Have you thought about dipping your toe into this strange new crypto world?
Maybe you have invested your life savings in cryptocurrency.
Maybe you have absolutely no idea what Bitcoin is?
Sylvia Walker gives us a 101 on the world of cryptocurrency.
Did you invest in Bitcoin and have you made some good money? Or is your investment worth less than what you put in? Either way, Bitcoin and cryptocurrencies in general have taken the market by storm, despite warnings from some of the world’s oldest and most reputable financial institutions.
Fuelled by stories of people making really good money fast, many climbed on the bandwagon. The truth is that the earlier investors benefitted the most. In July 2010, a single Bitcoin was worth 6 US cents. Someone who invested $100 at that point would have been worth a staggering $28,341,266 in December 2017, when Bitcoin hovered around $17,500. The price rocketed in the past two years, reaching a peak in December 2017, and then started dropping in January 2018 to around $9,560 today.
This has left many wondering what happened, whether things will improve and what they should do about their investment. Truth is that no financial institution backs Bitcoin and for many investors, this was an advantage. Unhindered by perceived high costs, lack of transparency and restrictive regulations, cryptocurrencies are rather “anti-establishment”. Of course, the allure of making good money really quickly is very appealing too.
But to try to understand where we are and what to do if you have money in Bitcoin, let’s consider what it is and what is isn’t.
What Bitcoin is
It is a virtual currency that can be used to purchase things online. There are many cryptocurrencies. Bitcoin is one of the most well known.
What Bitcoin isn’t
It is not an investment. An investment vehicle is based on something tangible. For example, if you invest money in unit trusts, you are buying shares in companies that produce something that generates an income. There is a reason for the value of that share and its tangible – you can see their building / website / output. Bitcoin has no owner, no buildings, no regulator. If something goes wrong, there is no-one to appeal to. The only reason the price kept increasing was because of supply and demand – more and more people put money into Bitcoin believing it will increase in value, so it did. Demand exceeded supply. In South Africa, all financial institutions have to be registered with the Financial Services Board (www.fsb.co.za) and this protects the consumer against unscrupulous behaviour, and you have recourse. Bitcoin does not conform to this regulatory body. It’s a gamble and you should never base any long term plan on Bitcoin. It’s good for short term fun, and you should only use money that you can afford to lose. No-one can tell you whether it will increase or decrease in value. It’s all pure speculation.
So what now?
If you have money in Bitcoin and are not sure what to do – sit tight. No –one knows which way the pendulum will swing, and in any kind of volatile market, the best is to wait out the storm. Herd mentality says sell and run when the price drops, but wise people wait. You have a 50% chance of winning at this game. You just need the guts to hang in there through thick and thin. Good luck and enjoy the ride!
Sylvia Walker is an author, speaker and financial planner. Her latest book, smartwoman, was recently published by Penguin.
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