I invest a small amount of “play money” in cryptocurrencies. And 2024 has been a great year for them.
In fact, I sometimes share stories of people who tried to invest in Bitcoin when it was worth less than $1,000 per coin, but were unable to transfer money to a crypto exchange. In the end, I gave up and ended up regretting it for years to come.
Along those lines, what would you have done if you had joined Ethereum in its early days? If you had invested $1,000 at the start of the second most popular cryptocurrency, how much would you have now?
Ethereum past and present
In July 2014, Ethereum held an initial coin offering (ICO) to raise funds for the project through Bitcoin. It worked like a crowdfunding project, with investors buying early access (paying in Bitcoin).
One year later, the actual Ether blockchain coin (ETH) started live trading at $0.31 per coin.
As of mid-April 2024, ETH is trading at $3,157 per coin. This represents an increase in value of approximately 10,000%.
If you invested $1,000 at $0.31 per coin, you would own 3,225.81 ETH coins. At current prices, it's worth $10,183,871.
Today's price does not represent the peak of Ether. On November 9, 2021, ETH reached a dizzying $4,815. If you had cashed out your ETH coins at its peak, you would have earned $15,532,258.
Virtual currency halving
Because cryptocurrencies exist in ones and zeros, rather than physical gold and any supply limitations that come with it, creators of cryptocurrencies must incorporate some kind of scarcity.
For Bitcoin, this means halving the coins paid to miners per block on a schedule every 210,000 blocks. In fact, the next halving could have happened by the time this article is published in mid-April.
Like Bitcoin, Ether also needs to increase scarcity and limit production over time. But unlike Bitcoin, it is much more complex. This will be done through a “triple halving” process that includes fee burning, staking, and token issuance rate reduction. For more geeky details, read the Ether 3x Halving Process.
Unlike the highly publicized Bitcoin halving event, it happens continuously. But it gives the same result. This means that new supply to the market slows down, increasing value.
speculation and investment
I claimed at the outset that I was “investing” a small amount of money in cryptocurrencies. But the simple truth is that I consider it speculation, not investment.
What's the difference?
Investments have intrinsic value. That value can come from uses such as housing. Or, in the case of a business or an apartment, it may come from income. The value of an investment can be measured based on its return or based on comparable assets in the same market.
Cryptocurrency does not generate revenue and has no concrete use. They only have value if someone pays for them, similar to collectibles like baseball cards or, dare I say it, non-fungible tokens (NFTs). To me, that makes them speculative.
Do decentralized currencies have inherent value? I imagine so, but I don't know what that value is because there's nothing concrete to measure it.
Please try playing with money that you can afford to lose with speculative assets such as cryptocurrencies. Just don't bet your farm on something that won't produce returns or measurable value.
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