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What Happened: a Cryptocurrency Memoir

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As we wind 2017 down to its final days and hours, I wanted to examine the most recent downturn and th
 

The Block

December 27 · Issue #7 · View online
Weekly curated #cryptocurrency news and commentary.

As we wind 2017 down to its final days and hours, I wanted to examine the most recent downturn and then talk about what you can do to capitalize on cryptocurrency in 2018.

A Wild Close to 2017
Did you guys see what happened last Thursday? A 30% downward market correction in less than 24 hours occurred, hitting Bitcoin and most other alts where it hurts the most, sending speculators out in droves on subreddits and crypto blog comment sections, wondering if this is Armageddon or arrested development.
As you know, I’m a cryptocurrency long bull, but a pullback like this has consequences. Fresh-faced investors, happily downloading the Coinbase app and throwing their mortgage money at a new asset class can’t be good in the short-term, and that’s only part of the story.
The other part of the story is a still-immature technology that has compounding usage problems (high transaction fees, long confirmation times) that make it yet untenable for real-world applications. Even as a store of value—its primary current application—it is subject to the wild swings that we’ve just witnessed, making it… not unrisky.
Last week I outlined a few challenges facing Bitcoin and cryptocurrency in general, and I mentioned elsewhere that we should expect a drawback within the week, in part because these obstacles are and continue to be ignored by those same neophyte investors who leveraged their mortgages to get into the game, and are now getting freaked out since the whales started taking profits at the top. In this sense, at least in the short term, Bitcoin has failed the common man.
And yet.
And yet.
I can’t help but look at charts like this without feeling a sense that we’re all still just kids playing with blocks, building structures we’ve already seen before. You know from playing with blocks that it doesn’t take much to knock them down. But the flip side is also true: it’s nearly as easy to start building that tower back up from the rubble.
Even more exciting is the fact that kids’ blocks are representative of greater forms and structures possible once kids grow up to become architects and engineers and designers and builders and artists and teachers. Imagine what cryptocurrency will look like when we grow up.
Crashes like this are, unfortunately, necessary corrections, countering natural but unhealthy human appetites with the hard truth of the market’s basic equation. This culls the fair-weather investors and get-rich-quick schemers. When the market’s doing well, everyone’s a fan; it’s easier to see who is committed when roof falls in. The die-hards will be the ones building products and putting skin in the game. They’ll quietly chug along no matter what the market does.
Bitcoin has had more than its fair share of crashes. Over the years I’ve read dozens, if not hundreds of obituaries of Bitcoin (219 at the most recent count), each one reminding us that fake Internet money has nowhere to go but down when everyone realizes that it’s a Ponzi scheme, or a bubble, or just plain economically unfeasible. Still, the investors kept coming.
For new investors, volatility is frightening. Seasoned traders know it’s not only profitable, it’s also necessary. For the crypto community, massive price swings are instrumental to the health of the technology. It (and we) need these moments to reflect on what has been built so far and how much further we have yet to go.
The majority of crypto fans know the price more than they know the products. That’s a fundamental flaw, since it misses the ocean for the boat. Price does not equal value. 
Crashes can help us re-orient to what really matters. Moreover, massive downturns can also prioritize development. Ethereum, Dash, and Monero were all conceived and developed between 2012 and 2015—during the crypto bear market.
How Do I Capitalize On Crypto?
This may be why you signed up for this newsletter in the first place, and you’re wondering why it’s taken six issues to even discuss the possibility of making money on cryptocurrency.
It’s because I want you to understand the market and the underlying fundamentals in order to use it more effectively. I’d say the same thing about stocks or ETFs or real estate investing.
Here is my end of the year advice for you.
If you’re not in crypto yet, get in, at a price you are comfortable losing. Even if it’s just $20. Buy into Bitcoin or an altcoin that you’re comfortable with, that you’ve done the research on, and that you believe in. The crypto-economy could collapse and everyone’s investments could get wiped out. But what if it doesn’t?
Are you ready to bet against it? Put your money into it, if you’re so sure it’s going to fall. Just don’t stand on the sidelines.
Get comfortable with volatility. Crypto is a wild animal, sometimes on a minute-by-minute basis, and almost always on a daily basis. Get used to 20% swings over a period of hours. Get comfortable with volatility. Don’t look at the price if you can’t handle the swing. Just HODL. Don’t look at the charts, don’t trade. Wait.
If you’re in, stay in. Be long. As I’ve said before, we’re in the amoeba stage of crypto evolution. You haven’t seen anything yet compared to what the world will be like in five years. Ten years. Fifty years. If we assume even 1/5 of current crypto growth over the next three years, by 2020 half the world will be using crypto. That’s not hyperbole.
Keep researching. The next Amazon, Facebook, or Google could come from the crypto-space. You might be able to spot it while it’s still a seedling! At least 80% of all crypto projects will likely fail eventually—mostly the bad, but even some of the good ones will as well. You can learn to read the signs if you keep reading. Join a community.
Become a micro-Venture Capitalist. Cryptocurrencies allow you to do what venture capitalists and angel investors do, albeit at a smaller scale. The other side of that 80% failure rate is 20%. Half of that will do all right. The other 10%—that’s the half you want to know about before the other kids do. Those are the products or companies that mitigate those 80% losers. 
Make something cool. Are you a developer or software engineer? Try to build something using smart contracts. Or put together a team and make an app that softens the entry barrier to cryptocurrency. Figure out what the blockchain can do better than anything else. You’ll add to the ecosystem, increase market value, and make yourself wealthy, all at once.
I leave you with the following link, to look forward to next year. Whether you’re a bear or a bull, a Hodler or a day trader, use the opportunity to learn more. And hang tight. 2018 is going to be exciting.
2018 in Preview: The Future of Cryptocurrency
At the time of the initial write-up of this issue, price had collapsed to sub-$12k for Bitcoin, and most other alts had also suffered significant losses. At the time of this post-script, Bitcoin has rallied back to $15.7k, and many other alts have also experienced a post-Christmas rebound.
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