Tokens as a Service: The First to Crash

And What You Can Do to Avoid It

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Obligatory Disclaimer: To modify a quote from Tim Ferris, “I am NOT a financial advisor, and none of this advice should be taken without speaking to a qualified professional first. Also, my results [are most likely] due to pure luck and zero skill.” But…this is working for me.

The past month has been a wild ride in the cryptocurrency world. Hackers have stolen millions of dollars worth of Ether, Bitcoin prices have fluctuated massively due to fears over SegWit implementation and an impending hard fork, and altcoin prices have plummeted.

I’m no technical analyst by any means, but one trend in particular has stuck out to me over the past 30 days that is worth commenting on: tokens as a service.

These tokens are made to represent a specific service that will be created somewhere down the road, like decentralized computing, cloud storage, entertainment, identity solutions, etc. Compare these types of tokens to currencies like Bitcoin or even Decred or Litecoin, whose main function is monetary exchange, tokens as a service are more comparable (at least currently) to an IOU. The money-maker hasn’t actually been created yet.

There has been plenty of scrutiny over initial coin offerings (ICOs) recently, not only by governments, but also by companies who have made it 2+ years down the line without millions of dollars worth of startup money (Decred is a great example). While ICOs are an incredible innovation for new companies, they have illuminated a big problem for novice crypto-investors:

In the short term, tokens that represent a future service will fluctuate much more widely than cryptocurrencies.

This means that investing in an ICO (which has become nearly as addicting as crack cocaine for many investors) is much more risky in the short term for tokens as a service. Why? Because the product — the value — doesn’t exist yet. When corrections hit the market, these tokens suffer, and they suffer big time.

I’ve seen instances of this happening in my own portfolio, specifically in tokens like Golem (GNT), Storj (SJC), Sia (SC), and OpenANX (OAX). Please note that I do hold these tokens. I’m not telling you that you shouldn’t invest in tokens as a service. I am telling you that you should make sound investment decisions before investing in tokens as a service, and you should have a high risk tolerance.

Questions 2 and 3 of my article “Ask These 4 Questions Before Investing in Any Cryptocurrency” are the solution to short-term panic when your token as a service crashes.

Would I use the tech/company myself?

Do I see other people using this tech/company in 3 years?

By answering both of these questions in the affirmative (and having done all the necessary research to ensure the company you’re considering isn’t a scam), it’s pretty safe to say that your investment will make some money in the long term.

What this doesn’t mean is that your tokens are impervious to market corrections. Right now, all of the tokens I listed above are down at least 20%. Some are down as much as 51%. But I’m not looking to sell, because I believe I’ve invested in companies that will be successful in the long term. I invest in value, and you should too.

Tokens as a service may change the world in the next few years. But in the short term, they will cause investors no end of heartache. Be sure you’re in the game for the change, and not for the quick gain.

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