Dear Early Investor,
Is it too late to invest in cryptocurrency?
It’s a question I get all the time. Yesterday, for instance, one came via email from Chaz.
Chaz is an old friend. Trained as a software engineer, he’s very tech savvy.
He’s already invested in a couple of cryptocurrencies. Now he’s torn. The problem isn’t that his cryptocurrencies haven’t done well. Just the opposite. He told me…
I think maybe I should quit while I’m ahead. There’s so much excitement around cryptocurrencies, and I want to buy more. But the prices have gone up so much.
Chaz is right about one thing. Crypto is on a tear.
Since the beginning of the year, its market cap (which includes all virtual currencies) shot up past $160 billion.
At the beginning of the year? Believe it or not, it was less than $20 billion.
Unless you’re talking about cold fusion, no asset group deserves to go up that fast.
What’s true about the stock market is also true about cryptocurrency. The market either undershoots or overshoots. It’s almost an accident when the market gets it right.
Usually, one doesn’t flee a bull market unless something terrible has happened.
I think a couple of things are making people nervous.
For one, a lot of money is being thrown at cryptocurrencies. It’s starting to feel surreal.
But if you believe – as I do – that cryptocurrencies are on the road to producing a series of distinctive (as in different use cases) transformative technologies based on the blockchain, then you also must believe that this is no passing fad.
When you invest in a stock, you believe that the future value of the company will be higher than it is today. Amazon has 179.5 price-to-earnings ratio.
That’s at least three to four times more than I’d spend on a fast-growth company.
Are investors leaning a bit too far ahead of their skis? Probably.
Has it worked out for them? It sure has. In the past 10 years, investors are up 924%.
Will Amazon slow down one of these days? Of course. But, for some reason, nobody has come to me recently to ask if it’s too late to invest in Amazon.
Then why cryptocurrency?
It’s no different. If you invest, you must believe that the technology will experience mass adoption at some point… and that its future value will reflect such a development.
While $160 billion sounds like a lot compared to $20 billion (sticking to our stock example), to wonder if you should quit while you’re ahead on cryptocurrency now would be like asking Amazon in year 10 (2007) if it’s run out of gas. After all, going from $1.50 to $90 is pretty impressive.
Amazon’s price fell by more than 50% in 2008. But over the following 10 years, it continued to climb (with several corrections along the way).
It’s now closing in on $1,000 per share, a more than 10X increase from its 2007 peak.
Bitcoin is in year nine. Cryptocurrency investors are likely leaning too far ahead of their skis. There will be corrections ahead. Some of them will be painful.
But the upside is there for the taking. Yes, there have been incredible short-term gains. It’s made me and other cryptocurrency investors very happy.
But, to tell you the truth, I’m more excited for what’s going to happen in the next 10 years.
As my co-founder Adam puts it, cryptocurrency has gone from having a few hundred users to a few million.
The Bell Curve
Adam says that’s just scratching the surface on the way to a few hundred million users.
He’s right. And here are some interesting ways of thinking about how a technology like the blockchain develops a massive market.
One way is to follow the bell curve…
There are roughly 5 billion adults living in the world. The chart says that 2.5% of them are innovators. That’s 125 million. On the way to a few hundred million users, we’ve already reached the first hundred million.
Just more than five times that makes up the “early adopters.” You can add 675 million users on top of the first 125 million.
And it’s still the early days!
We’ll learn more about which technologies are acquiring users the fastest and meeting real pain points.
The early adopter phase is also when cryptocurrency investing enters the “Goldilocks” stage: The profit opportunity remains huge, but less speculative than it is in the pre-innovators stage, where we are today.
As we enter the “early majority” phase, the upside becomes less compelling as an additional 1.7 billion users begin taking advantage of hundreds of use applications based on blockchain technology.
It’s hard to predict a time frame for this. But cryptocurrency companies are attracting scores of top-notch developers and – as we know – plenty of funding.
It’ll probably happen faster than most people think it will.
We’re still in the pre-innovators phase. The cryptocurrency profit opportunity isn’t going away anytime soon.
Comparing the Last Transformative Technology to This One
The last transformative technology was the internet.
In 2015, McKinsey predicted the blockchain would follow the internet’s four stages of adoption. The chart below does an amazing job of breaking down blockchain’s progress to date…
You can expect the blockchain to develop faster than the internet.
As Wendy Xiao Schadeck details, the internet was developed by a hodgepodge of researchers and nonprofits before commercial parties began building applications on it.
The blockchain financially rewards its builders directly to grow the network. So its development should be much faster.
So, where are we now? We’re in the “substitution” phase. Existing applications like digital currency payments and banking transactions are serving a growing customer base. (Bank of America has more than 30 blockchain patent applications!)
But this phase still has a long way to go.
As for transformative uses and business models? They’re in their conceptual and extremely early development stages.
It’s still far down the road.
Using this lens, we draw the same conclusion: It’s very early – the equivalent of where the internet was in the early to mid-1990s.
We may think of bitcoin as “digital gold,” but it has a long way to go to catch up to gold’s popularity.
Google searches for gold far outnumber those for bitcoin…
Bitcoin is at the start of a long runway to reach the same interest level as gold. And it will get much closer.
But for now, as I’ve said, we’re still in the early days of cryptocurrency.
So if you haven’t invested yet, don’t worry. Time is on your side. My Co-Founder Adam has just written a must-read report recommending four cryptocurrencies with exceptional upside.
To find out what they are, just click here.
Founder, Early Investing