Bitcoin, Bubbles and other things you need to think about properly before ever putting a cent in

For a short period of time last year, Bitcoin prices soar to ‘I’m-gonna-be-a-billionaire’ levels (~$19,000+). Today it stands at just ~$9,000, less than half of its all-time high.

Some people say: Good, keep going lower. I will buy in when it’s cheap and wait for it to go up again.

Some people say: I told you so! Bitcoin is a bubble! Get out before it drops to zero!

In between these two types of people is the third kind:

The ones who say nothing.

Not because they don’t have anything to say, but because out of devastation at the volatility at which bitcoin moved out of their favor, they committed suicide.

There are ultimately three reasons why people buy bitcoin.

First, it’s something very new. Almost like the internet in the 1990s. Some people, especially those who don’t study the history of technology, think that it is best to ‘invest’ in a new technology before it becomes ubiquitous.

By buying bitcoin, they think, they become owners of new technology.

This is wrong. Buying bitcoin does not mean you own bitcoin technology. You own bitcoins. You cannot profit from the developments of the technology.

Some other people buy bitcoin because bitcoin is scarce. By design, there is a limited number of bitcoins and scarcity equals value.

Wrong again.

Scarcity is just scarcity. Only when scarcity is combined with demand does value exist. If you own something rare, but nobody else wants it but you, then you can’t really say it’s valuable in the secular sense. It is only valuable to you and no one else, so you can’t really sell it to gain a profit.

Like a handmade present just for you. You may value it. There may be only one of it in the world. But it’s only valuable to you. Other people may see some waste paper and plastic.

The value of any kind of investment must be traceable. Like Apple. If you buy Apple, you know where the value of Apple stocks is derived from. Sure, there is some amount of speculation. But Apple does make money through its ecosystem of hardware and software.

What about bitcoin?

Bitcoin’s price goes up because of many reasons, but none of them are derived from bitcoin providing any real value.

Third, people buy bitcoin because of FOMO. The fear of missing out. This group of people tends to buy things for the sake of being ‘first’, without understanding what exactly they are buying. Their concept of ‘investment’ is ‘being first is better’. They never want to miss out on the ‘once-in-a-lifetime-opportunities’.

Is it true? Are there really once in a lifetime opportunities to get rich?

Sure. But you have to be sure you are good at finding the right timing to get in. Most people are not very good at this.

Lastly, people buy bitcoin because they like speculating. They are gamblers.

This is the group of people who are most likely to make the most money out of buying bitcoin because they know exactly what they are doing.

Everybody can gamble, but not all who gamble make money. Most lose. This is how casinos stay in business.

So the question is: Should YOU buy bitcoin?

If you know what you’re doing, sure. But never invest more than you can afford to lose.

If you lose everything, you may want to kill yourself. If you don’t kill yourself, you’re going to be very, very broke.

So consider that before taking a loan, a mortgage or borrowing money from family or friends to invest in bitcoin.

Never buy something because other people are buying it.

Know your own position. If you make an informed purchase, you will understand why things happen and not be driven emotionally to harm yourself.

Other things that you should think about properly before investing any money in:

Courses (online and offline) costing thousands of RM that promise you results in 6 – 12 weeks. It’s not possible for 90% of people to get good results within a short period of time of learning something new. Save your money and go on a holiday instead.

MLM schemes that have no real products to sell. These are pyramid schemes or Ponzi schemes that are designed to have you spend more and more money on them, and break all your relationships when it comes tumbling down. Save your money and go on an RM3,000 meal in a 6-star restaurant with your friends.

A house. The average mortgage for a house in Malaysia spans 20 – 30 years. Are you sure you’re going to have your job for just as long? What if your salary drops? What if someone becomes sick in your family? If you really need a house to live in, buy one that requires a mortgage payment of less than 40% of your current income. Save money on a monthly basis. The more the better. You may need it when something bad happens to you financially. At the same time, look for ways to increase your income streams.

Happy Sunday 🙂

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