Today, I’ll go through a few of the most common crypto questions I’ve heard from readers… without all the overly complicated jargon that holds many people back from understanding crypto.

Most people believe crypto’s barrier to entry is too high. That it’s too complicated for the everyday person to participate in. But it doesn’t have to be.

Understanding these key concepts will not only make you better informed but give you confidence to start investing in and using this technology for yourself.

• Question #1: Isn’t crypto just digital money?

“Digital money” is only one use of this technology. Blockchain represents a whole new way to launch and operate a business. It’s created an entirely new asset class: crypto businesses.

Many of the world’s most innovative companies are being built on the blockchain. Take Uniswap (UNI), for example. Think of Uniswap like the new Nasdaq. It’s a “stock market” for cryptos, built on the blockchain. 

Ethereum (ETH) is a blockchain where anyone can create and launch “apps.” Ethereum collects fees from each transaction on its network. Ethereum hit $10 billion in cumulative revenue in seven years... reaching that milestone faster than Meta Platforms (META) and Microsoft (MSFT).

Helium (HNT) used the blockchain to bootstrap a global wireless network without laying a single cable or building towers.

These are real businesses, making real money.

• Question #2: How does crypto give individual investors an edge?

In traditional markets, there are all sorts of rules and barriers to investing in early stage companies. You never even hear about certain opportunities unless you run in the right circles.

If you do hear about them, you have to be “accredited” to invest in most private companies. And you often need to invest a minimum of $50,000 or $100,000. So the average investor is left out in the cold.

Many of these rules are well-meaning to prevent unsophisticated investors from investing in what they don’t understand. But they’re barriers, nonetheless. Crypto knocks down these barriers.

Unlike the stock market, cryptos aren’t dominated by Wall Street. You can buy “tokens” (the equivalent of shares in a stock) in many crypto startups for $1 or less.

Buying crypto is a new way to invest in early stage disruptive companies. A way that doesn’t exist in the traditional stock market.

The tradeoff for this freedom and access is responsibility. Research, connections, and risk management are even more important in crypto than the heavily regulated stock market.

Dozens of real crypto businesses produce millions of dollars in cash flows each day. That means we can determine their value like we would a stock.

• Question #3: How do I find quality cryptos?

You can compare how much revenue Ethereum rakes in each year to its market cap to get an idea of how “expensive” or “cheap” it is, just like a stock.

I evaluate crypto opportunities just like Warren Buffett assesses a stock. I analyze the underlying business.

It’s important to understand that most folks still don’t view cryptos as businesses, yet. The vast majority of crypto investors have a trading mentality. They aim to find a hot crypto… ride it higher… then jump quickly to the next hot trade. 

This can be a profitable strategy. But it’s rarely as profitable as identifying a great crypto business very early on and holding it as it flourishes.

Here are some basic questions I first ask when evaluating a crypto:

• Who are the key people involved? 

  
  

• What does the company actually do?

  
  

• What important problem is it solving?

  
  

• How much money is it making?

  
  

• How fast is the business growing?

  
  

• What advantage does it have over competitors?

  
  

• What are the “tokenomics?” (Think of each crypto project as its own little economy. A crypto’s “token economics” defines how money [tokens] is distributed and earned in its economy.)

  
  

• Question #4: How much of my portfolio should I allocate to crypto?

I don’t know your financial situation or your risk tolerance. So I can’t answer that question for you.

As a general rule of thumb, I suggest putting 1%–2% of your investable assets into crypto, and no more than 5%.

Above all else: Don't invest any money into crypto you can’t afford to lose. 

Only invest money you’re willing to speculate with. Don’t invest your mortgage money or your kids’ college money. There are many cryptos with exciting stories and profit potential that may compel you to “bet the farm.”

Please don’t do this. Respect the fact that crypto is the most volatile asset class on the planet.

Here’s a quick test to determine if you’re investing too much in a crypto position. Before you buy, ask yourself: What if this position loses 50% of its value by next week?

If this would stress you out, you’re investing too much.

In volatile assets like crypto, you need “staying power” to remain invested while prices are swinging around. The best way to have staying power is to keep your position sizes small.

Stephen McBride

Chief Analyst, RiskHedge

PS: If you want to go deeper on what we covered today, now’s a good time to join me in RiskHedge Venture. When you do, you get access to my full research and portfolio—plus my Crypto Masterclass, where I walk you through setting up an account and investing in five starter cryptos.

Our current Venture sale saves you $500 off the normal price, but it ends on Monday, October 5. So if you’ve been thinking of joining, don’t wait too long.