Nearly $1 billion was lost to cryptocurrency scams from the beginning of 2021 to the end of March 2022, according to a May report from the federal trade commission. Incidentally, May was when luna classic effectively tanked to zero in a matter of days, wiping out a market capitalization that once topped $40 billion.
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Bad actors and accidents are the reason investors often ridicule the crypto industry. it’s seen as a place for get-rich-quick speculators, not serious capital allocators.
much of the criticism is fair. however, in a few select cases, I think cryptocurrency can actually be a viable long-term investment. but first you’ll want to understand the difference between cryptocurrencies and tokens. here’s why.
invest in digital currencies
In my opinion, cryptocurrencies can be thrown into two buckets. a cube is digital currency. the other is the bucket of chips.
The distinguishing factor between these two cubes is the purpose. bitcoin (btc 0.22%) is intended to be used as a payment method. the same goes for bitcoin alternatives like dogecoin (doge -5.94%). their purpose is to facilitate financial transactions, although people more often than not “keep” these coins rather than use them as money.
The investment thesis for a digital currency is not conceptually different from the one behind foreign exchange (forex) trading. if you think the japanese yen is going to outperform the us. uu. dollar, for example, you can exchange dollars for yen and wait for it to happen.
The same goes for bitcoin. you can use it to buy something, in those limited places where it is accepted, just like you can buy things with yen. but if you are investing in bitcoin then expect it to outperform the dollar.
At the most basic level, the value of any cryptocurrency is obtained in the same way. if the demand is greater than the supply, then the price goes up. and that is why bitcoin is my preferred digital currency investment. there can only be 21 million bitcoins; supply is a well-known factor here. And if any digital currency is going to be in wide demand, I think bitcoin has the biggest chance.
This is due in part to the strength of the bitcoin network. miners have computers to process transactions. this computing power is measured with something called the hash rate. At the time of this writing, the total hash rate of the bitcoin network is approximately 213 million tera-hashes per second (th/s), the most computing power of any cryptocurrency and more than double that of last year. In short, bitcoin has the largest number of computers supporting it, making it the most stable and secure (in theory).
With these strengths, I could see that bitcoin would continue to be in high demand.
invest in tokens
Conversely, tokens have other use cases besides as a medium of exchange. take theta network as an example here. theta aims to use blockchain technologies to provide a decentralized content delivery network like fastly or cloudflare, decentralized web hosting like amazon and alphabet, and more. theta (theta -1.52%) is the governance token, while theta fuel (tfuel -0.60%) is the utility or gas token.
I think theta network is a great idea. however, I am not convinced that theta fuel is a good long-term investment. theta fuel has an annual inflation of 7% to 9%. this new theta fuel is created to pay nodes to keep the network running. users buy theta fuel and then spend it to use theta services; if you were going to upload a video, for example, you would spend theta fuel to get nodes to host it.
It’s hard enough to create demand for theta in the first place. getting enough demand to offset the impact of token inflation is even more difficult. but then again, theta fuel is not designed to necessarily increase in value. it is designed to buy the use of the network. imagine if the value of the token shot into the stratosphere. it could become cost prohibitive to actually use it. that would be counterproductive and hurt long-term adoption.
each cryptocurrency has different elements that control supply and encourage demand: tokenomics. understanding how tokenomics works is an entirely different exercise from simply understanding what the crypto project does.
why is it important
Distinguishing between digital currencies and tokens is important because investors will want to look at different factors in each case. With something like theta, you’ll want to see more nodes joining the network so it can deliver the faster internet speeds it promises. conversely, with bitcoin, you probably want to see growth in wallets rather than miners. the bitcoin mining network is already quite large and secure. but more people need to join the bitcoin economy and hold and use it if the price is going to keep going up.
cryptocurrency can really be a long-term investment in certain cases. you just need to know where to look.