Elon Musk, a man who has been in the headlines recently, tweeted the following financial advice:
“Buy stock in several companies that make products & services that *you* believe in.”
“Only sell if you think their products & services are trending worse. Don’t panic when the market does.”
It was hardly an original sentiment from the new owner of Twitter. Many successful investors preach that you should only invest in products that you believe in. But Musk’s statement raised an interesting question about investing in products that not only might we not believe in but that we might not fully understand. And the most typical example would be cryptocurrency.
Now, you can take it as a given that many of those who invest in cryptocurrency do so because they believe it will make them money. The product, in many cases, isn’t important to them. Instead, it’s the fact that they believe those lines on the charts will continue to go up.
2022 has been terrible for crypto so far
Of course, in 2022, many of the lines on the charts have been trending downwards. Almost halfway through the year and Bitcoin, for example, is about 40% down from its highs of 2021. The same can go for all the other major cryptocurrencies, including Ethereum. As economic conditions worsen around the world, and many are tipping a recession, you can be sure that we will see many crypto investors cut their losses. And many experts will – once again – predict that the party is over.
It should be noted, however, that cryptocurrency does not only exist in the mainstream investor ecosystem. In fact, it’s created its own ecosystem. If you consider things like lending pools and yield farming, for instance. Those are methods to make crypto work for you without relying on the value of the underlying asset to always increase. Yes, some might compare yield farming to the offering of casino bonuses, in that there is no underlying guarantee of success – it’s a gamble, despite the initial reward you receive. But it’s a fair example of how crypto can work outside of the traditional buy & sell on the market.
Always invest in what you believe in
But getting back to what Musk said about investing in stuff that you believe in. When it comes to cryptocurrency, it means you are, therefore, looking for crypto assets with utility, i.e., that actually do something beyond being digital money. And there are many examples of this. Filecoin, for example, works as a cloud storage solution; MANA is the currency for the ever-growing gaming metaverse of Decentraland; Ethereum, well, it’s the backbone of the decentralized web3 movement.
Now, the point here is not to say that these cryptocurrencies – battered as they have been in 2022 – will eventually succeed. Instead, it’s to go back to what Musk said and state that they represent projects that many people believe in. People don’t buy MANA simply because they think the hocus pocus of the market will see it keep rising over time; they do so because they believe that Decentraland will be one of the most significant ‘metaverses’, perhaps even rivalling the Horizon Worlds from Meta/Facebook.
Conversely, many cryptocurrencies do nothing beyond existing. You can also put some – the stress is on some – NFT projects in that bracket, too. A lot of the investment in these projects is placed only because the investors think it will make them money. There’s nothing wrong with wanting to make money, of course. But it goes back to what Musk said about backing projects you believe in. Whether it’s Dogecoin or some badly pixilated NFT ‘art’, can you really say that you believe in the product?
In the end, if you are one to follow Elon Musk’s advice, then it can be applied to crypto. You should invest in projects that have utility – those that can make a significant impact in the real – or virtual – world. Crypto is likely here to stay, but those projects with little worth will likely fall by the wayside. If they are good enough, the others might weather the storm that has hit them in 2022.