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One Powerful Way to Play Bitcoin, Cryptocurrencies

Updated on December 15, 2017

Cryptocurrency investors should consider this

A strategy that will prepare investors for the profitable bitcoin future

A growing number of investors and speculators know about the fortunes made and lost in trading or investing in bitcoin and other cryptocurrencies, as more individuals and institutions focus on participating in the exploding asset class.

With all the mania going on and the "fear of missing out" climbing, the extremely volatile sector should continue to move upward.

As that happens, more and more cryptocurrencies are being introduced into the marketplace that need to be closely vetted because many of them are scams or fail to meet any specific demand in the market. Those investing in them could lose most if not all of their capital when they fail.

Since the financial sector is now closely watching the new asset class, the ability to trade futures on the cryptocurrencies has now been made available, and that should lead to the introduction of crypto-based ETFs in 2018.

Even with all the momentum the Bitcoin and cryptocurrency sector is enjoying, I think there is a lot of growth ahead in 2018, with the caveat there will probably be a bubble bursting that will clear out a lot of the scams and weak currencies not performing any function the market is looking for. Afterwards bitcoin and other surviving currencies will soar to extraordinary heights.

In anticipation of that, we'll look at what wise investors should do to prepare for that moment and its aftermath when the price of cryptocurrencies are at low levels that may never be seen again.

Before I get into that, let's look at what investors should look for when analyzing a cryptocurrency in order to determine whether it's viable or not, and if it has the potential to not only survive, but significantly grow in value in the years ahead.

What determines the legitimacy of a cryptocurrency?

One thing most investors or potential investors in cryptocurrencies don't understand is they are in reality, code, or in other words - software. It is software that should have something built into it that serves a specific market demand.

Bitcoin was designed and built in order to provide a decentralized alternative to fiat money. It has built-in scarcity with the limit of 21 million bitcoin that will be allowed to be mined or validated.

The first thing to ask yourself when investing in a cryptocurrency is what function does it have that others don't, or what can it do better than others?

For example, bitcoin is a good store of value and can be used to acquire goods and services at a growing number of outlets. Possibly surprising to some, it can also be used in contracts.

Although that is true in the case of contracts and use for exchange of goods and services, it isn't that efficient in those uses. That left a door open for a new currency that could do those jobs better. That's where ethereum gained traction, as it's considered a superior way to engage in contracts. This is why I think ethereum has a long-term future; although it's possible a new token could be introduced that could compete with it in the contract business.

With any new cryptocurrency you want to know it is meeting a market demand if you want to invest early and hold over a long period of time.

The other major element to consider is the quality of code used to create the token. Some of them are susceptible to hacking. This is why when hedge funds enter the sector and start to do research on specific coins, they always hire a team for the purpose of examining the code, or hire an outside company to do so.

While there is no guarantee a specific coin will make it based upon the above criteria, it's a certainty they won't without them.

As an example of meeting potential market demand, there have been cryptocurrencies developed to store files safely online, buying and selling quicker, and for lower cost transactions giant financial institutions engage in.

Those are the types of things to look for when asking the question concerning if the crypto is meeting a market demand. If it's not, what use will it be over the long term?

Crypto Carnage in 2018?

Checking into my network of experts in bitcoin and other cryptocurrencies, the general consensus is we'll probably experience a bubble bursting some time in 2018; probably by the middle of the year, although that's just a general ballpark time frame. It could easily be earlier or later than that. It would be very surprising if it didn't happen.

Taking into consideration the market is generating more interest from major institutions and smart money, which is producing demand for more traditional investment products such as ETFs, and the strong probability of the bubble bursting in the not-too-distant future, it would be a wise move to put away some cash to take advantage of amazing deals after the sector rises from the ashes.

As boring as that may appear in light of the emotion and excitement surrounding the asset class at this time, there will be extraordinary deals after the bubble bursts, and the surviving currencies will be able to be acquired at a bargain.

On the ETF side, the first mover should produce some amazing returns for those with a long-term investing horizon. It's one of those holdings that should be invested in held.

There will eventually be a variety of ETF cryptocurrency options for all investment goals in the future, but in the beginning, I think the first mover will probably generate extraordinary returns.

Conclusion

My belief is investors should have some cash on the sidelines heading into 2018. The opportunities will be abundant, and even if the bubble doesn't pop, almost everyone should place some capital in cryptocurrency ETFs once they're approved.

In regard to holdings in individual coins, we do need to be sure they meet an actual demand or demands, and are safe from hackers. Those will have the best chance at surviving once the market reverses direction and cleans out the crypto debris that is now part of the market.

That doesn't mean all cryptos are bad, only that there are so many of them it's impossible to participate in due diligence to separate the sheep from the goats. The bubble bursting will take care of that.

For that reason it's a good strategy to diversify across several different quality cryptocurrencies, reducing risk, and to have capital available to grab more shares in the surviving coins.

In my view, setting aside some capital for 2018 and beyond is a great way to grab deals when the appear, and to put some money in early cryptocurrency ETFs that will emerge in 2018 and beyond. They are going to make investors a lot of money in the years ahead.

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