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Crypto investing - it's just like business

Most people consider investing and running a business as two separate things, but what if you invest with an entrepreneur's mindset?

3 March 2024

The benefits are surprisingly enormous. Not only will you approach investing with less emotion, but applying some analytical decision-making skills in your investing journey can increase your chances of making more money.

How does this work in the context of crypto investing?

Crypto buyers are your customers

If “crypto investing” counts as a business, then what sort of products are we selling, and to whom? What pain points are we tackling and offering to those willing to exchange money for them?

Yes, we can sell Bitcoin, Ethereum, Dogecoin, and all the other crypto tokens in existence, but we didn’t make them, did we? We didn’t create Bitcoin, or even deploy any smart contract programmes on Ethereum. We didn’t market Dogecoin as a meme coin. We simply bought them on the crypto market at a certain price.

That may be the case, but that’s not really an issue for resellers and importers. They didn’t create the products they intended to sell, either. They simply moved them from production sites to places closer to where end users will find them. That’s a form of service.

When we buy crypto, we are providing liquidity (cash) to the previous owner. The previous owner would rather let go of the token and instead hold money. And when we sell crypto, we are providing a chance for the next owner to make additional money should the asset appreciate. Wouldn’t that constitute serving the market in some way?

Selling crypto when market needs them

Some businesses are seasonal by nature. Hoteliers and restaurant owners often see their establishments fully booked and crowded at peak holiday seasons. That’s how they're able to charge more and not risk losing potential customers. Often, they can get overwhelmed by the demand for good rooms and tasty meals, so they hire extra hands — seasonal workers.

Similarly, if you’re an astute crypto investor, when you find the market sentiment to be overall positive, you’re likely to sell some of your crypto holdings. You’ll find plenty of buyers who are willing to buy your crypto, even at prices much higher than at the time you bought them.

There are also other ways to serve the market and help other people get richer with your crypto, without selling your crypto. Decentralised platforms like Aave, Compound and Curve allow you to lock up your crypto in a smart contract, which allows traders to borrow them at an interest. Isn’t this similar to renting out your spare room to a backpacker?

Offering a range of products with varying uses

Crypto tokens have a wide range of uses. Some of them carry the same value of real-life gold and shares of businesses (known as tokenised real-world assets). Some of them give huge discount benefits for holders or give the right to access certain content and services (known as utility tokens).

Others are used to pay for network fees and for securing the network against hackers. For example, ETH is used to pay for transaction fees for whenever an action is done on the network. A huge amount of it is also required by network maintainers (a.k.a. “validators”) so that no attacker can take control of the network that easily.

Still others exist for the sake of existing. These are the “meme tokens” that are meaningful to someone who loves collecting them and trading them for profit. Crypto tokens exist for a variety of reasons, and people buy them for a variety of reasons.

Governments also try to give labels to crypto assets, but those labels are often more helpful to them, and not to investors. The New Zealand Internal Revenue Department happens to classify crypto assets as property for tax purposes, so any profits you make from crypto gets taxed in a similar manner to a property gains tax.

The United States Securities and Exchange Commission views almost every crypto token as securities. They see anything that resembles an “investment contract”, where investors could profit from the efforts of a third party (usually the token issuer), as a security — even meme coins.

But whatever they may be in the eyes of the law, all crypto assets have one unifying characteristic — they are collectible, and their value is for the most part subjective.

Investing, while thinking like an entrepreneur

In short, crypto investing is like running a seasonal business where the items you’re selling are digital and collectible things that are classified differently by different institutions. Your entrepreneur friends may need to perform mental gymnastics to make sense of that.

The point of this exercise is really down to seeing crypto investing in a different way. If you treat it like a business, you may make more money from it. That’s because you will be more serious about it, and not make anti-business decisions — like buying high and selling low.

If you invest in crypto and think like an entrepreneur, you’d do your research thoroughly and find opportunities before most other people do. You would even make decisions that seem counterintuitive — buying a crypto token when the market seems quiet and selling them when prices are rising and when people are under the spell of “FOMO” (fear of missing out).

Running a business and crypto investing are both risky activities. With the latter, you can decide exactly how much money you’d like to risk. But unlike running a business, no matter how small you started out, you can always immediately get started with it.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.


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