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I want to start this article by saying that I am a huge fan of Charlie Munger, and I have learned a lot of my investing strategy from him and his business partner Warren Buffett. That said, I'm also a big believer in some crypto projects, and I invest in crypto. When I saw that he put out a piece saying that the U.S. should ban crypto, I knew that I had to read it. Here's my response to his article.
While reading the article he wrote, I will note that I do agree with some of the things he says. He outlines some problems with some crypto that I agree with. He mentions that the creators of new cryptocurrencies often get coins for "almost nothing" then states, “After which the public buys in at much higher prices without fully understanding the pre-dilution in favor of the promoter." This statement, in my opinion, is objectively true. This does happen.
Munger then stated that the U.S. should follow China's lead which banned crypto and pass laws to prevent crypto trading and the formation of new cryptocurrencies. This is obviously where I disagree with Munger. If he had simply stated that crypto is a bad investment, I would say that I respect his opinion but disagree and that would be the end of it. Calling for a ban, however, is very different. I believe that some cryptocurrencies are good, and I would like to see more good cryptos created. Even if one believes that there are no good cryptocurrencies, I still don't believe that they should support a ban of them as I believe that people should have the right to invest in what they believe in. If someone invests in a bad project and loses money, that was their decision to make. Thinking that someone shouldn't have the freedom to make that decision for themselves is an opinion I do not understand how one could have.
Munger then wrote, "A cryptocurrency is not a currency, not a commodity, and not a security. Instead, it’s a gambling contract with a nearly 100% edge for the house, entered into in a country where gambling contracts are traditionally regulated only by states that compete in laxity.”
Some cryptos are definitely used as a currency. Bitcoin, for example, has been and continues to be used as a currency along with many other projects. One can argue if it's a good currency or not, but I don't see how one can argue that it's not a currency. Most cryptos get their prices from supply and demand and can be bought and sold, so I would consider it a commodity. One can also take loans out against crypto and pledge it as collateral which would in turn make it a security also.
I don't agree at all that cryptocurrencies should be banned. I also don't agree that new projects shouldn't exist. I believe that people should decide for themselves what they want to invest in and what projects they want to support
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I recently published an article where I revealed my investment strategy for 2023. I did not mention cryptocurrencies in that article, so I now want to talk about my plans for buying crypto in 2023. Obviously, things might change with this, but this is my current plan. Crypto has suffered dramatically this year, and I do not know what next year has in store for the crypto markets. Will it recover? Will it continue to fall? I have no idea, and I do not believe that anyone does. I do, however, plan to add to my crypto holdings. Here's what I plan to buy:
One of the first posts I published on my crypto blog was my thesis on why Bitcoin is valuable. When I look at that article, all the reasons that I mentioned are still true today in my opinion. With that in mind, I still believe that Bitcoin is valuable. Right now, Bitcoin is trading at around $17,000 a coin. Bitcoin has fallen by around 64% so far year to date. With the dollar losing purchasing power in 2022, I admit that I did think that more people would flock to Bitcoin. I'll admit that I was wrong about that, but I do not think that I am wrong about Bitcoin as a whole. Time, of course, will tell, but since I believe in this asset long-term, I do not see any reason to not rejoice at having the opportunity to invest in Bitcoin at these lower prices. While I do believe Bitcoin will recover, I hope it does not too quickly so that I have the chance to buy more of it.
Ethereum is currently trading around $1,256 a coin. Ethereum is currently down around 66% year to date. Ethereum is a decentralized open-source Blockchain. The world's computer. I think that this technology has a lot of potential, and my opinion is that more and more creations will be built upon that blockchain. Ether is the native cryptocurrency of that blockchain and as more applications continue to be built upon Ethereum, I believe that the cryptocurrency itself will build in value. With that in mind, I believe it is a worthwhile investment for me to make. This is why I plan to invest more into it in 2023. The cheaper I can get the coin, the better as I believe it'll be worth substantially more than it is now in the next several years.
These are really the only coins that I am interested in. I'm not saying there is not other coins of value, and I'm not saying that I am positive I will only invest in these two. I like to invest; I do not like to trade. I believe that these two are the best assets to buy with that strategy.
This is what I plan to do in 2023 concerning crypto.
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Bitcoin has been having a rough year so far. The stock market is down, gold is down, real estate is down, crypto as a whole has followed that trend. Bitcoin is an asset that I want to own as much of as possible. I wrote my thesis on why Bitcoin is valuable here - https://www.financebycwt.com/crypto-blog/why-bitcoin-is-valuable and because of these reasons, I think Bitcoin will be far more valuable over the next several years than it is now.
When Bitcoin started to fall, I did continue to buy more of it. My goal is to own as much Bitcoin as possible and the price is something that I don't really care about too much. I mean, I care to some extent. I get a larger percentage of Bitcoin per dollar spent at $20,000 a coin than I do at $50,000 a coin so I obviously want Bitcoin to be cheaper than it currently is, but I don't care too much about percentage increase in Bitcoin. Why would I want something that I am planning to buy to be more expensive? Would not be the best strategy.
That said, when Bitcoin kept going down, I did temporarily turn off my buy orders. I started saving cash instead. This was because I believed that Bitcoin would continue to fall. I wanted to save cash that I could use to buy Bitcoin at a lower price. My main goal is to get my average price per coin down as much as possible.
I saw that Bitcoin was hovering around the $20,000 a coin mark for awhile, and it seemed to be steady at that point. I saw a lot of opportunity with that price point but then yesterday, something changed. FTX, which is the second largest crypto exchange, is having a liquidity problem. Binance was considering buying them to save them, but they saw so many problems with FTX that they decided they could not help. The downfall of FTX has caused a downfall of crypto as a whole, and Bitcoin is no exception.
With Bitcoin's new drop in price, it shows potential opportunity. It shows an even lower price point to accumulate coins at. It's already started to recover a little and is now worth around $17,000 a coin, but I do think that this is a good price point.
I plan to start deploying some of my cash into Bitcoin over a long time period.
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Nano, at time of writing, is trading at 88 cents a coin which is pretty far from its all time high of $37.62 a coin. It's been a very hard road for Nano holders which is unfortunate because Nano is actually a really cool project. Cryptocurrency, like the name suggests, was created to be currency. Unfortunately, many of the early day projects had trouble accomplishing this. The first cryptocurrency, Bitcoin, was created to be digital cash. The goal was to have a peer to peer payment system in place that was not dependent on any third party system. Unfortunately, Bitcoin had some problems becoming this, and many cryptocurrencies share these same problems.
People using Bitcoin as a currency were met with large fees every time they wanted to use it. Merchants often do not like using it because they have to wait quite awhile before they get the funds to begin with. Also, Bitcoin transactions use a lot of energy which has discouraged many people from wanting to use it.
With the creation of Nano, crypto became far easier to use as currency. With Nano, there are no fees when transferring it. The transactions are instant which makes merchants more into the idea of accepting it. When they can receive the money essentially instantly, it helps merchants get over the fear of trying something different. Also, Nano is far more environmentally friendly.
With all these things being true, one must wonder why Nano isn't being more sought after as an investment. In my opinion, the answer is all about demand for cryptocurrency to actually be used as currency. To prove this hypothesis, I will point to Bitcoin itself. As I mentioned above, Bitcoin was created to be a peer to peer online payment system. However, that does not seem to be the reason most people are buying it today. A lot of Bitcoin buyers see it as a store of value. A digital gold designed to preserve their purchasing power. Bitcoin was never created to be any of these things and yet that is what a lot of people use it for today. I'll also point out that a lot of crypto projects today have nothing to do with currency at all. A lot of investors are investing into blockchain technology itself. The point is, crypto investors seemed to have moved on from cryptocurrency as currency.
To me, it's a shame. A cryptocurrency with no fees that processes transactions instantly helps accomplish the very reason that cryptocurrency was invented in the first place. The idea was to have a new money, and Nano does a good job of being new money. I do believe that Nano is the most undervalued project of all time.
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Bitcoin was created as a response to the 2008-2009 market crash. This experience showed many people problems with the traditional financial markets, and because of people's desires for an alternative, Bitcoin was created. It was created to fix problems. Bitcoin is a peer to peer payment system that cuts out the middleman. It works without banks and financial authorities. After the 2008 market crash, people did not trust financial authorities as they held them responsible for the market crash itself. At that time, a payment system that eliminated the need for them was very sought after.
With all this in mind, I believe that most people that have held Bitcoin over the last few years did not hold it to accomplish what Bitcoin was created to do. They didn't care about its value as a decentralized payment system. Everything was going to well where the value of a decentralized payment system seemed small. Bitcoin was always meant to be a currency but that is not why most people were investing into it.
Now that we are in a market downtrend of huge proportions, I believe that most of the people holding Bitcoin as a get rich quick method and other reasons of that magnitude have already sold out of Bitcoin. I think that this is a good thing. Most people still holding Bitcoin are doing it because of their underlying faith in the asset itself and a belief in what Bitcoin truly can accomplish. Personally, I am ecstatic about this because, to me, it seemed like no one was actually holding Bitcoin because they wanted it to be a real currency option even though that was literally what it was created for.
With this latest market downtrend, I think Bitcoin looks more appealing now than ever. Not because of the amazing price Bitcoin is currently trading at, but because the problems it was created to solve are more alive today than ever.
The U.S. dollar is experiencing massive inflation after the creation of a huge amount of more dollars. Bitcoin has a fixed supply so something like that could never happen to it. The distrust for banks and financial authorities exists now more than ever, and Bitcoin solves this by not having to go through these third parties. As inflation rises and the market continues to crash, Bitcoin, and what it can do for people that adopt it, becomes more and more valuable.
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Bitcoin and Ethereum are two of my largest individual holdings that is not an ETF. I am very bullish on these two cryptocurrencies, and since crypto as a whole has had a very bad 2022 so far, I wanted to give my thoughts on why the latest price decreases has not decreased my overall fondness of these two assets.
I have reoccurring buy orders for Bitcoin and Ethereum so that every week I invest a certain amount of money into each of these cryptos. If I find an investment that I believe in long-term, I always set up a reoccurring buy order so that I can invest in it over a long period of time. Bitcoin and Ethereum are both something that I want to own as much as possible of so I buy both every week regardless of price. A common opinion that I get told about crypto is that there isn't any actual value behind it. I disagree with this sentiment when it comes to Bitcoin and Ethereum. I believe that there is actual value behind both which is why I continue to buy.
I've already given my thesis on why Bitcoin has actual value behind it. One can read my thesis on it here - www.financebycwt.com/crypto-blog/why-bitcoin-is-valuable.
Ethereum is something that I also believe has real value behind it. I believe that insanely valuable businesses will be built on its blockchain. I believe that millions will do business on the blockchain itself through owning the coin. To me, this will lead to the coin having an insane amount of value in the future. I like to look at Ethereum's blockchain as a company and Ethereum itself as the shares and when I look at the potential the "company" has, I want as many "shares" as possible.
I don't care if Bitcoin or Ethereum goes up 20% next week or down 20% next week, I will be buying simply because the value that these coins have. I believe that these two coins will be two of my most profitable investments. I also want to use these coins to bring in revenue for myself through yield farming and staking and believe that that will be very profitable long-term as well.
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Bitcoin is a cryptocurrency that I believe is one of the greatest investments that one can make. Only time will tell if I am right or not, but in this article, I want to explain my theory on why Bitcoin is and will keep being valuable. My hope is that someone reading this will disagree with me and tell me why in the comments below because I hope that we can start a discussion on this topic, but for now, I will do my part and provide my reasons on why Bitcoin is valuable.
1. It accomplishes something amazing. Many people who are opposed to Bitcoin say that they don't believe in it because it doesn't actually do anything. I think that this could not be further from the truth. Bitcoin gives people the ability to transfer wealth all around the world without a third party. Imagine if one needed to transfer money to someone in a foreign country. How would they do it? Well, one could send a bank transfer assuming they do it when the banks are actually open because they are not open 24/7. They could use a service like PayPal although international transfers with PayPal are not free and those fees can end up being a large expense over time. If one wanted to avoid all of that, they could just transfer Bitcoin from their wallet to the other persons. This is one of the reasons that Bitcoin is so valuable. It accomplishes a need.
2. It works as a currency in a way where other things can't. Some of the biggest critics of Bitcoin are the supporters of precious metals like Gold or Silver. These things will never work as a currency in the way that Bitcoin does. Bitcoin is easy to verify as authentic while precious metals are not. Also, even our current currency faces limitations that Bitcoin doesn't. If I travel to a foreign country, I have to exchange my money for the other countries money. This causes problems because when I shop at other countries, I have to convert each item to my dollars to know how much of my money I am actually losing when at the end of the trip I retransfer back to my own money. It's difficult. Bitcoin would fix that. As Bitcoin becomes legal tender in more and more countries, I will now be able to go to a foreign country and instead of converting my money, I would just use my Bitcoin. This is another value that Bitcoin possesses. Also, imagine if one owns a business. If someone pays at the business by check, they must wait for the bank to clear said check. If one pays by card, they must also wait for the funds. With Bitcoin's lightning network, they see the money essentially instantly. Bitcoin has also been a currency that has seen a large increase in value since its creation. This is important. Since our current currency faces constant devaluation, it gives people an incentive to not have it. Why would one want something that will lose them buying power over a long period of time? Bitcoin has historically increased in value which gives people the incentive to want Bitcoin.
3. Bitcoin is scarce. There are 21 million Bitcoins in existence. It is impossible for anymore Bitcoin to ever exist. Scarcity alone isn't value, but since Bitcoin already accomplishes a need, the scarce element of Bitcoin provides huge value. With huge demand and very limited supply, it makes sense that Bitcoin would keep becoming more and more valuable because people will be willing to spend more and more money to have it. If one agrees with my first two points and believes that demand for Bitcoin will grow, then one must also agree that the scare supply of Bitcoin will create more value.
These are three reasons why I believe that Bitcoin is valuable and will remain valuable. If one disagrees with me, I would love to hear why in the comments below.
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