I have been trading the cryptocurrency markets for only a few months and studying them for several months prior to that. Therefore, I do not consider myself an expert in this new “Wild West” form of investing. Or, is it gambling? Well, I have always loved to gamble, and I do consider trading stocks, futures, and FOREX to be a form of gambling. To me, it’s all the same.

I approached the weird world of cryptos from two aspects. First, I have watched the price action which makes a roller coaster ride seem boring. Second, I have tried to understand just what a crypto is, along with how and why it should have any perceived value.

The following explanation is my personal understanding and should not be taken as absolute truth. Investors must form their own opinions about this strange and exotic  new world.

My first question, does a crypto really have any value? Let’s consider Bitcoin, as it is the most widely known of all cryptos. My conclusion is yes. Bitcoins are the medium of exchange within a network, like chips in a casino. You buy the chips and then sell them back when you have finished gambling (if you are lucky). In Las Vegas, you can often use them as money because those accepting them know they can go to the issuing casino and cash them in for money. They are temporary money and so is Bitcoin.

Users of the blockchain network based on Bitcoin can convert money (any fiat currency issued by any nation) at an established rate and transfer the Bitcoin to anyone else on the network securely, quickly, inexpensively, and, most importantly, without using any financial institution as an intermediary. It is far faster, safer and much less expensive than traditional financial transfers. That makes the Bitcoin blockchain network valuable, and Bitcoins valuable because they are the “chips” used in the Bitcoin casino.

This simple logical situation also applies to many other of the coins I have investigated. They are the “chips” used in a system and, if that system has value, then the coins have value.

So, if you want to understand the value a crypto might have, just look at the network in which it is used. If the network has (lasting) value, the coin will have value and vice-versa.

Las Vegas casino chips are generally not worth much outside Las Vegas, but within their issuing casino they are the same as money.

So, look at the network in which they are to be used to determine the value of cryptos. If the network goes away, so does the its crypto coins. If a casino closes, its chips will likely become worthless. Same with cryptocurrencies and their networks.

There are far too many networks with crypto currencies out there today. Like Las Vegas with far too many casinos. Soon, many are doomed to fail.

Be careful out there.

 

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *

Comments Protected by WP-SpamShield Spam Blocker

See the Music of the Market

The unique trading method that is Trading Between the Lines