Bitcoin suddenly plummeted on November 26, from 18913 to a minimum of 17,125, staged a drop of a thousand dollars. Although many bigwigs have predicted risks in advance, such large fluctuations will always affect the mood of investors to a certain extent.
The following content is an ordinary American guy’s personal experience and real views on Bitcoin investment. I hope it will be helpful to all investors. But investment, or DYOR!
Bitcoin I have been following this cryptocurrency and have invested a small amount of it for nearly a year. However, this is not to say that this has always been a “brainless thing”. In fact, it is quite the opposite. I have many doubts. For most of last year, it was not all smooth sailing.
When I first walked into this rabbit hole, I met two camps: one group believed that “I am crazy, betting on the chance to get rich quickly”, and the other group believed that “Bitcoin is an absolute Invest in unicorns, and it may solve most of the world’s problems.”
As time goes by, I spend less and less time in the “lunatic” camp, and more and more time in the “unicorn” camp. The reason may be because of the fallacy of sunk costs, or because Bitcoin is our lifetime investment. In short, there is more than one reason.
The following is my personal experience.
Earlier
I graduated from university in May 2019 with a degree in business finance. I chose this path because I understand that if you want to achieve true “(financial) freedom” in this world, financial knowledge is essential. However, as my studies got deeper and deeper, I began to realize that to achieve this freedom, I need at least one of the following four things:
1. Time. You need to be willing to spend 20, 30, or even 40 years working nine to five, so that you can save enough money and retire honorably on passive income with a 10% rate of return. This is life, you must be cautious about consumption.
2. Endowment. You need to be born in a wealthy family and have a large inheritance.
3. Risk tolerance. Since the risk of investment and the potential for returns are constantly weighed, you need to be able to tolerate the possibility that you may lose most of your capital.
4. Professional knowledge. You need to know something that 99% of people don’t. To acquire this kind of knowledge, it takes many years. And even so, your chances of seizing an investment opportunity with an asymmetric risk-reward ratio are minimal.
However, it turns out that, first of all, I don’t really want to spend the best years of my life on practice in the workplace. This is of no avail, because the average retirement age and life expectancy of American citizens are only 15 years apart.
Secondly, I was not born in a wealthy family and can bestow a lot of wealth on me.
In addition, in the process of studying finance and economics, I came across the efficient market hypothesis (EMH). This theory points out that it is impossible to beat the market or seize market opportunities. Although this is not entirely correct, it does have some truth. Obviously, the only way to really play in the stock market is to build an appropriate diversified investment portfolio or execute arbitrage opportunities through financial derivatives on the premise that you already have hundreds of thousands of dollars in capital (and know-how). .
However, in my portfolio management class, we used the virtual stock exchange to “pretend to invest” 1 million yuan. But as a result, none of the combinations we selected had a return rate of more than 1%.
So my final conclusion is that ordinary people, such as myself, should insist on passive investment, such as Vanguard Mutual Funds or the S&P 500 Index.
But then, I encountered Bitcoin for the second time in April 2019. At that time, its price was only about $3,000 per coin. However, as a poor college student, in 17 years, I could only watch its big bull market (in the meantime, some ordinary people became millionaires in a few weeks). Although there was no money at the time, since then, I decided that my first investment after getting a decent job after graduation was to buy an entire bitcoin. But by then it was too late.
When my first salary was deposited in a bank account, Bitcoin had gone through another bull market, rising to more than $10,000. So, I slowly began to invest in cryptocurrencies on a regular basis.
In the beginning, I invested $50 a week. Then, I will start to do some research, because I started to realize that Bitcoin seems to be a lifetime investment opportunity. And I can’t put it down.
The following is the reason:
Investment Opportunities
What can’t lie is that it was indeed money that pulled me into this rabbit hole. And as I discussed in the “Basics of Bitcoin Halving”, something magical happens to Bitcoin every four years or so: a parabolic appreciation.
Bitcoin has only existed for 10 to 11 years. But in this short period of time, its price has been halved while its supply and issuance has been halved, and there has been a pattern that its price has increased by 10 times (or more). And we have little time until the next halving. So I also want to get a share in the next bull market.
In addition, I also considered a general truth about investment, that is, “Concentrated investment can create wealth, and diversified investment can preserve wealth.” Although my wealth was very small at the time, my student loan was more than 30,000 US dollars, but It makes sense to concentrate some wealth on a highly speculative asset.
The history of global reserve currencies
In the past 600 years, every reserve currency (standard) has ultimately failed. Therefore, it may not be absurd to believe that the US dollar will fail in due course. And if this is the case, and Bitcoin has replaced the US dollar as the global reserve currency, then the value of each Bitcoin will reach about 10 million US dollars.
Inflation assumes that the price of each bitcoin is $10,000. So are you willing to lose $10,000 to win $10 million? This is the so-called risk-reward ratio asymmetric investment opportunity. I don’t know what you think, but I am willing to block one of them.
Defects of the dollar
The definition of currency in Wikipedia is: “Currency as money is usually supervised by the government, but it has no intrinsic value.”
What really makes me uncomfortable about the dollar is that the government can create the dollar out of thin air. In fact, the US government has injected US$2.3 trillion into the market in recent months. This stimulus measure is called “quantitative easing” and it has just begun.
In addition, just as a D sucker always needs more D products to get the same pleasure, we must know that the impact of quantitative easing policy in the long run will be very significant.
Think about it again, this kind of currency with “no intrinsic value” is actually the reward we get after hard work. So, do we also think that the time we work is also “no intrinsic value”? If you think about it, many of us have stored our wealth in a currency of unknown value.
You see, if we don’t know how many dollars there will be in the future, then we don’t know how much our money will be worth, nor can we confidently believe that we are properly paid for the time we work for others. And since we will all die one day, are we wasting our time?
However, in contrast to Bitcoin, we know the number of Bitcoins, and Bitcoin will never exceed 21 million. No one can change this. Compared to the US dollar, Bitcoin is more transparent.
We don’t understand capitalism
Investopedia defines capitalism as: “an economic system in which private individuals or companies own capital goods.” In addition, the following points were mentioned: “The production of goods and services is based on the supply and demand relationship in the general market, that is, a market economy, rather than through central planning, that is, a planned economy or a command economy.”
To say that the United States is a capitalist economy is misleading to say the least. And given the fact that the United States owes others $25 trillion, it can even be said that the United States is actually a debt-based economy.
In addition, our goods and services are not entirely based on supply and demand. Our government was notorious for bailing out Wall Street, airlines, and failed large companies. Given that most of our economy depends on central planning, I can even say that we are a socialist economy in a sense.
Inflation and the Cantillon effect
When bureaucratic central planners print money out of thin air in the name of saving 1% of the upper class, inflation inevitably occurs. Like most things in life, a little bit of inflation is not necessarily a bad thing. But too much inflation will lead to complete destruction. It will cause every piece of your money to depreciate in a savings account in case you need it.
If in 2000, your salary was 100,000 U.S. dollars, but you haven’t earned 150,000 U.S. dollars, then inflation is actually exploiting you.
In addition, the Cantillon effect makes inflation make the poor poorer and the rich richer. Whenever the Fed rescues Wall Street, airlines and large companies, the gap between rich and poor will widen.
And this kind of hyperinflation also explains why the Germans would set their money on fire after World War I to keep warm. It also explains why people in Venezuela, Lebanon, Zimbabwe and other countries wake up every morning and worry about their money overnight. How much value was lost.
Inflation In 1923, a German woman lit a fire with worthless banknotes
On the contrary, Bitcoin will not be inflated by third parties. Its inflation is not only known a few years in advance, but it is declining every year. In fact, it is almost as low as gold’s inflation, and gold has existed for thousands of years.
In addition, in a sense, Bitcoin is almost deflationary. This means that the longer you hold it, the cheaper you can buy goods and services. Imagine this: as the number of people hoarding deflationary currency increases, the total supply of currency in circulation will decrease, making each unit of currency more scarce. Under other conditions, the scarcer the currency, the more valuable it is.
We need a currency that can maintain long-term value, and we also need a scarce currency to compensate for our scarce time, as well as to prepare for emergencies, because we cannot predict the future, and we don’t know when the next rainy day will arrive, just like COVID -19 is the same.
I like the nature of Bitcoin. There is no doubt about it. In fact, what I like more about Bitcoin is that it is not a gambling.
