A perspective with reasoning on why the 'herd mentality' does not help an average high risk investor !!!Blockchain could still be the future, Bitcoin surely is NOT !!!
Is there anyone in your society, circle, relatives, office, or in your family who has not yet heard about Bitcoin? Well, it is unlikely, but still quite possible. Because, everyone is NOT, and rather should NOT try to be a wannabe investor. Let me explain with a relevant perspective on the three factors that surround this hype around Bitcoin!
Why do you feel the mutual fund industry took so many years getting into mainstream investor psyche? Why are stocks (or equity investments) still regarded as a risky investment tool by some? Why would someone want to invest in Bitcoin? What does it bring to the table?
Crude basics: Time value of money
Everyone wants returns quickly. Few people that are classified as investors understand the 'time value of money' and are in the game for the long term.
Mutual funds are a long-term investment option, plus, offering certain attractive short-term benefits too!
Equity investments are a bit high on risk but offer attractive returns. However, these require thorough study and evaluation of stocks, company performance, charts, etc.
Surprise Surprise! This is where a bubble called as 'Bitcoin' gains traction and catches the eye of the 'working investor' who is happier to become a 'speculator' rather than understand the investment basics.
Bitcoin offers you exponential growth (based on its meteoric rise in 2017) without the hassle of tracking it real-time or understanding its mining process. Bingo! The investor who gambles maybe is a bit bored of playing too much poker, or wants to take the bet for a short amount of money, is READY to plunge into Bitcoin!
The uncertainty and lack of control
But herein lies the challenge. I have two words to explain this euphoria: 'Rhetorical and 'Herd mentality’. Technology should not overwhelm you, they say. Due to excessive information spread over social media and various other vlogs, video channels, etc. people form their own opinion about Bitcoin and start spreading it without a deeper analysis.
The amount of power that goes into mining a Bitcoin is atrocious, to say the least!
It is definitely not sustainable and not a long-term solution. As you read this article, there are at least two central banks and governments that are planning to scrap trading on Bitcoin.
We know that 'blockchain' is certainly safer, sustainable and probably, rather arguably the future of digital transactions. But, a 'transaction' is supposed to be poles apart than an 'investment' right? I hope so.
How can someone possibly sell Bitcoin as an 'investment'? This is something which totally blows an experienced investor's mind.
So when I buy stocks, I have stocks in my demat account, when I buy mutual funds, I have units in my account when I buy gold, I have physical or paper gold, which is the underlying asset.
Same goes for real-estate, bonds, insurance, Ulips, etc. What is the underlying asset when you invest in a Bitcoin?
It is just the proportional value that you pay while purchasing a Bitcoin. A value that keeps fluctuating every day and is more volatile than the particulate matter (PM 2.5) in the air quality in your area.
Market and top investor voices
Certain tech-advanced countries have started accepting payments in Bitcoin, or even, paying their employees a part of their salary in Bitcoin. Why would you want your salary, let's say, $10.000 in Bitcoin when you never know it might fall to $7,500 the very next day after your pay-day? These are perfect historical trends of a potential bubble in the making.
Bitcoin is not a stock option or ESOPS, wherein you own shares of a listed company, which is regulated by a Security & Exchange Commission or Bureau!
What is the exchange that controls cryptocurrencies? Who literally owns Bitcoin?
These are questions with theory answers whereas, practically, nobody knows the correct analogy.
Also, when Warren Buffet has a definitive opinion on cryptocurrencies, then the world has to listen:
What is currently happening with Bitcoin, in particular, is a lot more speculation and a lot less investment. Even a foreign exchange investment is more worthy if your analysis and timing of entry and exit are right. But for cryptocurrencies, I would strongly recommend: DO NOT jump the gun and start investing without understanding the risk-return portfolio.
Every bubble takes its own time to burst. And according to popular market voices, this is a bubble that will take its own course.