Is there any way to buy at the lowest point? Also talk about cash flow and coin flow

1. Cash Flow

What is the most important thing for investment? Different people have different answers to this question. For me, the most important thing in investment is to have a steady flow of cash flow.

When investing, you need to deal with volatility and uncertainty. To deal with volatility and uncertainty, you need to find a way to minimize this uncertainty and the risk of volatility. The most direct understanding is: you need to use certainty to fight uncertainty. When the certainty you provide can cover the uncertainty of the market, your investment success rate is very high, and you can start to enjoy the benefits of volatility.

What is the certainty that you can control? In addition to your cognition and your patience, what really matters is that you can generate a steady stream of cash flow, which is the most important certainty in investment.

Although investment foresight is important, it does not mean you do not have to bear the market fluctuations or systemic risks. For example, even if you buy Bitcoin, you still need to bear the risk of a 50% drop in a single day, and you need to hold the currency for two or three years or even longer, and you also need to bear the risk of a drop of more than 90% over a long period of time.

Take the bottom-fishing for example. No matter how good your vision is, it is difficult to buy at the lowest point. So is there a way to buy at the lowest point? Yes! As long as you have a steady stream of cash flow, you buy a little every time the market drops by 1%, or a little every time it drops by 5%. You will eventually be able to buy at the lowest point, even if it is not the lowest, it will be within a few percentage points of the nearest point.

So bottom fishing is not a question of whether you can bottom fish, but a question of whether your cash flow is long enough. As long as your cash flow is long enough, bottom fishing will change from an uncertain thing to a certain thing. This is a typical use of certainty to fight uncertainty.

Take patience for example. People often say that patience is important in investment. If you have enough patience and can endure the pain of a 90% drop in Bitcoin, you can get a big enough return. Patience is indeed important, but even if you have patience, anyone who sees a 90% drop will always feel uncontrollable anxiety and panic. This is basic human nature.

Patience is not something that comes naturally. It is directly related to the amount of money you have. If you only have one or two hundred dollars, you can't be patient for 10 years. What is patience? In my opinion, it is very simple. Patience is a continuous cash flow. If there is a continuous cash flow, there is enough patience. Without a continuous cash flow, it is difficult to have enough patience.

People often say that Buffett's success is because he has enough patience, and that he can always get the bottom because of his good vision. In fact, vision is only part of it. His investment vision is of course good, but what is really important is that Buffett has a steady stream of cash flow. The furniture stores and candy stores he acquired wholly, and the banks under his control can provide him with a large amount of cash every year. The insurance company he owns can not only generate operating profits, but also part of the premiums it collects can be used for free for decades, and only need to be returned after decades. So for him, his funds are not only zero cost, but even negative cost. This continuous negative cost cash flow is the secret of his success. It is precisely because of this steady stream of cash flow that he can always get the bottom and buy high-quality assets at the most critical time.

2. Coin Flow

Now we understand the importance of cash flow to investment, but it seems to be of no use because there is no cash flow in the blockchain industry.

In the blockchain industry, whether you like it or not, this is a basic fact: currently, the entire blockchain industry has no cash flow.

Not only is there no cash flow, there is no cash at all.

The blockchain industry is still in a gray area for the time being, and legal currency has not yet been involved. Currently, many businesses in the blockchain industry are based on currency. Even contract transactions and option transactions are settled in currency. It’s all currency, no cash. What can we do?

Although there is no cash flow in the blockchain, it has something that is very similar to cash flow, which is Staking. Hoarding coins and pledging them can generate interest. This interest is paid out in the form of coins. As long as you keep staking, the interest on the coin will also be generated continuously. We give it a fashionable name, called: Coin flow.

Regarding Staking, I have written an article before, saying that there are some problems with its design:

For example, the income from Staking comes from the issuance of new coins. When the time span is long, the number of such issuances will become very large, which will seriously consume the value of a single coin. In other words, the Staking model ensures that most projects have no long-term investment value. Moreover, the lock-up model of Staking is equivalent to distributing the income from the issuance to the lockers, thereby diluting the value of the coins held by those who have not locked up. It is believed that this is using the losses of most people in exchange for the gains of a few people. In short, there are some problems.

On the one hand, the staking model does have some problems, but on the other hand, it is an objective existence and a common model in the industry, and it is estimated that this model will be maintained for a long time in the future. Therefore, we can only accept this status quo, and then further think on this basis and build our investment theory and strategy.

3. Conversion between Cash Flow and Coin Flow

Since one needs to generate cash continuously and the other can generate currency continuously, what is the relationship between the two?

The relationship is actually very simple. If you sell the coin at the current price, it will become cash, right? If you buy cash at the current price, it will become coin, right?

Therefore, coin flow and cash flow can be converted under certain circumstances. If we use a formula to express it, it is:

Coin flow * cash price = cash flow

A continuous flow of coins, multiplied by a realization price, equals a continuous cash flow.

Through this formula, it is equivalent to establishing a channel between Coin flow and cash flow, so that the two can be converted into each other.

Generally speaking, the total amount of your coins is limited, and the interest rate for generating new coins is also stable, so the amount of cash flow depends entirely on your cash-out price. If the cash-out price remains unchanged, then the coin flow and cash flow are equivalent, but the key to the problem is that the price of coins in the blockchain industry fluctuates too much.

If the price of Coin keeps rising, then the Coin flow is obviously better than the cash flow at this time;

If the price of Coin keeps falling, then the cash flow will be significantly better than the Coin flow.

If someone can accurately judge the buying and selling points and achieve high buying and low selling, that would be the best, but this is impossible because it involves judging the price, and judging the short-term price is a very, very difficult thing. So in reality, there is still a big difference between the two.

For example, in reality, miners face this problem: miners invest cash and receive a steady stream of coins, which is the Coin Flow.

How to deal with these coins at this time is a test of the miners' ability. At present, most miners deal with it by selling some coins immediately after mining to balance daily costs and retain cash reserves for the future, and then hoard the remaining coins and hedge them with financial means. In practice, this is a good way to balance risks and benefits.

For the current blockchain industry, I think it is not yet time to think about the problem completely from the perspective of currency standard or coin flow, because it is not enough to resist the risk of high volatility in the currency circle, because it itself is equivalent to leverage.

I think that we still need to focus on cash flow and treat coin flow as an asset. Or we can walk on two legs. On the one hand, you have a continuous cash flow channel, and on the other hand, you have a continuous coin flow channel. At the same time, you can open up the two and realize mutual conversion. In this way, no matter how high or low the price is, you can remain calm. When the price is low, you will have enough money to buy at the bottom, and you will not be afraid of the price plunge. In this way, you will have enough patience and enough time to grow with the entire industry.

4. Cash flow based on USDT

Of course, it cannot be said that the blockchain industry has no cash and cash flow. For example, USDT can serve as a stable currency and cash.

USDT itself is both cash and digital currency, and has the characteristics of both. If there are blockchain businesses based on USDT in the future, and if its dividends, interest payments or other derivative businesses are all based on USDT or other stablecoins, then the blockchain industry can actually generate "cash flow" at this time, and the cash flow gap of the entire industry can be filled. At that time, there will be a chance for coin flow and cash flow to coexist.

However, there are still few similar businesses at this stage, which makes the cash flow of the blockchain industry far from enough. I believe that there will be more and more similar businesses in the blockchain industry in the future, and investors in the blockchain industry will have more choices.