Title: Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond
Authors: Chris Burniske, Jack Tatar
Publication Year: 2017
Category: Blockchain Technology

Summary:

The authors begin by defining cryptoassets as a new class of digital assets that leverage blockchain technology. Unlike traditional assets, these digital assets – including cryptocurrencies like Bitcoin and other tokens – represent value, ownership, or access rights within a blockchain-based system.

Action:
Educate yourself about blockchain technology and understand its foundational principles before investing.

The book provides a historical context for the evolution of Bitcoin and other cryptoassets. It explains Bitcoin’s inception following the 2008 financial crisis as a decentralized peer-to-peer payment system designed by Satoshi Nakamoto. The narrative continues with the development of alternative cryptocurrencies, or altcoins, such as Ethereum, which introduced the concept of smart contracts.

Example:
Ethereum expanded the blockchain’s utility beyond simple transactions to programmable contracts and decentralized applications (DApps).

Action:
Research different blockchain projects to identify innovative features that distinguish one cryptoasset from another.

Burniske and Tatar classify cryptoassets into three main categories: cryptocurrencies (e.g., Bitcoin), cryptocommodities (e.g., Ethereum), and cryptotokens (e.g., Augur). Each category serves different purposes within the blockchain ecosystem.

Example:
Cryptotokens like Augur are used specifically for a decentralized prediction market platform.

Action:
Diversify your investment portfolio by including a mix of cryptocurrencies, cryptocommodities, and cryptotokens to mitigate risk.

The authors introduce valuation metrics for cryptoassets. They explain how conventional metrics such as Price-to-Earnings ratios are not applicable. Instead, they propose innovative models like the Network Value to Transactions (NVT) ratio and Metcalfe’s law, which suggest that the value of a network is proportional to the square of the number of its users.

Example:
The NVT ratio compares the market cap of a cryptocurrency to the volume of transactions conducted over its network.

Action:
Apply these alternative valuation metrics to assess the potential growth and viability of different cryptoassets.

In the volatile world of cryptoassets, risk management is crucial. The authors emphasize diversification, position sizing, and setting stop-loss orders to protect against significant losses. They also discuss the importance of secure storage solutions, like hardware wallets.

Example:
The book details the Mt. Gox exchange hack, where investors lost about $450 million in Bitcoin.

Action:
Implement stringent security measures, such as using hardware wallets and keeping cryptocurrencies in cold storage, away from online threats.

The authors use case studies to illustrate successful and failed cryptoasset investments. One example is the rise and fall of the DAO (Decentralized Autonomous Organization) on the Ethereum network, which was hacked due to vulnerabilities in its code.

Example:
The DAO hack resulted in a significant split in the Ethereum community and led to the creation of Ethereum Classic.

Action:
Stay updated on project developments and be cautious of investing in new projects with untested technologies.

The book discusses the varying regulatory landscape across different countries and the implications for cryptoasset investors. It highlights how regulations can affect the adoption and legal standing of cryptoassets.

Example:
The U.S. Securities and Exchange Commission (SEC) has taken steps to classify certain cryptoassets as securities, subjecting them to regulatory scrutiny.

Action:
Monitor regulatory announcements and guidelines in your jurisdiction to ensure compliance and anticipate potential risks.

Burniske and Tatar delve into market trends and technical analysis, articulating how to identify bullish and bearish market conditions. They recommend tools such as Relative Strength Index (RSI) and Moving Averages for analyzing trends.

Example:
Bitcoin’s market cycle has historically shown patterns of rapid ascents followed by significant corrections, known as “boom and bust” cycles.

Action:
Utilize technical analysis tools to make informed trading decisions and to identify optimal entry and exit points.

The book breaks down the mechanics of blockchain technology. It explains how decentralized consensus mechanisms like Proof of Work (PoW) and Proof of Stake (PoS) function, and why they matter for security and integrity.

Example:
Bitcoin uses PoW, which relies on miners solving complex algorithms to validate transactions, while Ethereum is transitioning to PoS, where validators are chosen based on the number of coins they hold and are willing to “stake” as collateral.

Action:
Understand the underlying consensus mechanism of the cryptoasset you are investing in, as it impacts both security and sustainability.

The authors emphasize the transformative potential of cryptoassets on contemporary financial systems. They argue that these assets challenge the existing paradigms of central banking, monetary policy, and cross-border transactions.

Example:
Ripple (XRP) aims to expedite and reduce the cost of cross-border financial transactions, presenting a direct challenge to SWIFT.

Action:
Explore and invest in projects that address inefficiencies in the current financial system and offer scalable solutions.

Community involvement is a critical factor in the success of a cryptoasset. The book highlights the importance of developers, miners, users, and other stakeholders in building and maintaining viable blockchain ecosystems.

Example:
Bitcoin’s value is partly derived from its strong, global developer community and a robust network of miners that secure the network.

Action:
Engage with online communities, forums, and social platforms to gauge the support and activity levels surrounding a cryptoasset.

Burniske and Tatar provide insights into the future of cryptoassets, predicting broader adoption and integration into mainstream financial systems. They foresee advancements in technology, regulation, and user adoption driving the next wave of growth for digital assets.

Example:
The potential for Central Bank Digital Currencies (CBDCs) to coexist with decentralized cryptoassets and reshape global financial systems.

Action:
Stay informed about technological advancements and regulatory changes that can influence the cryptoasset market.

The book concludes with a call to action for innovative investors to embrace cryptoassets as part of a diversified investment strategy. The authors stress continuous education, active risk management, and staying abreast of market and technological developments.

Action:
Adopt a proactive approach to learning and remain adaptable to evolving market conditions and technological innovations.

Summary Conclusion:
“Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond” serves as a comprehensive manual for investors eager to navigate the burgeoning world of digital assets. The book blends historical context, technical analysis, risk management, regulatory insights, and future outlooks to provide a holistic view of the cryptoasset landscape. It emphasizes the importance of education, diversification, and security, while encouraging proactive community engagement and staying informed about technological and regulatory changes. By integrating these actionable strategies, investors can better position themselves to capitalize on the opportunities and mitigate the risks inherent in this innovative asset class.