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The Cynic’s Guide to Buying and Selling Altcoins: Part One of Many

The easiest thing in the world is to say “Don’t buy Altcoins.”

And you should not buy penny stocks on the Vancouver stock exchange.

Finally, you should not try to count cards at a blackjack table in Vegas while partaking of the free booze offered by those fine establishments.

But I would be a hypocrite if I wrote that. Because I have done all three.

Besides, I doubt you are reading New Currency Frontier for advice on how to interpret the latest quarterly earnings on Apple.

Altcoins:Where Do They Come From?

Before you buy something, it is a good idea to know what you are buying.

In the world of altcoin buying, most people (I deliberately did not use the term “investors”) do not have the slightest idea of what they are buying.

Some altcoins are backed by millions of dollars in funding and dozens, if not hundreds of developers.

But a lot of altcoins are backed by two guys working out of their basement with a website and a nice PowerPoint presentation.

In a hot market, even the altcoins created in Mom’s basement can go up. But that’s not really a good investment strategy.

In a market going cold, EVERYTHING will go down, AND FAST.

And that’s the first rule of buying and selling altcoins: If the market is not hot, dump the altcoin.

Waiting for the coin to “bounce back” is the penultimate signal you are a sucker.

These coins go to zero all the time. MOST of them go to zero. Check out this website:

But knowing what type of coin you have bought is the key to separating coins that have a chance of become a 10 or 20 bagger versus the no-chance coins that will be dead in one year or two.

In general, there are three types of altcoins: tokens, forks, and original source code.

Let us look at all three separately:

Tokens

These types of coins are generally the very bottom of the barrel, because they are not really coins.

Tokens can cbe reated by ANYBODY using the Ethereum network.

By writing an Ethereum smart contract, ANYBODY can create tokens and give them a name (like Barfcoins!) and issue millions, if not billions of tokens.

Then they can issue tokens to themselves, their buddies and by the way, anybody who is willing to pay for them.

And therein lies the problem. ANYBODY can create tokens on the Ethereum network, for the cost of some Ethereum.

The last time I looked, it cost about $2-5k to make a token on the Ethereum network.

During the ICO craze, promoters were raising millions with nothing to show buyers but tokens and a powerpoint presentation.

However, there are exceptions. Stablecoins are tokens built on the Ethereum network.

Tether has a market cap of nearly $9 billion USD as it’s widely-used in the cryptoworld as a digital US dollar. It’s a token backed by such big players in the crcrypto world ike Bitfinex.

Summary: Virtually all Ethereum tokens issued in the ICO craze of 2017-18 are now worth a few pennies or gone to zero, with the significant exception of Tether.


Forked Coins

Every digital coin is a technology platform. It has a code base and usually the code is open source, meaning anybody can modify and publish the modified code.

When a developer or development team changes the code base of an existing coin, and the change is not accepted by the rest of the community, then the coin splits in two. That’s called a hard fork.

Bitcoin, the grandfather coin of crypto, has been hard forked 44 times since 2017. These include such coins as bitcoin cash and bitcoin gold, which have some market value.

But note the other 40+ coins produced by the hard-forking of the bitcoin code have no market value.

A “forked” coin is almost by definition a coin backed by a development team that has made changes to the code base that have been rejected by most of the community.

Hence the attempts by the Bitcoin Cash development team and the Bitcoin SV team to claim they are working on the one, “true” bitcoin.

But it must be noted, these coins have proven to be bad bets over the years.


Original Coins

How the source code of bitcoin was written is legendary.

It has a thriving and dedicated developer base. And that shows through in its valuation, with a total market cap of $181 billion USD

Ethereum is second in valuation worth $27 billion.

Of the top five crypto-coins by market cap, three are original code, one is an Ethereum token, and one is a bitcoin fork.

Crypto-coins with their own codebase and a thriving developer community are the “safest” (relatively speaking) coins to buy.

Or put in another way: a coin that is a) Is a fork or a simple token off the Ethereum network and b) Has no development team, that’s a very bad sign.

And during the ICO craze, there were a LOT of those coins floating around.

Conclusion

This isn’t a guide on WHICH altcoins to buy.

It’s a guide how to decide which altcoins look like a very bad place to spend your money.

If you buy any altcoins, its less an investment and more a gamble.

But I must confess, I have been accumulating Ethereum all this year. And I’m sure glad I did.

DJ

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