Week Six Post For Cryptoacademy

Greetings, crypto enthusiasts and thank you for joining me. Today we will be discussing the different classes of crypto currency assets and how each differs in terms of inherent risk and potential reward.

Cryptocurrency Asset Classes

We will classify the asset classes by the capitalization (“cap”), or valuation of the combined total number of tokens available based on current exchange rates. The classes are:

1. Large cap: those currencies whose valuation exceeds US$10 billion in total. These currencies are comparable to stock investments in blue-chip stocks. Blue-chip stocks are those of companies comprising the DOW Jones Industrial Average--large companies whose growth may be slower than small companies but which have a track record of consistent earnings and solid performance. Currencies exhibiting similar characteristics are not likely to plummet to zero valuation unexpectedly or from an unfavorable news story.

2. Medium (or “mid”) cap: includes currencies valued between US$1 and US$10 billion. These companies are typically younger companies with growth potential greater than those of large gap as they mature, but can likewise suffer due to comparatively increased volatility due to an uncertain future.

3. Small cap: any currency below US$1 billon in total valuation. They tend to be strongly influenced by rumor and news, with valuations fluctuating wildly by comparison to the other two. Lack of innovation and founder profit-taking can sometimes leave the investor holding the bag as the currency proves not to be as great an investment as once thought.

4. Penny cryptocurrency: These currencies are classified not based completely on total valuation but on individual token value. Because of the tiny valuation for each token, is it possible to have a five- or ten-fold increase in the valuation just with a news story or on rumor—and the converse is also true as one bad report can wipe a minute currency off the exchange.

Profitability of Asset Classes

It is the opinion of the author that while penny currencies are sexy as far as potential returns, those returns are not easily forecast and there are no guarantees that your capital is safe.

For a prudent investor, it is always the return OF capital that is paramount; next and only then should one consider the return ON capital. It is this reason that one should balance a portfolio so that one will have some solid returns from the more stable and proven assets.

Risk Capital and Penny Cryptocurrency

A builder doesn’t just start building a house without first considering how to get a solid foundation. In the same vein, one should prudently place their long term investments in stable vehicles, which we won’t discuss here.

Because these investments are in currency, they have no distinct value other than what another person or company will exchange for them—there’s nothing to back the currency, unlike stock in a company which typically has tangible assets with value, or intellectual property or the like that can be sold in the case of insolvency. It is with this in mind that I will caution the reader or viewer not to invest in cryptocurrency any funds they cannot afford to lose.

Create a solid investment foundation for the future in assets you can be assured will exist when you need to liquidate them. Then throw some cash at the penny cryptos—but not your mortgage money, use the funds you’d normally reserve for Las Vegas because chances are probably better than even that you’ll not see that money again (but it’ll be a fun ride!).

Watchlists

Because there is not a DOW JONES or NASDAQ Index for cryptocurrency, it is important to have a method of determining the “pulse” of the market—to get an overview of how it is performing on a daily (or even hourly!) basis.
Due to the lack of a standardized metric, and also because one typically will have investments in more than one currency at a time, it is helpful to create a matrix of valuations of differing currencies that are updated in real-time.
The best way to create this list is by selecting two or three currencies from each of the 3 major classes, and a couple from the penny currencies as well. That way, you’ll be able to keep an eye on the general trend and not have to monitor all 6,000 or so individual currencies that exist today!

Conclusion

Cryptocurrencies are one of the most exciting investment vehicles now and in the future. You should consider adding them to a well-balanced portfolio as they are part of a well-thought out investment strategy. Enjoy!

@Sapwood @stream4u