Crucial Lessons Cryptocurrencies Have Taught Us – Introduction
This year, cryptocurrencies have been the best performing assets. Bitcoin has soared from under $1000, to almost $10,000 while Ethereum has moved from under $50 to the current $500. This performance has not been seen in any other assets before except during the dot com bubble.
So, as traders, we need to take a step back and think about what has just happened. How can new assets that very few people understand soar so much? By stepping back and thinking about it, we can learn a lot of things so that we won’t miss the next trend. So, these are some of the best lessons cryptos have taught me.
First, the people we view as experts are not always right. For a long time, we have watched finance experts on business television talk about the fraud of cryptocurrencies. We have watched Mark Cuban call Bitcoin the biggest fraud of all time. Jamie Dimon, the CEO of JP Morgan has said that his bank won’t focus on Bitcoin. Other experts like Jim Rogers and James Rickards have talked against the currencies and called them fraud. But, truth is, these currencies continue to outperform the market. People who invested in them a year ago are now rich.
Second, it is always good to take a risk. For people who bought cryptocurrencies, the truth is that they took risks. Most of them did not know what they were buying. They followed their guts and took the risk of buying assets that experts warned them against. As a trader, this should be a crucial lesson for you. You should always be a risk taker. For example, the past few weeks, crude oil has been soaring on the expectations that OPEC will cut production. The bullish sentiment in financial media is huge. However, if you have concerns about oil, you should short it. Remember, most of the analysts who appear on TV don’t invest their own money. They are employed by companies which means that they won’t lose a lot if there is a reversion.
The third lesson is about the rise of cybercrime. Bitcoin is an appealing currency because it is not regulated, and it cannot be stopped. Each central bank regulates its currency. For example, the Fed regulates the dollar. So, bitcoin becomes a very important medium for people engaged in cybercrime to use because it cannot be traced. This year, we have seen many cybercrime hacks such as the Yahoo, Equifax, and Uber. Therefore, if you believe that cybercrime will increase, you should clearly bet on cryptocurrencies and companies that work to prevent these hacks.
Fourth, if you don’t believe in these currencies, there are other ways to invest in it. For example, Bitcoin miners use powerful computers to mine them. These computers are powered by powerful graphics from companies like NVIDIA. This year, as bitcoin has soared, these companies have soared as well. Bitcoin has gained by more than 100% powered mainly by the revenue in the mining business. Other industries like internet security have done as well.
The final lesson is about government and its regulatory agencies. For years, people from around the world have complained about the government and its inefficiencies. For example, very few people believe that the federal reserve has their own interests at heart. Few blame these agencies for wrecking their finances especially during the 2008 crisis. Therefore, there is an urgent need for ways to bypass the government agencies and Bitcoin has made this possible.
As traders, many of us missed the bitcoin wave. This should not however make you invest in anything that comes up. Recently, there have been reports of many investors who have lost a lot of money investing in the new ICOs. Mostly, these are people who want to invest in something that will grow like Bitcoin. Instead, you need to be careful not to lose your money by investing in assets that are ran by criminals.