Should you invest in cryptocurrency in 2021?
Did you know that CNBC put out this article where they reported on a survey by Cardify, which looked at how much do cryptocurrency investors really understand about cryptocurrency.
They found that less than 17% of all cryptocurrency investors who buy cryptocurrency feel like they fully understand how cryptocurrency works, and more than a third of all cryptocurrency buyers have zero knowledge about the space or feel, like they don’t even have a basic knowledge about cryptocurrency.
Cryptocurrency, bitcoin, ethereum, litecoin, all these have been very popular recently with a run-up in price. And then we have Elon Musk coming out talking about how he’s buying bitcoin for Tesla, and then you have Paypal buying bitcoin.
So cryptocurrency has been very popular, and naturally a lot of people have been trying to get into cryptocurrency, hoping that this would be an easy way or a quick way for them to make a lot of money, or at least protect their wealth.
But a lot of people are buying cryptocurrency without knowing what they’re doing. I don’t know how today’s numbers compare to the 2017 numbers, when the 2017 bitcoin and cryptocurrency crash happened, because back when that happened, it felt like everybody was buying bitcoin, and it also felt like nobody had any idea of how cryptocurrency worked or what cryptocurrency even was.
There’s definitely a lot more awareness and knowledge as to what cryptocurrency and bitcoin is now than there was a few years ago, but there’s still a lot of uncertainty as to what cryptocurrency is and how bitcoin is going to work in the future, and really what is a good valuation for cryptocurrency.
So the whole idea behind bitcoin and cryptocurrency originally is that it is supposed to be a decentralized worldwide digital currency. Now let me explain what that means. A decentralized worldwide digital currency means that first this cryptocurrency is supposed to be a currency, kind of like dollars, in the sense that you can use this currency to buy and sell things. The idea behind it being decentralized is that it’s not controlled by any one government. So it’s not like you’re spending dollars in the United States and Pesos in Mexico and ringgits in Malaysia. It’s bitcoin all around the world, whether in America or Mexico or Malaysia. So one bitcoin all around the world is the same as one bitcoin, while one dollar is different than one peso and one peso is different than one ringgit, right?
So bitcoin is supposed to be decentralized. It’s worldwide because you can use it all around the world, and it’s a currency or supposed to be a currency because the whole idea is you should be able to use cryptocurrencies like bitcoin to buy and sell things. The whole idea behind it being digital is you don’t own anything physical. When you have a dollar in your hand, you have a physical dollar. With cryptocurrency, you don’t have anything in your physical hand, except maybe a phone where you can access your digital currency.
The reason people have been flocking to things like cryptocurrency and bitcoin is because for one, you’ve seen all this money printing happen. And when all this money printing happens, our dollars get devalued, and when that happens, we see more inflation and the mass majority of people become poorer. Cryptocurrency, on the other hand, has a finite number, (or at least bitcoin does). There is a maximum number of bitcoins that can be created, and that’s 21 million bitcoins. After that, you cannot create any more bitcoins, and so you cannot create the inflation in theory with bitcoin in the same way you can with dollars. So this is what people really like that about bitcoin, because it is a way or supposed to be a way for you to protect your wealth.
The second reason why people really like cryptocurrency like bitcoin is because it kind of steps you away from the control of a central government. You see when the government controls the monetary supply or the money supply, they have a lot of control over you. But if now your monetary supply is controlled by the users of the money, (because that’s how bitcoin works), then you don’t have that same control by a central government.
Now obviously that’s also one of the big challenges of adopting cryptocurrency like bitcoin, because no central government wants to lose their control over the money supply. So that makes it a little bit harder for cryptocurrencies like bitcoin to get fully adopted the way they are, because no government wants to lose their control over money.
The third reason why people really like cryptocurrency like bitcoin is because it’s finally started to get adopted. For instance like I just mentioned, Elon Musk and Tesla bought more than a billion dollars worth of bitcoin to add to their portfolio, and Stripe and Paypal have both added bitcoin to their platforms. Hence we’re slowly starting to see bitcoin beginning to get adopted into these tech companies, which is kind of a sign that maybe over more time we’re going to see cryptocurrency become very common in how we do transactions.
This gets people very excited as they see that bitcoin or cryptocurrency is finally starting to get adopted, and then more tech companies start to get behind the trend, and they start to use it. That means other companies will start to use it too, like the more traditional companies, and when that happens, then everybody’s going to be using cryptocurrency and bitcoin. So then if let’s say I come in and I can own some of this cryptocurrency, then it’s going to be way more valuable in the future, because there’s a limited amount of bitcoin in the world, and so it’s going to become way more valuable because there’s going to be so much more demand for it and not that much supply due to the limited supply of bitcoin.
The fourth reason why some people like cryptocurrency like bitcoin is because they think it is a way for them to get rich quick. Going back to some of the things that I just talked about, a lot of people feel like they’re being screwed over by the system because you’re seeing this bigger divide between the rich and the poor. We have all this unemployment, we have all these businesses that are being shut down, we have all these jobs that are being lost, and people feel like they keep getting screwed over by the system. That’s why they’re turning to cryptocurrency and bitcoin kind of as the solution, because this is a decentralized currency where, if you can get in before everybody else, then this will be a way for you to get rich because everyone’s going to come in and buy.
But anytime you start to see people buy things not for the purpose of using the thing but for the purpose of just getting rich quick, that’s always when you should know there are some some red flags going up. There is real value behind cryptocurrency and blockchain because a lot of people are already used to digital currencies. I mean when you swipe your credit card, are you really using real money? You’re just swiping a piece of plastic where now a couple of digits move from your bank account to someone else’s bank account. So people are already kind of used to digital currency, although a lot of people don’t think of it as digital currency. People do like the idea of not having to carry around physical cash. Having a decentralized currency, where you can go around the world and spend money without worrying about conversion rates, is just convenient.
Blockchain, on the other hand, is the technology that kind of fuels cryptocurrency because it secures financial transactions and data, and it makes it nearly impossible to hack or cheat this data. So this technology has its own value because it can change the way that we spread data and do financial transactions in the future. There is a lot of value and power in this technology, and if anybody tells you there isn’t, then they just don’t understand how cryptocurrency of blockchain works.
But the thing that is concerning is that, according to the survey, you have a lot of people that are buying bitcoin, and they’re buying cryptocurrencies without knowing what the heck they’re doing or what the heck they’re buying. A third of buyers have zero knowledge about the entire cryptocurrency space. So why are they buying it? Because their friend or their cousin told them if they want to get rich, they should buy bitcoin right now. That’s why now you have people buying a product or buying this technology not because they want to actually use it, not because they might actually believe in it, but just because they want to get rich quick.
The article I mentioned earlier even mentions that one in four cryptocurrency holders told Cardify that they were entering the cryptocurrency space in the hopes of earning short-term financial gains. In other words, one in four people told Cardify they’re buying cryptocurrency so they can get rich quick, which is a simpler way of defining short-term financial gains.
My point here is, anytime you see people starting to buy something not for the purpose of believing in the thing or not because they believe in the fundamentals, but just because they want to get rich quick, then they are more like emotional buyers or investors. So as you see the demand for that thing going up, you’re going to see more and more of these emotional people coming in and buying because they want to get rich quick. And then if this asset class starts to come down, these are the first people who are going to start panicking and selling it because they were just hoping to get rich quick, and they don’t really understand the real fundamentals or the real value. They don’t really understand what’s going on, and so this causes a lot of volatility. That’s why you see such huge drastic rises and huge drastic falls with cryptocurrencies like bitcoin.
Now let’s get a little more practical for a moment. There are actually a lot of people that have gotten very rich quickly because of bitcoin. So there are actually ways to get rich through a bubble, but you just got to understand that there are a lot of risks involved as well, especially if you’re looking for the short-term gains, meaning you’re trying to get rich quick. If things turn around and you’re holding on to a big position, especially if it’s leveraged up with debt (because you have a lot of people buying cryptocurrency with debt), you’re going to be the first one to lose everything.
Moreover, since there have been so many new millionaires because of cryptocurrency and bitcoin, and because it’s such a new technology, and because so many people are trying to buy bitcoin hoping to get rich quick, you have a lot of scams around cryptocurrency going on. You can literally see that all over social media. There are so many people that are scammers, who are trying to get your money into these cryptocurrency scams. You’ll literally see people just trying to solicit other people’s money to buy cryptocurrency, when actually what they do is they just take their money and run.
That’s why it is so important for you to make financial decisions not emotional decisions, because when people are so charged up and trying to get rich quick, and this is especially fueled with easy debt, they so easily get stuck into these scams and get caught into these schemes where they can possibly even lose everything that they have.
Now I’m not trying to discredit that there is real value in blockchain and cryptocurrency. I’m just trying to empower you so that you can make more informed decisions and protect your wealth. All I’m saying is you just got to first understand what’s going on, and you want to make sure that you’re making your financial decisions financially, not emotionally.
As more and more companies get behind cryptocurrency, we are going to see more hype and more excitement behind it in the near future, so you have to be even more cautious so as to make your decisions rationally.
