Source/Contribution by : NJ Publications
Bitcoins and Blockchains are the most talked about topics globally. The newspapers are flooded with updates on the Bitcoin rally, anecdotes of how people made millions in this rally, columns on how you can make money in Bitcoins are visible all around.
Bitcoin, the undisputed king of cryptocurrencies took off in the year 2009, priced at $0, however the real adventure began only lately. Bitcoin started with a little less than a 1,000 dollars in January 2017, and touched a little less than 18K dollars in Dec 2017. It has tripled over the last two months alone, from 5.5K in mid October to 17.5K in mid December. This steep rally and the hype has left people wondering “I wish I had a Bitcoin”, it has left us with a feeling of regret, why didn't we invest earlier; of envy, because someone else made money while we didn't; of greed, we wish to make make quick money by investing now; and of hope, we aspire for a repeat telecast of history.
Many of you might be wondering that why didn't your advisor made you invest in a Bitcoin earlier.
You may argue that equity shares similar characteristics, equity prices can witness quick rise and fall and still you invest in Equity. But the answer to this lies in the basic difference between a stock and a Bitcoin. The price of stocks is not merely a matter of market sentiment, but it's backed by the company's fundamentals, it's profits, it's assets, liabilities, it's management, it's future prospects. While, Bitcoins do not have an inherent value, there is no underlying asset which backs the value of a bitcoin. They are traded in the virtual world. When a good stock falls, it is largely due to market volatility or a negative news, it's generally a short term phenomenon, if the stock's fundamentals are strong, you know it's a matter of time before it restores to it's normal course. But in the case of a Bitcoin, “you cannot be Sure”. You may buy today at $15,000, it can go upto $100,000, but it can take a U-turn also, it may fall to 10K, or 5K or 2K, it can even be the next tulip bulb bubble, and can be reduced to where it started from “zero”. We don't know. Nobody knows.
Today, one of the primary reasons for the Bitcoin surge is the investors' FOMO, Fear of Missing out. Fear of missing out the big opportunity to make quick money, the thrill, the extraordinary gains which their peers are making, of being foreign to the hottest word of finance today. The rush of emotions and inclination towards Bitcoin is obvious. That feeling of FOMO indeed is sickening. It's normal that you are troubled for not having invested at the “Right time”.
But do you know, when the world of ace investors are at it, the biggest of all, Warren Buffet has taken a back seat. According to Buffet, “You can't value bitcoin, because it's a not a value producing asset.” It is impossible to value a Bitcoin. You don't know whether it was expensive at $5,000 or cheap at $15,000.
Our word of advice for our investors is,
- Invest only when you understand the product. It's foolish to base your investing decision on mere emotions.
- If you still wish to experience the thrill, set an amount you'd be okay to lose, the amount should be a very small percentage of your assets. Think you are going to a casino. Do not bet your life on it. Do not sell your investments and buy Bitcoins to overcome your FOMO. Great if it was your day, and you anyway had fun even if you lost.
- Distance yourself from short term trading, be it share trading or crypto-trading.
Bitcoin can emerge as the most powerful currencies of all times in the coming years, or it may be a bubble, the biggest of all financial bubbles, and you may not want to be a victim of it's wreckage.