A desire to “make a quick buck” sees no ends.
Crypto market volatility vs. common sense investing.
Historically, people have looked for the bigger, better, deal; trying to get something for nothing. Whether trying for easy money legally or illegally, people look to make money fast with as little effort as possible. Playing in the volatile crypto markets epitomizes this sad tradition of get rich quick schemes.
Financial markets empower individuals with many ways to acquire substantial sums of money, sometimes with very little effort, extremely quickly. The same can be said of betting on horses, sporting events or table games. There’s little difference between investing and gambling, and anyone looking to increase their money in a safe manner should learn the difference.
Economic “bubbles” are as old as financial markets. At the end of the 20th century we saw massive gains and losses in the global stock market as “investors” placed bets on what companies would survive the dot.com boom. While some companies came out okay, over time, other companies rose to massive heights only to fall drastically, back to realistic valuations. Companies such as Microsoft and Cisco never recovered with the latter still nearly a third of its value in April 2000. Other firms such as the powerful WorldCom never recovered and found their ways to the dustbin of history. Take a look at the South Sea bubble that hit England in the early 18th century and the Tulip bubble that devastated the Dutch economy in the 17th century to see that people have always tried to find ways to make a fast dollar.
Today, speculators see the same opportunity in cryptocurrencies that professional investors saw 20 years ago in “dot.com” companies. Based on my economic background and strong knowledge of finances and investing, I’ve had friends and colleagues ask me numerous times what I think of investing in Bitcoin, Monero, Ethereum (Ether) and other cryptocurrencies. I consistently state that I’d prefer making money in Vegas as it’s just as likely that I’ll strike it rich, and I find that more fun. Investing is a financial strategy; gambling is a game.
Cryptocurrencies are immature, highly competitive, poorly understood and NOT a safe or secure way to make money. A recent study states that over 4 million bitcoins have been lost forever. In addition that that devastating piece of data, Bitcoin has major technological impediments that set it up for utter failure and most people “investing” in that cryptocurrency have no idea these limitations exist. Fair, complete and steady markets include known variables that allow educated investors to plan and gauge risk when placing money into products. Cryptocurrencies hold no such features. I liken winning in cryptocurrency investments to craps tables in Las Vegas, we hear the winners, the losers slink away. Bitcoin went from $20,000 per coin at its peak in 2018,
down to less than $4000 in under 18 months. How many people were crushed by this crash? Most likely we’ll never know because only the winners crow about their success.
I agree with Warren Buffet that average investors should dollar cost average into index funds throughout a lifetime rather than bet on individual stocks, bonds, commodities and especially cryptocurrency. Putting money into a balanced fund during high prices and low, provides a constant stream of funding which has proven to deliver solid returns over time. The average rate of return of the S&P 500 from 1926-2018 is 10%. At 10% money doubles every 7.2 years. Following this method, a 30-year-old reinventing returns on $50,000, without adding another dime, will have ~$1.6M at age 65. “Don’t fight the tape,” invest safely, easily and confidently based on history rather than gambling on a cryptocurrency pipedream.
30 – $50K
37 – ~$100K
44 – ~$200K
51 – ~$400K
58 – ~$800K
65 – ~$1.6M
It’s fun to play games, more fun for some when money is on the line. I find it fascinating how I get as much joy putting $20 on a sporting event that I have no interest in as I do placing $20 on one hand of blackjack that lasts 90 seconds. People utilize this same endorphin high in their financial strategies, believing that investing in the next great widget will produce a windfall of money, making retirement one day away. Take heed to the adage that “if it seems too good to be true, it probably is” when gambling in lieu of investing. Take heed to Warren Buffet and the fact that consistently putting money into divested funds, in good times and bad, will produce a solid rate of return. Don’t try and hit a grand slam to win the game, take a single, be happy with a hit by pitch, you don’t have to win in one swing.
Crypto market volatility vs. common sense investing – The comments and statements in this article are my own and don’t necessarily represent IBM’s positions, strategies or opinions.
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Crypto market volatility