11 Jan Something for newbies to consider
I’ve seen a lot of questions lately, from people who admit they are new to all of this, ask for advice, and are straight up told to buy buy buy, and then hold hold hold. The most important thing is to NOT take advice from random people on the internet (note: I am also a stranger from the internet). Make your own judgement! However, that can be hard given how biased the crypto communities can be, and how opinions going against the ‘trend’ are straight up bullied into silence. The same will probably happen to this post, it will likely be downvoted to shreds, but maybe it will have helped out a few people before it happens, so here it goes.
Generally speaking, first step when making an investment is to try to think about what makes an asset go up and/or down in price. What is it that gives something value? These are questions that you absolutely HAVE to ask, before committing to an investment.
A car, or a house for example, why are they worth anything? Because they have uses. They make it easier to get from point A to point B. Or they provide shelter. Their value can vary based on how they fare against other similar assets. Faster cars and bigger houses will be worth more.
The stock market – why is a company’s stock worth what it is? Because it generates revenue. It provides a service, or good that people want, and are willing to pay for. The better the product gets, the more people want it, the more revenue the company generates, and the higher a share’s price goes. Sentiment definitely plays a big role, of course, but you can always look at a company’s revenue and see if the current price is fair or not.
Now to get to Bitcoin, and other crypto currencies. I’ve lost count how many times I read things like “hurr durr big bankers say it’s worthless because it’s all digital, but they don’t understand the technology”. It always boils down to “it only gets bad rep because it does not have a physical counterpart”. Well, a movie in your amazon account, or a game in your steam account are also digital assets. But that does not mean they aren’t worth anything, does it? Because they do have a value, they cost money to make, and they provide you with entertainment that you are willing to pay for. Now what does Bitcoin provide you with? What makes the Bitcoin price go up & down?
There’s no underlying business that’s backing Bitcoin up, to generate revenue. There is no use for it, once you have it. It does not provide you with any shelter, facility or entertainment. All there is to it at the moment, is sentiment!
So now we can finally answer the question “What makes the Bitcoin price go up”? It’s “more people wanting to buy it”, of course. And that takes us to the next question. With stock, one might want to buy it because he/she believes the business model for that stock is rock solid, and will generate more revenue. When it comes to a house, one might think for example, that the area looking at some form of gentrification in the following years, driving the property prices up, hence it’d be a good investment. So going back to Bitcoin, next question is why would more people want to buy it?
Simply put, because they hope even more people will want to buy it in the future, driving the price even higher. And those people would buy in, because they hope even more will want it later on. And so it goes. To me, that sounds a lot like a pyramid scheme. There is no doubt that there is a physical limit to the number of people that can be convinced to buy into Bitcoin. So the next question is, what happens when the supply of potential buyers runs out? Sadly, that’s an answer we all know, and we’ve seen it happen before. Yes, “this time it’s different”, and “no, it’s not a bubble”, but truly, the only thing pushing the price up, is more people being convinced to buy in. There is no denying that.
With that in mind, now try to look at the majority of the threads & subreddits that are overly optimistic about how the sky is the limit. Why are there so many of them? Do you think it’s because everyone here wants YOU to succeed & get rich? Remember that the more people are convinced to buy in, the higher the price goes. Could it be that if they benefit from convincing more people to buy in?
Now also remember, you can’t really spend Bitcoin. For all the attention it got lately, we are decades away from being able to do that. The “X shop now accepts Bitcoin” are nothing but clickbaits. If you look into them, you’ll see that it’s usually just one shop out of a huge chain, and that the actual transactions still happen in fiat, but accompanied by a crypto exchange afterwards that takes a few minutes to get processed, and then proceeds adds a ton of extra fees as well. It’s all publicity stunts. But enough of that, the point was you cannot and will bot be able to actually spend Bitcoin for a long time. Which means that everyone that will want to actually use whatever they make off of Bitcoin, will have to sell eventually. They just want you to buy and hold for longer than them!
Now, for all the skepticism above, I don’t know, and nobody knows when the crash will happen. But until proper adoption, it IS a pyramid scheme, because IT RELIES EXCLUSIVELY ON A CONTINUOUS SUPPLY OF NEW BUYERS. Nobody can say when that supply will run out, but it will, at some point. So if you’re a newbie and thinking of buying in, or if you own some and you’re not sure if you should sell, then in my humble opinion, that’s what you ultimately need to consider: is the supply of buyers running short, or not?
And above all, remember this: I am a random dude on the internet. And so is everyone else. There is no reason to trust me, or anyone else on this, or any other reddit.