Over the past few weeks, Bitcoin’s meteoric bull run has been grabbing news headlines, as well as the imagination of ordinary folks who never ever dreamed of day trading, investing or holding financial portfolios in their lives. The notion of a piece of virtual currency that has valued almost at 20,000 dollars and could well hit a million, if some highly ambitious price projections are to be believed, has made everybody curious about what the heck this Bitcoin thing is.
Casual retail investors – people with fixed incomes, mortgages and safe, retirement policies – are wanting a piece of the action too, and joining Coinbase.com – the first place where newbies go to buy cryptocurrency — making the Coinbase app one of the most downloaded free apps in the Apple store.
On one hand, there are financial experts like JP Morgan CEO Jamie Dimon calling Bitcoin out as a “fraud”. On the other, there are the daily price action charts, showing Bitcoin thumbing its nose at every scrap of financial common sense and breaking thousand dollar milestones on a weekly basis.
When big money is to be made, and fear-of-missing-out (FOMO) is playing on people’s minds, even the most cautious investor will be tempted to try their hand at the game of chance.
And that is exactly what is happening in the aftermath of Bitcoin’s trailblazing rise to the moon. People are suddenly talking about crypto-currency and trying to buy a fraction of a Bitcoin at an unrealistic price, believing that the currency can only go up. While some want to purchase and hold on to their tiny crumb of the Bitcoin cake until it hits a valuation of over a million in the next 2-5 years, others are lending out their precious holding on lending platforms that promises at least a 1 % daily return, computed by a `volatility bot’ genie that nobody has seen nor understood.
The value of altcoins (cryptocurrencies with smaller market caps) has started going up too, as people who couldn’t afford a whole Bitcoin chose to invest in Cardano, Dash, Ripple etc. hoping they too would grow up to be Bitcoin one day.
And Blockchain technology has become household knowledge. People who haven’t written one line of code in their lives are debating whether Hashgraph, with its faster transactions and ability to reach quicker consensus, will soon make Blockchain obsolete.
This is the current state of euphoria in the cryptocurrency world. And it is safe to say that we have never witnessed such remarkable hysteria ever in the financial world where people were willing to bet and borrow against an intangible asset with a perceived value that may or may not even exist.
Now, there’s `chasing dreams’ and then there is chasing `dreams’. If you’re a millennial with knowledge of technology, for example, and you want to start a business in your hometown that serves a need that has been there for many years, I’d say it’s an awesome dream. Sure, it’s going to take a lot of hard work and consistency, but you can still be optimistic in your endeavor because you’re building a tangible asset that can be sold or valued some day in hard currency.
But Bitcoin?
It’s a dream that – at least as of now – has no basis in reality. The concept is still so new and the technology is still so untried, that nobody can predict which way it will finally go. How en masse the technology will be adopted. What decentralization will finally look like. How hacking, transaction speed and other problems will be fixed. We don’t know if the Bitcoin community will stay unanimous and not bicker over every hard fork in the currency’s journey. And what if similar altcoins with sounder technology happen to beat Bitcoin in its own game one day?
I have been aware of the existence of Bitcoin since 2011, but common sense told me to stay away from gambling away my family’s future on the basis of lofty dreams and unsubstantiated hearsay. If I had millions of dollars to spare, I would probably have invested a small piece of it in Bitcoin at the time. But never would I put my faith in something I cannot quantify in hard value, like real estate or gold or silver. Or a business, that I can build from ground up and know I am accruing value each and every day I am working at it.
My worry is that a lot of people will be burnt – and burnt badly – if the Bitcoin bubble bursts. Already people are losing life savings on ICOs and lending platforms that are disappearing overnight. When crypto gurus urge crypto investors to “do their research before investing” what the heck does that mean anyway? How many people out there can read white papers on any cryptocurrency and know that it won’t be one of the 90% that eventually fail? Who has the crystal ball that can guarantee that Litecoin will indeed hit 5,000 dollars in 2018 or that IOTA is the next upcoming rock star and therefore you should grab a strong position in it?
My advice to any new investors who still want to dabble in cryptocurrency is this:
Do NOT make emotional decisions. Don’t allow FOMO to guide your next purchase. The media is erupting with new `Bitcoin millionaires’ who are promoting their own incredible luck as a repeatable and accessible financial objective. Don’t believe this sort of carefully-orchestrated hype.
Invest only what you are willing to lose. Seriously. The moment you press the `buy’ button, consider that money gone forever. If you can live with that amount of financial loss without stress or worry, then heck, go for it.
Do NOT day trade. The easiest way to lose your investment is to sign onto Poloniex or GDAX or Bittrex or some other exchange and embark on day trading. The dice is always loaded in favor of the house, and unless you’re a seasoned player in the trading arena, you will eventually lose it all.
Buy the news, sell the hype. Never make the mistake of buying on top of the market. If a cryptocurrency of your choice in on a bull run, wait for a correction to take place and get in when the price is low. By the same token, do not panic when volatility works against you and sell during a downturn action. If you don’t have the heart to tolerate the volatility of this market, you shouldn’t be playing here.
Get educated. Don’t invest until you understand the cryptocurrency market better. Trust me, if this phenomenon is indeed here to stay, we are still in the early stages of its evolution. There will be plenty of opportunities to invest wisely down the road if you treat it like a hobby, and use this time to familiarize yourself first.
Store your cryptocurrency safely. Never leave your investments in wallets on the exchanges. Study all the many options of cold storaging your coins and keep them in a paper wallet or a USB drive or any other hard wallet solution where hackers have no access to them.
Good luck! And be very careful…
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