price volatilities? That is, can you still sleep soundly if prices drop in the double-digits? Investing in coins and tokens can bring good returns, Yes. However, because the world of cryptocurrencies is new, it is not for the faint-hearted. Investing in crypto can be categorized as highly speculative.

Know How to Secure Your Tokens:. The blockchain in itself is generally secure. Like any other forms of investments, there are risks of fraud in cryptocurrencies outside of the blockchain. Scams can be in the form of cell phone identity theft, and fake digital wallets, for example. Know that scammers too have become tech savvy.

Go By the Age-old Rule: The time-worn advice commonly attributed to writer Miguel Cervantes still applies to this day: Do not put all your eggs in one basket. Hedge if you must.

Here’s a cardinal investing rule that I want to reiterate: “Never invest in something you do not understand.”

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Philippine Stock Market has been taking a beating for many days now and it is a concern to many. From a high of 9000 and dipping to 7500 in just 4 months, there’s so many things that goes on the mind of investors.

Let me share you a very insightful discussion I have with my good friend and stock investing advocate Marvin Germo about the PSEi bloodbath.

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In investing, thinking long-term is a good idea. I have always believed that time is your greatest asset.

Here are a few points as to why long-term thinking is a must in investing and why you should stick to a long-term mindset:

1) It determines your investment objective

People invest in various investment instruments depending on their objectives. Some want to grow their money to pay for an upcoming wedding while others want to start accumulating wealth for retirement. As a long-term investor, you have different objectives.

You may be investing to have enough money to build a home or save for retirement.

It’s important to have a long-term mindset when it comes to investing because it allows you to filter out unnecessary concerns.

As a long-term investor, the market reversals or downtrends should not cause you sleepless nights.

If you have a long-term horizon (above 10 years) you can wait the market out and recoup your temporary losses or better yet, continue to grow your investments. Long-term investing in the market determines your financial objectives in such a way that you know what purpose your profits will play. As a long-term investor, you can let your money sit in your investments instead of withdrawing them (at a loss) out of panic.

*The chart below shows you how the Philippine Stock Market performed over 10 years proving that it really pays to think long-term.

2) It guides your investment directions

In relation to the above, having a long-term mindset guides your investment direction and decisions. As a long-term investor, you’ll put your money in investments different from those of the short-term investor. Short-term investors will put their money in, say, money market funds or bonds. You, as a long-term investor, may put your money in stocks instead. Knowing that you are a long-term investor gives you direction regarding where to invest and how long to stay invested in the market.

3) It keeps your emotions in check

Listening to emotions—it’s one of the most common mistakes people make when it comes to investing.

For those who weren’t in the market during the 1997 Asian financial crisis, the 2008 financial crisis, market corrections or downtrends may seem hopeless to new investors.

However, if you look at the historical performance of the Philippine Stock Exchange index (PSEi) from 1986 to 2018, the PSEi follows an up and down cycle, where the next ‘high’ is always higher than the previous ‘high.’

This is where your long-term investing mindset comes into play.

Being in the market for the long term (for a minimum of 10 years) allows you more than enough time to weather bear markets.

Historically, bear markets since the 1930s have an average duration of 18 months. If you’re investing for the long term, you have more than enough time to hold on to your investments until the downtrend reverses into an uptrend, signaling the end of a bear market.

In relation to letting your emotions get the best of you, if you have a long-term investing mindset, short-term fluctuations and volatilities should not bother you. Do not sell out of fear and panic. Keep your emotions in check. Remember that you have time on your side.

The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty. – Proverbs 21:5, ESV

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If you are a Filipino in the UAE, catch me and my friends Marvin Germo, Tony Herbosa, Salve Duplito and Carl Dy at the Money Talks UAE 2018 Conference. Details HERE