“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” ~ Warren Buffet
For the past several weeks I’ve been asked about alternative investments like bitcoins (and other cryptocurrencies) and shipping containers more than dozen times! My hairdresser, the taxi driver, our neighbor, the life coach, energy healer, etc. wanted to know what I think about these alternative investments. And let me tell you…when your hairdresser wants to know if it’s not too late to buy bitcoin… I know we’re at the top of the market.
I’ve heard about investing in cryptocurrency for the first time over a year ago. It is my rule not to invest in something that I don’t understand. I either don’t invest in it or I research it, take time to understand the investment and then decide if I want to invest my money into it.
What I see right now regarding the hype about cryptocurrencies reminds me the frenzy I witnessed in the 1999-2000 dot-com era when I was working on Wall Street.
Before I share with you my stance on bitcoin and other alternative investments like shipping containers or vending machines, let me share with you what I know.
Bitcoin is a digital currency. It can be saved, spent, and treaded. As a cryptocurrency, Bitcoin is generated through the process of “mining”, which uses your computer’s processing power to solve complex algorithms called “blocks.”
I have no expertise in Bitcoin or any other cryptocurrencies. I do know, however, that when I first heard about Bitcoin in the early 2016, it was priced at ~ $400. Today, at the time of this writing, Bitcoin (BTC) is worth Euro 4,021 and US$ 4,774! That’s almost 12 times higher!
Many people expect to get rich of cryptocurrencies from here on…. I recently spoke with a young woman from Europe who just started trading Bitcoin in July 2017 and is making great returns on her money according to her trading company located in the Middle East…. She plans to pay off her house in a year and retire in a few years.
Maybe Bitcoin fans will get rich. Maybe not. I don’t know.
However, to me this Bitcoin/cryptocurrency frenzy feels like the craze in the Nasdaq Composite Index in 1998-1999.
Cryptocurrency rise in popularity is attributed to a new technology that is used for trading cryptocurrencies – “blockchain” technology, which, from what I’ve heard, is considered to be revolutionary, just like the Internet was in the 90-s. In the 90-s Internet was promised to be a revolutionary technology of the 20th century and it was. However, many internet (aka dot-come) companies failed and many investors lost their shirts….
So, it could very well be that in 15-20 years from now the “blockchain” technology will be used everywhere. However, the likely certainty of the widespread of an innovative technology is not the same as the certainty of making money from it. In other words, there is no guarantee that jumping into the cryptocurrency game at this point is a good money-making opportunity for investors or even speculators.
Look, I admit it – I don’t understand the “blockchain” technology that is fundamental for cryptocurrency exchanges. And I really don’t know how much money one can make from this point on speculating on Bitcoin or any other cryptocurrencies.
What I do feel, however, that we might be at the top (or close to the top) of this cryptocurrency bubble and for me, it’s not worth the risk. The dot-com bubble of the 90-s is a good reminder of what could happen. But again, you may have a different risk appetite and tolerance level than I do.
I was also asked recently about another alternative investment, which provides a passive income opportunity – shipping containers. Again, I am not an expert in this investment opportunity either. However, here is what I do know:
It is income-only, depreciating asset (the value of the containers is decreasing over time due to usage, damage, etc.); it’s not liquid (you have to honor your lease term when you lease your container to the shipping companies); you have to pay fairly high fees to the broker when you buy and rent your containers; and your agreement with the broker is govern by the Chinese or Hong-Kong laws….
On the other hand, you may (subject to negotiation) sell back your depreciated asset to the broker (although at a much lesser price than you paid for it); a promised return on your money (paid monthly or quarterly) is fairly high, in the range of 12%-25%, so you may break even and repay your investment in about half-way through your lease term (the numbers are approximated in this example.)
As you know, every investment has a built-in risk. That doesn’t mean that you should never invest. Risk is not the same as recklessness. Calculated risk is healthy – it makes you pay attention and do your due diligence. It’s also very important to be aware of your risk tolerance.
The ultimate message that I am trying to convey here is that you must invest in what you understand OR make time to understand what you’re going to invest in.
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