The No.1 Way to Fail with Cryptocurrencies
For quite some time, Bitcoin was the hottest trade of the decade.
At nearly $20,000 at one point, it outperformed stocks, bonds, gold and real estate.
And for many investors, it became the “can’t lose” trade of the decade.
- Three weeks after hitting $4,000, Bitcoin ran to $5,000.
- A month after that, it hit $6,000.
- One week later, it jumped to $7,000.
- In two more weeks, it was up to $8,000.
- A week later, it rose to $9,000.
No wonder investors were excited. Even billionaires were on board. In fact, billionaire Michael Novogratz was heavily invested in crypto currencies.
“Ten percent of my net worth is in this space. It’s the ‘best investment of my life,’” he said, as quoted by Coin Telegraph. “The Nasdaq got to $5.4 trillion in 1999, why couldn’t it be as big? There’s so much human capital and real money being poured into the space and we’re at a takeoff point.”
Former PayPal COO, David Sacks, recently tweeted that such currency is the “best candidate we’ve had in awhile for Web 3.0.”
Even the press cheered moves higher.
- “Bitcoin price could hit $50,000 this year, experts say,” noted CNBC.
- “9 Reasons Bitcoin could Hit $100,000 or More,” blared Forbes.com.
- “Bitcoin: Is $1,000,000 just 2 Years Away,” asked Motley Fool.
However, before you rush off to mortgage your home to buy into the crypto craze based on the hype of the press, you have to understand just how volatile it truly is.
Granted, the excitement over Bitcoin was palpable as it ran from less than $1 to nearly $20,000 in a few short years. But as quickly as the crypto currency exploded, it came down just as fast. In fact, just days after nearing $20,000, Bitcoin plunged to less than $7,000 in February 2018, wiping out billions of investors’ value.
We have to remember that markets are littered with popped bubbles from the tulips in the 1600s to the Internet boom and the U.S. housing market fiasco.
So, it’s our responsibility to be aware of the potential for downside.
Volatility is nothing new when it comes to crypto currency.
- In June 2017, Bitcoin prices fell $200 (more than 7%) in just one day.
- In September 2017, Bitcoin plunged from a record high of $4,921 on the first of the month to $2,957 by the 15th on concerns of increased scrutiny from Chinese officials and a host of expert that have slammed the currency as a fraud.
- By February 2018, it plunged from nearly $20,000 to less than $7,000 in weeks.
While this currency has been red hot, it also carries a good deal of risk.
We must be aware of that possibility, or we risk repeating past failures.