When cryptocurrency prices surged towards the end of last year, the market grew to record highs. By early November, it was already at $185 billion. The $200 billion mark was around the corner. However, as the prices soared, with Bitcoin at the front of the pack, the number of offerings grew, flooding the market. Small companies added “blockchain” to their name and all over a sudden they too were soaring in stock prices. The “investor” pool got deeper as people around the world “logged into” every new cryptocurrency and put their money there. Many didn’t bother to do some due diligence — remember PonziCoin?
Now, even with the slump, Bitcoin is still a flooded market. But what percentage of those are sound investments? And with more people expected to join the bandwagon, are they following any credible investing advice?
Experts offer their two cents:
Just put It Into Bitcoin…?
Studies have shown that people between 18 and 39 years of age are less likely to invest in stocks compared to previous generations. A study from Bankrate found that only a third of millennials have invested in the stock market against 51% and 48% of the previous two generations respectively.
So, where are they investing? Turns out millennials are more receptive of cryptocurrencies than other generations. Swell Investing found that, if given $5,000 to invest in a single place, 12% of millennials between the ages of 18 and 34 would invest in cryptocurrency. Only 3% of those between 45 and 54 years of age share the same sentiments. Considering about 40% of people between 24 and 35 years have at least $1,000 in savings, the answer on where and how to invest can help save a generation.
In an interview with CNBC Make It, 19-year-old Bitcoin millionaire, Erik Finman says, “I’d just put it into Bitcoin. I think Bitcoin is the safest cryptocurrency right now.” The teenager, who currently has $3.4 million worth of Bitcoins at the rate of $8,512 a coin, bought his coins back when he was 12. Now, barely 7 years later, he’s a millionaire. He advises other young people to invest 10% of their income into Bitcoin.
More seasoned experts are however wary about investing in Bitcoin due to its volatility. Some have even gone as far as to call it “a fraud”.
“Before investing, it’s important to check a few boxes first to ensure financial security in the event of a slump,” says Rob May, CEO of Botchain. “Most personal finance experts will suggest the 50–30–20 rule. That’s a safe starting point.”
Understand It First
At some point, the price of Bitcoin was so high that all some of us could do was wish we had invested earlier. But even then, some global bankers and experts were still warning investors against getting into the cryptocurrency business, the popular notion being that it was just but a bubble waiting to burst. Jamie Dimon, the CEO of JPMorgan Chase, is quoted saying, “It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.” Too many financial experts remain skeptical about the technology and the main reason is that they don’t understand it. So, they can’t invest in it, leave alone make predictions.
As Jamie Smith, president of the Global Blockchain Business Council says, regulators and investors around the world are just beginning to understand what cryptocurrency is. Clearly, a lot of speculation surrounds the blockchain. And if global bankers don’t understand the phenomenon, how much of a chance do retail investors have?
On why he’d never invested in Bitcoin, Warren Buffett says, “I get into enough trouble with the things I think I know something about. Why in the world should I take a long or short position in something I don’t know about?” Without getting into why a seasoned investor would not invest in the technology, an obvious lesson here is this: Don’t invest unless you understand.
Invest Only If You Can Afford the Loss
Investing in cryptocurrencies comes with a significant amount of risk. It’s highly speculative and volatile. Besides, it just got your attention — it’s still very early to determine how much disruption it will cause. So, how can you still invest?
Banking expert, Ben Hung, says that cryptocurrency investments are worth the risk only if you’re investing money you’re prepared to lose. When asked if he was worried for the people joining the rush, Hung says, “Provided that people are investing in crypto with money they don’t mind losing a little bit of.”
“Because depending on whether you look at crypto as a means of exchange of payment or a means of investment, people have different views of cryptos, regardless, the fundamental thing is that you don’t over pour your assets into it.”
“Cryptocurrency is certainly a viable investment. But it’s not because its price has ‘been going up lately’,” says Jason Dekker, CEO of Gochain. “Investments made with that kind of thinking will be lost. I’d only invest money I’m prepared to lose every dime of. But first, I’d want to know all there is about the blockchain.”
NOW is the Best Time to Invest
Are you concerned about the slump? Does it spell the end of Bitcoin or cryptocurrency?
In fact, according to Brian Kelly, a cryptocurrency expert, this is the perfect time to invest since the prices are lower. “Now, when everyone is saying it is over, that’s it, bitcoin is dead, for the 175th time. Now’s the time you start looking at it, on the buy side,” he says insisting that investors will have to remain cautious and avoid buying the cryptocurrencies when the prices are high.
Like all investments, this will take a lot of patience upon a smart and comprehensive strategy. When the value of Bitcoin goes up to $20,000 everyone’s all excited and talking about this new “currency” as they put in all their money. The true investor is known during the slump. That’s when they are staying put and buying. As Kelly says, the falling of the prices is, “incredibly healthy for the ecosystem. You shake out the weak hands. You get strong hands in there.”
While cryptocurrency is a great investment opportunity, it can be a big scam to someone who doesn’t understand it or knows smart investment strategies.