Over the past 6 months I have received many inquiries from clients interested in learning more about Cryptocurrency and Cannabis Stocks. It’s obvious that these two investment classes have gained popularity over the past year, and with the insane increase in prices that we have seen, its no wonder many of you are interested in investing in them. This blog is simply meant to provide general information to help you learn more about cryptocurrency and cannabis stocks, you should further your understanding with your own research after reading this.
Before I begin, I want to clarify that in no way is this post meant to be taken as investment advice. It is your choice if you would like to invest in cryptocurrency or cannabis stocks.
First off, can you buy either through me? No
Cryptocurrency is fairly new, and its surge in popularity – mainly Bitcoin, has gathered a lot of media attention. Before you invest, make sure you understand what cryptocurrency is and how you can go about valuing it.
Here is a definition of Cryptocurrency: https://en.wikipedia.org/wiki/Cryptocurrency
Some things to note, there are over 1600 cryptocurrencies with new currencies being created every month, as it is easy to create. There are only 180 Fiat currencies in the world, which is currency backed by a government. Definition of Fiat Currency: https://en.wikipedia.org/wiki/Fiat_money
For a currency to be increasing in value, it means that the demand for the currency is increasing. Why would a demand increase? Well currency has two main purposes:
1. Medium of Exchange – people using currency for transactions
2. Store of Value – people will hold it because they know it won’t devalue over night. This is why the USD is the most widely accepted currency in the world, as you can go to bed at night and not worry it will drop in value by 50%.
Why are you interested in Cryptocurrency?
Do you plan on transacting in it? Or are you looking to double your money?
This is important to determine. If the majority of people who are looking to invest in cryptocurrency are doing it solely to make high returns, the demand for cryptocurrency will increase but what is the real value? At some point if cryptocurrency is to be widely accepted it will need to stabilize in price. Once it stabilizes and you can no longer make a large profit off of it will you still hold it?
These are all questions you need to ask yourself. With a stock you are buying shares of a company. Say you buy a Canadian Bank for example, when you buy the bank stock, you make a return in two ways, you get a dividend and you make money on the increase in value of the stock. The dividend comes from the fact that bank is sharing its profits with you. The increase in value of the stock comes from the potential growth of the bank, the more profitable the bank is, the more likely the bank’s stock will increase. Determining value is easier as you are investing in a company that sells products/services and you can make predictions on whether or not these companies will do well.
This is how we invest for you. We do our research to ensure we invest your hard-earned money in mutual funds, that are investing in profitable, growing companies. You wont double your money in a month, but your money will grow over time.
Back to Crypto, how do you value it? Why are you buying it? Can you afford to lose money if it tanks?
These are all questions for you to answer before you invest in any cryptocurrency. There is no doubt people have made money but there could come a time where the value doesn’t justify the price and it blows up.
I think the currencies aren’t worth anything. There are many companies who are adding ‘blockchain’ or ‘bitcoin’ to their name and seeing their shares double in value over night, why? This definitely reminds me of the dot-com bubble, and with ETF’s and Funds starting to be created to buy crypto, it is starting to look like the 2008 mortgage backed security crisis all in one. Much of the increase in Bitcoin, in my opinion, is due to artificial demand that is created, as to buy alternative crypto coins you likely need to purchase them with bitcoin. So, you spend $CDN to buy $BTC to buy $Altcoin.
To “cash out” you must find a buyer who is willing to purchase your coins. But what if no one wants to buy your coins? You can’t sell them back to $CDN, which means you are stuck with a currency that no one wants and thus you lose your money. At some point demand is bound to fall. Either naturally as the market gets “overbought” or big crypto currencies like Bitcoin take over and get universally accepted, which will cause a stabilization in the currency thus resulting in lower demand (as the people looking to transact will still hold and those looking to make a quick buck leave) thus bringing down the price with it to a stable value.
Don’t get me wrong, Blockchain technology has merit and will still be around when the dust settles, but there is no way 1600+ cryptocurrencies will be around in 5 years. At best it will be a few big ones which will be widely accepted, with a stable price that transacts like any other currency.
Now that was a lot, click here to read my take on Cannabis Stocks