TL;DR – Buy a bit, then forget about it.
Not too long ago, if you asked people what bitcoin is, probably not many people would be able to tell you what it is. But today, more Singaporeans would have heard of bitcoin and cryptocurrencies. Even our local mainstream media has been reporting on this. In particular, Channelnewsasia has reported on the rise of bitcoin and crytocurrencies rather extensively.
And why would CNA report on this so extensively? Because the price of bitcoin has skyrocketed this year. At the start of the year, the price of bitcoin was about USD1,000.
That’s right. If you had bought some bitcoin at the start of the year and held it till now, you would have made 1800% return on your investment in less than a year. That sort of returns is… ridiculously obscene. It’s no wonder that more people are paying attention to it now.
But what exactly are bitcoin and blockchain? What are cryptocurrencies? Here’s a video that explains it quite well.
Or click here if you prefer a version that’s non-technical and without the scary math.
It’s a technology that is promising. We have been reading about how some businesses are looking to cryptocurrencies to raise capital. A recent news article also reported that a Japanese company plans to start paying part of its staff salaries in bitcoin.
You can use cryptocurrencies to buy things at some places. But the use of cryptocurrencies isn’t widespread… yet.
How long will it take before cryptocurrencies are used widely in different areas? No one really knows. But that’s not stopping people to be tempted to buy some cryptocurrencies because of all the attention the media is giving it and the hope that buying some cryptocurrencies now will allow them to make insane returns.
I understand. I’m in that position. I was tempted. And I finally gave in to that temptation. I bought some cryptocurencies. And it has been a… very interesting experience.
Here are three key things I’ve learnt/experienced.
1. Cryptocurrencies are super volatile
The prices of cryptocurrencies are super volatile. Yes, they skyrocket. But they also plummet. There have been times when the price of a cryptocurrency doubled in a single day. And there have also been times that the price of a cryptocurrency drops by half. Take bitcoin for example. When the first bitcoin exchange opened, the first high it got was USD31. It then plummeted to USD2 in the span of six months. This year, there have been days when the price of Ethereum, the second largest cryptocurrency, dropped by 40% in a single day.
See what I mean?
2. Not for the faint of heart
The volatility can be quite a strain on the heart. It can drive you through the extremes of emotions – ecstatic one moment, despair the next. So if you want to invest in cryptocurrencies, put in money that you would be alright to lose. Because there is a good chance that you might lose a lot, if not all, of the money you put in.
But I guess it’s hard to not obsess over the prices and all if you’ve given it all of your best shot. And then some.
Mind you, these people aren’t alone. There have been (too) many stories of people selling and pawning their possessions and taking out credit just to dabble in cryptocurrencies and also ICOs (initial coin offerings).
3. Fight the FOMO and the FUD
There are, of course, ways to minimise the chances of you losing money. That is to fight the FOMO and the FUD. Don’t rush in to buy because of the fear of missing out (FOMO). The temptation to do that comes when the prices are shooting up. And fight the urge to sell when the prices are crashing. That usually happens because fear, uncertainty, and doubt (FUD) are spreading through the ecosystem.
If you give in to the FOMO and the FUD, chances are, then what’s going to happen is that prices will fall shortly after you buy and rise shortly after you sell. I’ve been in that situation before. And it’s not a happy feeling.
What’s the best way to fight the FOMO and the FUD? Same advice as above. Only buy cryptocurrencies with money you can afford to lose. And then just leave it there, don’t look at it for the next six months or so. Or set yourself some limits. If it goes up or down some predetermined points, sell.
May the odds be in your favour
Some people will draw charts and come up with “technical analyses”, talking about resistance and support, waves and bands, trying to predict how the prices of cryptocurrencies will move. All those are rubbish. At least at the moment, they are. There’s really no science to it.
It’s also worth mentioning here that there might be more regulations on virtual currencies once they’re even more widespread.
As of now, buying cryptocurrencies hoping to make money from it is a bit like gambling. So don’t take loans to do it. Don’t sell your kidney. Never trade cryptocurrencies on margin.
And, if you still haven’t gotten the message, only use money you can afford to lose to buy cryptocurrencies. With some luck, you’ll make some money. May the odds be in your favour.