Saturday, January 8, 2022

Journey To Retirement Part 22 -- CryptoCurrency

After blogging 4 parts on Blockchain Investment (Part I, II, III, IV) it's unbelievable that I'll have no investment interest in it.  So, now am including this into the ongoing restructured and rebuild Investment Portfolio (refer here).  In fact, June 2021 was the starting point in which I got into cryptocurrency.

Cryptocurrency investment shall be group under the "Blockchain" section of the Investment Portfolio.  Though the name said cryptocurrency, it is in fact a basket of crypto coins and tokens.  There are reasons which I will not put in the exact name of these coins and tokens and instead group all as a single entity.  As of this point of writing, the total number of coins and tokens inside this entity stands at 18.  The main reasons for not revealing the name of these 18 coins and tokens are :-

1. Crypto coins and tokens investment is relatively higher risk than stocks investing.  In stock, there is an underlying company or companies (ETF is a basket of companies) associate with it.  The risks could be examined from the company's financial aspect (P&L statement, Cashflow statement, financial ratios, etc) and business aspect.  Though these are not foolproof ways to gauge the risks, it is afterall still a line of defence for investors.  In cryptocurrency, the underlying backing it is the blockchain project.  There isn't any financial aspect one can examine it like stock.  The only way to determine whether it is worth investing is what and how the blockchain project can achieve that eventually translate to financial gain for an investor.  Evaluating the prospect of the blockchain project afraid is subjective and to avoid others just blindly follow without fully understand the risk,  not revealing the coins or tokens is the best way out.

2. The barrier to enter and exit cryptocurrency is almost as good as non existence meaning tomorrow I could just add some more coins or tokens, sell some coins or tokens or even swap one coin or token to another when I have valid reason to do so.  Documenting the name of these coins and tokens will require very frequent updating, not at all constructive and productive from all aspects.

In investing means long time frame for me.  I have that patience to hold stocks for more than a decade so why should it different in cryptocurrency ?  There is also another reason why I'm not afraid to hold it long term -- capital.  However, this is unlike stocks whereby one could get dividend as part of the investment return, cryptocurrency investment is pure capital gain type.  Thus,  I'll classify cryptocurrency as "Strategic Investment'.

In cryptocurrency, I could divest at any time if deem fit.  I could swap coin A for coin B instantly if after evaluating the latter having a better prospect in its blockchain project.  Today I could divest away the whole cryptocurrency entity, tomorrow I could start a new one.  I could hold for even decades if no valid reasons to part way with it.   This is what's meant by "Strategic Investment".

The crypto coins and tokens I have so far did not need to put a single cent of capital into it.  These are acquired by mining, reward and staking.  This will be so even going forward.  As such, the cost of investment is always $0.  In mining, one needs the equipments but the cost of the equipments has been taken care of from day to day separately so it makes no sense to include that as cost of investment.

With $0 cost of investment, how to evaluate the performance in the Investment Portfolio ?  At any price, the return is always infinity (NaN) since denominator (cost of investment) is 0.  As such, the absolute amount at market price (for unrealized) or realized gain will be recorded as a relative to the cost of investment for the "Income" section in the Investment Portfolio.  This will also provide me a comparative study between the performance of cryptocurrency and stocks (capital gain + dividend return) for a specific time duration.