What are the major things that make crypto unique from TradFi?
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Like a lot of people, I came to crypto after being involved in more traditional finance, or what the crypto folks call “TradFi.” One company I worked at was very eager to expand into digital assets, while others have been highly suspicious of the whole sector.
But I’m jumping the gun a bit – what I want to focus on this week is what investing lessons carry over from TradFi and ways you can invest in crypto through traditional finance methods, such as 401(k)s.
TradFi Vs. Crypto: What’s the Same and What Is Very Different
(Dall-E/CoinDesk)
It’s useful to understand the things that carry over and what is radically different so you can see how you can still leverage skills (if you have them) in technical analysis to guide decisions.
By contrast, fans of fundamental analysis will find a lot of those techniques simply don’t apply to cryptocurrencies. After all, how can you look at one of the most popular ratios, price to earnings (P/E), in something like bitcoin? There’s no “company” running the decentralized currency to have a quarterly earnings call and report on revenue. But don’t despair, there are other fundamentals to dig into with crypto, and we’ll be covering that in the weeks to come.
For this week, let’s start with understanding the major things that make crypto unique from TradFi:
While we’re talking about traditional finance, it’s important to note that the divide between the cypherpunk crypto natives and buttoned-up Wall Street investment types is shrinking. Not only are more firms opening up ways for investors to diversify their portfolios with things like bitcoin ETFs, crypto options and bitcoin trusts, institutions and companies themselves are banking on crypto in their balance sheets.
As you begin to weigh what best suits your investment goals you might want to consider some of the more traditional entry points:
One unfortunate thing that both traditional finance and crypto have in common is a problem with Ponzi schemes. Ponzi scheme operators often tap into a nascent trend or technology and leverage their “mastery” of it as a selling point for targets who want to “get rich quick.”
Crypto is a prime target for the masterminds, who also often have extraordinary sales skills as they promise they have “superior knowledge” and can use this to beat the market and guarantee astounding returns. Spoiler alert: They can’t.
Next week we’ll dive into what makes up the “fundamentals” in crypto and how blockchain offers some really interesting data that you can dive deep into and discover a lot about how sound an investment a token may be. Until then, hit me up with questions and feedback!
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Disclaimer: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.
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