In the burgeoning cryptocurrency market, how do you pick a winner among more than 1,000 possible virtual currencies? The one with the strongest performance or best buzz?
This is not a new problem. Stock investors have been grappling with this question for a long time. Why should cryptocurrencies be any different?
It's perplexing. Bitcoin is up one one day and down the next. Litecoin and Ripple are blossoming. And there are about a thousand more on the horizon. The volatility is horrendous.
Then there's the prospect of regulation, which may lasso the runaway growth of cryptos. When the news of the South Korean government banning digital coins and trading hit yesterday, some $100 billion in market value evaporated.
(TORU YAMANAKA/AFP/Getty Images)
This isn't to say you can't make money in cryptos. Many are, but far more will lose money. They will run from crypto to crypto and badly time the market. Stock market investors know this "whack a mole" game well -- and most of them lose money.
There's a a reason why Warren Buffet recently said on CNBC that "in terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending."
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Some will crash big time. It's hard to pick winners when technology is involved. Speaking of technology, the blockchain behind cryptos certainly has a future. It can be used in payment systems and contracts. That part of it is already a winner.
The promise of blockchain making the movement of money more efficient has changed the tune of people like Jamie Dimon, CEO of JP Morgan Chase, who previously called Bitcoin "a fraud" -- and now says he "regrets" that statement.
"The blockchain is real," Dimon told Fox Business. "You can have cryptodollars in yen and stuff like that. ICOs ... you got to look at every one individually. The bitcoin was always to me what the governments are going to feel about bitcoin when it gets really big. And I just have a different opinion than other people."
There are even more wildcards that will hurt cryptos that will make picking the most profitable one over time difficult. Governments will move to regulate them. Exchanges will impose control: There are already Bitcoin listings on futures and options exchanges.
Ideally, most Main Street investors would benefit from a mutual- or exchange-traded fund that holds a big basket of cryptos. That's how index funds work: Diversification and low costs work for everyone.
Current crypto trading costs are exorbitant and most average investors will have a difficult time with the futures and options products. And "mining" cryptos with computers eats up a lot of electricity and processing power.
But such products don't exist yet and efforts to bring them to market are lagging the demand. In the interim, keep your powder dry. There are profits to be made in cryptos and blockchain, but it's too early to sort out winners and losers. Patient investors will always reap the highest dividends.
John F. Wasik is the author of "Lightning Strikes," "Keynes's Way to Wealth"and 15 other books on innovation, money and life. Follow him on Twitter and Facebook.
