This time around, our brief past is of little use in predicting the future. That is, the current models do not work. Why? Well, because we are heading to a new world and the rules are different. Of course we are still, in a way, in the “Buy the dip” phase of denial. We forget that just a few months ago Michael Saylor, the CEO of Microstrategy, was still recommending people to mortgage his house to buy Bitcoin at $50,000 per unit. We well know that the trading pressure to always be bullish is huge for exchanges, funds and whales. Nevertheless, the investor does not always have to dance to the music played by stakeholders.
Things are not well. The last few weeks have not been “average”. “Average”: That was the adjective used by Pantera Capital’s Dan Morehead, in the style of a poker player, in a recent television interview, to describe the pandemonium of the last few weeks. Now suppose we mortgaged our house and bought Bitcoin for $50k. The price of Bitcoin in 10 years is irrelevant, because we could lose our house in a matter of months during a bear season. It is one thing to be optimistic and quite another to be irresponsible. In the crypto ecosystem, we need more financial education and less fanaticism.
Why do we invest? What is the point of all this? Simple. Living costs money. We need money to purchase goods and services. We need shelter, things, air, food, water, transportation, health, clothing, entertainment, etc. Let’s think of a Robinson Crusoe. We are a castaway. We are on a desert island and the only thing we have in our pocket is a wallet with thousands of BTC. What good is a computer code to us in the absence of vital items? Let’s think about that for a second. In other words, Our most basic objective is to solve our needs.
Money is valuable because of its exchangeability. Without that ability, money is useless. Money has no intrinsic value. Its value is monetary. It is a medium of exchange. An abstraction. Now, we need money to meet our needs. In other words, our lifestyle has a cost. That is the goal of all this: Put bread on the table.
The basic scheme is as follows: We have income. We have expenses. And the accumulation of capital arises when our income is higher than our expenses. Consequently, the most sensible thing is to invest that capital to obtain additional income. In this way, grow financially. By investing, we certainly put our capital at risk in order to grow. For purposes of this article, “volatility” is synonymous with “risk”. And “stability” is synonymous with “security”. Another thing: Losing money is not the same as losing an opportunity.
If Pepe bought $50K worth of Bitcoin at $64K during the last bull run, right now friend Pepe is in the red. If, on the other hand, Pablo rejected the offer to buy Bitcoin at 300 dollars per unit and preferred to invest 50 thousand dollars in bonds, Pablo is not in the red. Paul may have missed a great opportunity. However, he did not lose any money. He who does not invest is not at risk. Pepe did lose money. Because now you can purchase fewer goods and services than before.
Bitcoin is a code. An exchange rate. Which implies that its price is very important. The case of a productive asset is very different. Let’s say a farm. The market price of a productive farm is not so important to the farmer that he does not intend to sell. In his case, the most important thing is the productivity of the farm. This is not the case with Bitcoin. Because Bitcoin is not a “wealth-producing” asset. Bitcoin is a “wealth transfer” asset. Which implies, then, that your rate does matter quite a bit.
Now, let’s talk about the deadly sins. First, borrow to buy volatile assets. Fatal. Microstrategy case. El Salvador case. Easy. A price collapse can lead to bankruptcy. Secondly, Put all the eggs in one basket. For example, what happened to people who lost their life savings in less than 24 hours in the case of the Luna-Terra collapse. In third place, run out of fiat Here we must also include the fact that do not take profits during a bull cycle. In short, every portfolio needs stability.
Now about long-term investing. TRUE. The most sensible thing is to invest with a long-term vision. I am referring to periods of 5 to 10 years. But, to wait for that time, we must have the ability to wait for that time. In other words, a very stable, diversified and balanced portfolio is required. Free of debt or leverage. In short, it is highly irresponsible to recommend people to mortgage their houses to buy Bitcoin. And present such a new and volatile asset as a “safe haven”. eye!
“Buy the dip.” TRUE. The ideal is to buy low to sell high. But “buying the dip” is not always a good idea at the start of a bearish cycle and with a recession just around the corner. Remember that “buying the dip” can be a very bad idea when that dip is the first of many to come. We can buy, but with great caution. Personally, I use the Dollar-cost averaging strategy (see DCA). One can gradually buy at fixed intervals and in small amounts. But with great prudence so as not to decapitalize. Hence the importance of never running out of cash (fiat).
The cryptocurrency investor must have a cool head so as not to fall into the temptations of fanaticism and delirium. In social networks, many ridiculous things are said. All dogmas and propaganda always confuse the most unwary. Nevertheless, the most important thing here is to take care of our pocket. Do you have your house in order? Can your portfolio tolerate more price crashes? What would happen to your lifestyle if tomorrow the price of Bitcoin is $15K? If that scenario worries you, it’s time to reorganize your portfolio.
We live in a very peculiar time. Now everything is a battlefield. Each person lives in a niche that functions as his tribe. Belonging to a tribe gives you a narrative, friends and enemies. The tribe is the “cause.” Everything else is the “anti-cause”. In these times, a couple of documentaries on YouTube are enough to turn an ordinary young man into a hero of history in just a few hours. Anyone is an expert on any subject when distrust of experts is almost total. Any Nobel laureate in economics is an “idiot” if he contradicts what our favorite influencer said.
All this is certainly very beautiful and fun. Until a certain point. Faith in something. ideological battles. Mistrust in institutions. The rebellion and the counterculture. The conspiracy of the powerful against the people. Now, above all this, the investor must take care of his pocket. The deluded are the first to lose money. In fact, the main enemy of the investor is wishful thinking. We must be cold and pragmatic with our portfolio. Investing wisely means weighing risks and opportunities very objectively. It means stopping idealizing and being prepared for setbacks and surprises.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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