Cryptocurrency — Educate Yourself Before Investing
I have been in the technology industry for several decades, and I am concerned by the trend of ICOs talking about “bringing crypto to the masses” and allowing “everyone” to enjoy the huge benefit of “investing” in crypto. Let me tell you something.
The big investors in crypto have already made their returns and gotten out. The people who received 10,000 bitcoins in return for 2 pizzas have long ago cashed out. You will never see those returns again. If you don’t believe me, take a look at this SEC warning. The job of the Securities and Exchange Commission is to protect American citizens. To that end, they have regulations preventing US taxpayers investing in pre-ICO stages. That should tell you something.
That’s not to say that some cryptocurrencies won’t still go up, and that there isn’t money to be made in the short term, and even in the long-term if you invest in the cryptocurrencies that will win. The problem is that nobody knows which currencies will be the winners.
The people who are telling you to invest in their platform for “the masses” are the ones who will benefit at the end of the day, not you. They will launch an ICO with a lot of hype, raising a few million dollars to develop an exchange that only takes a few hundred thousand to develop, and no matter what happens to their token, they will still be left with the funds they raised.
The people who are giving you insider tips about this great new ICO are the people who were paid off with tokens in that ICO. If you are thinking that this ICO must be great because every YouTuber is talking about it, ask yourself how it is they all have the same opinion. It’s because they’re being paid. Actually, it’s not even payment. The ICO issues 100,000,000 coins and, of those, a million go to YouTubers. It’s fee to give coins that are worthless to social media influencers, but it’s real money when the token goes up. Then, each YouTuber with 10,000 of them cashes out and it’s a boon for everyone. Except for you, because you thought that the company behind them was really worthwhile, or that you were getting a great insider tip from people in the know. By the way, if any of these ICOs are being issued in the US, you want to be super careful, because the US regulatory commission is cracking down on the industry. Why would you buy into something that has a high chance of being declared illegal?
If you are approached by a friend who tells you about this new coin they invested in, and that it’s super easy for regular folks to trade, tell your friend to sell it. Explain to them about Ponzi schemes and multilevel marketing, and help them get out of that horrible investment. If they tell you it’s tripled in value, tell them to sell it and be happy they tripled their investment. Generally, people don’t triple their investment in anything. They should be glad and get out before it bottoms out. And whatever you do, don’t buy it. If you can’t use it to buy anything, it’s not an investment, it’s a Ponzi scheme.
For a laugh, here’s that friend I’m talking about.
By the way, yes, you can use Bitcoin and Ethereum to buy things. Anything, in fact. You can get a debit card, top it up with BTC or ETH, and use it like any other credit card. So, if your friend tells you it’s “just like Bitcoin” because bitcoin has no value either, ask them where you can get a debit card to use it “just like Bitcoin”.
It disturbs me to hear about people who are flooding to crypto, taking out loans, betting their retirement funds, and so on. We’ve seen this before. In the dotcom boom, I saw too many people throwing money into stocks because they were seeing the market go up dramatically and thought they couldn’t lose. People will tell you “if you invested in eBay or Amazon…” but they never say “If you had invested in Pets.com and geocities…” Think about this: 95% of the dotcom investments were in failed companies. I saw people lose their retirement funds and life’s savings in the dotcom bust, and it makes me sick to see that happening all over again. By the way, there’s a difference between investing in a stock like eBay and investing in a token. The token doesn’t represent a share in the company. It’s more like a coupon for the future service that the company is creating. It’s usually a service you don’t even want. For a clear explanation of the difference between a share and a token, this article and video will walk you through the basics.
So, three things. First of all, if you are an average investor, just a regular person who is investing for retirement, for your kids’ college fund, for that new house… don’t put more than 5% of your investment in cryptocurrency. Just don’t. It’s not a stable investment, so don’t put any money in there that you can’t afford to lose. These are not proven technologies. None of these companies have proven themselves for 5 years. We know 95% of the companies will fail. So far, fewer than 5% have failed, and that’s usually for regulatory reasons. They just haven’t had time to run out of money yet. Why would you put more than 3%, much less 5% of your money into a financial asset with a 95% chance of dropping to zero? If you can’t afford to lose that money, don’t put it into crypto assets.
Secondly, if you see anyone looking to “bring crypto investing to the masses”, run in the opposite direction.
Finally, if you are that person “bringing crypto to the masses”, shame on you. This is a highly volatile market. It is not available to the naïve investor because it should not be available to the naïve investor. Today, anyone with a bit of intelligence can get a wallet or join an exchange and buy cryptocurrency. If they aren’t intelligent enough to figure out how to do that, they should not be investing in this market at all. Leave them alone and create a business that brings real value to the world.