If you pay any attention to the financial news over the last week or so, you know that there has been a significant correction in the “crypto world.”
A couple of days ago one of family members who invested ALL his investable money in Bitcoin said, with a deep sense of frustration in his voice: “I lost a LOT of money…damn it!”
So, today I’ll talk about my take on cryptocurrencies – now and then.
As you might have guessed, I belong to the Baby Boomers generation (although have only one “baby” LOL) and, like many of Boomers, am concerned about the weakening U.S. dollar and the U.S. economy that is sinking more and more into unprecedented debt.
I believe that gold is one of the main hedges for weakening U.S. dollar (or any other fiat currency for that matter), the “real money.”
However, it’s not the only hedge that we can use to protect ourselves from economic calamity.
Many people (especially Millennials and generation Z, less so the Boomers) are excited about cryptocurrencies – “digital money” that can be used to pay for [some] products and services outside of traditional banking systems.
Cryptocurrencies use a blockchain platform, which is a decentralized technology spread across many computers that manage and records transactions, which makes it more secure and independent of local banking systems.
Although theoretically, we can use gold and cryptos to pay for “things”, they are mainly used as storage of value as well as a vehicles for speculation.
When many financial commentators and investment letters’ editors were forecasting the Bitcoin price to hit $100,000 per coin or even higher, many newbie investors who are late to the “Crypto party” were willing to pay high prices. Bitcoin skyrocketed to over $64,000 on April 13, 2021…and lifted up many other cryptos with it, just on pure enthusiasm and emotional hype.
Then on May 13th, Tesla founder Elon Musk made waves when he announced his company would no longer accept bitcoin as car payments…and the crypto markets have had rough going ever since…
Bitcoin is down 33% since hitting its all-time highs, and Ethereum is down 23%. Many other cryptos (altcoins) are also down double-digits.
So, Elon Musk is behind the latest pullback, after he announced his company would no longer accept bitcoin for car payments…
He said that Bitcoin is “very bad for the environment. It uses a lot of coal. We’re not going to take Bitcoin anymore.”
This is a really stunning change-of-heart for Musk because just two months earlier, he bragged that Tesla would accept Bitcoin as payment for cars! And in February, 2021 Tesla invested $1.5 billion of its corporate treasury in Bitcoin… And now, out of the blue, Musk is ranting about bitcoin mining not being eco-friendly.
So, needless to say that the volatility in cryptos is not for the faint of heart. Many people still remember the Crypto Crash of 2018.
And newbies, many with the never-fading hope to “get rich quick”, are always at greater risk for being on the wrong side of the transaction…
Volatility is a great environment for traders, not for investors. And so, cryptocurrencies’ trading right now is a paradise for traders.
However, if you’re an investor and don’t want to live in a state of fear over short-term volatility in ANY assets, please remember the basic investing principles – buy low, sell high, be patient, and keep emotions out of investing decisions.
I realize it’s easy to say and much harder to implement when you see boasting posts and interviews of the crypto millionaires…(yes, the lucky “rich quick” folks).
Successful investing is more about strategy and less about emotional hypes.
After all, worrying about your invested money all the time defeats the purpose of investing, which is creating the desired lifestyle where you never need to worry about money!
And that’s why a simple diversification strategy can be very useful for long-term investors. Does it make sense?
If you ask me, I see cryptocurrencies’ investing as a small slice in my investment portfolio, my “financial worth pie”, not the whole pie. I call this it a “speculation” slice.
And when my crypto investments deep – I don’t panic. And when they soar, I choose to take some profits off the table, so I could buy more later on, when cryptos correct.
The bottom line message from me today: Bitcoin and other cryptocurrencies are very volatile yet quite resilient.
So, if your risk tolerance is low and you cannot “stomach” market volatility without losing sleep over it – it might be not the best hedge option for you.
However, if you’re playing a long-term investment game, have diversified investments, and use cryptos as a slice of your investment pie, not the entire pie, then stay cool and don’t fallow the panicky crowd.
Write a comment and let me know what you think about this topic – I really want to hear from you.
To your Health, Wealth and Freedom!
P.S. In case you’re brand new to investing in cryptocurrencies and would like to get some beginner training, CLICK HERE to take a look at this easy-to-follow short online program.