The pandemic reset how people invest. Even the pros are learning from the newbies, judging by how Wall Street now copies Reddit. In the end, though, investing comes down to supply, demand and price points. This argument is at the heart of the cryptocurrency discussions, including Ethereum (CCC:ETH-USD), the focus of our conversation today.
Spoiler alert, I am pro-crypto but not a raging fanatic. I am a realist who sees e-coins as investment vehicles.
To that, nothing comes close to matching Bitcoin (CCC:BTC-USD) returns in years. Ethereum is not BTC but it is the best of the rest. Owning either for the long term is a viable investment thesis. They are rare and in high demand, and the debate should really end here.
However, there are hot-button topics that stand in the way of acceptance. My goal is to try and demystify them so that more people can relate – and trade them.
I find the debates in social settings around crypto amusing. I notice that often people would roll their eyes at the mere mention of the topic. Mostly this is because of ignorance, and I don’t mean it as an insult. This is still a foreign concept to most.
Therefore, we should start at the very base of the argument. What the heck is it, and is it fake?
It’s Real Alright
Ethereum is not fake because it currently sports a value of about $2,650.
The definition, however, doesn’t really matter from an investment perspective.
I don’t need to know the composition of gold to ascertain its value. All I need to know is that it’s rare and people love it. Demand will remain high for as long as these two things are true.
This works the same for crypto coins. They are rare – arguably more so than gold – and people love them. Whether I personally believe in them or not is immaterial to the investment thesis.
My next comparison draws a chuckle every time I use it. At one point, gold was just a yellow rock. Then someone convinced a whole bunch of people that it’s beautiful and it’s worth hoarding. The same story is unfolding in Ethereum and the rest of the crypto cohort.
Those who got over the hump of traditional thinking hangups are enjoying plenty of profit opportunities. My easiest wins this year have come from buying into major correction in crypto, including Ethereum. Since they trade like currencies, the opportunities are almost non-stop and around the clock. So far, it’s been fun trading the price action.
Ethereum Is Not a Currency – and So What
I’m usually a fundamental trader who relies heavily on charts. I found success interpreting crypto charts just the same. Currently every dip in ETH-USD under $2,000 per coin has presented profits for fast hands. Longer term, the strategy is similar to what it was for gold decades ago. To balance a portfolio of assets, collecting coins over the long term is a proper course of action.
Those who are super fans of crypto do it a disservice by going overboard with their praise. Ethereum is not perfect. But nothing else is either. I like the fact that they are somewhat independent from central bank controls. E-coins are liquid and transferable incredibly fast and cheap across the world.
They are not currencies, nor do they need to be. Gold hasn’t been currency for ages. In fact, I can pay for a soda with crypto today as fast as I can take out a card. I couldn’t do that with gold because the process of monetizing it takes days.
With a crypto app, I can instantaneously liquidate enough Ethereum to pay for my purchase at the point of sale.
Focus on What Matters to Value
Knowing what exactly is Ethereum is not the point. For me, how to make it grow wealth is. Therefore, I concentrate on its availability, demand and price.
A sane course of action is to hold a core position and slowly grow it over time. In addition, investors could also trade around that for partial shorter-term profits.
There is the risk from the collective mindset. Crypto coins tend to follow the king – Bitcoin. If it corrects, they will all correct. Technically, there is risk from BTC-USD losing $30,000. It could bring a very sharp correction in Ethereum. Should that happen, it would be a dip investors should consider buying.
I’m not calling for a crash, but if one ensues I would welcome it.
I am neither a mega-fan of crypto nor a hater. I am a realist who sees a change coming and wants to get on board the trend early. Those who resisted getting online, I’m guessing last year they all caved. The shutdown forced new habits to form.
I prefer to take initiative and follow my own schedule. Waiting for the last minute is never a great strategy. Love it or hate it, you better get to learning about crypto before it’s too late.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
