Speculating and Investing are Two Different Things: Beware of Cryptocurrencies

Speculating and Investing are Two Different Things: Beware of Cryptocurrencies by Jeff Holland

{3 minutes to read} It’s a strange phenomenon that people want to chase an investment after it has gone up—it can be hard to resist jumping on the bandwagon.

In general, the global stock markets have gone up nicely in the last few  years—however, cryptocurrencies have exploded in value. Relatively new cryptocurrencies, like Bitcoin or Ethereum, have gone up in price in the last three to six months resulting in hype and interest from investors.

Cryptocurrencies are nothing more than a currency (a medium of exchange) with no expected rate of return. They do not produce income nor produce or manufacture anything. Buying cryptocurrency is more speculation (a fancy word for gambling) than it is investing—people who buy cryptocurrencies are entering the “greater fool” territory. (If somebody behind you is buying it, you may make a fortune; but if the opposite is true, you may lose all your money or some portion of your net worth.)

And so, the most salient question is: If you have money to invest, why choose cryptocurrencies rather than invest in the best companies in the world?

Real money is made by owning a  globally diversified portfolio of stocks and bonds and holding them for a long time—that’s when you make a fortune.

Despite this knowledge, it is clear that many people invest in what has been recently performing well, and the converse is also true. For example, over the last two years, interest in gold has drastically declined. However, if gold were to go up to $2,000 tomorrow, the whole world would be shouting, “Buy gold! It’s such a great investment.” A similar phenomenon happened with the internet bubble of the late 1990s. Many sure-fire companies declared bankruptcy. Remember, for every buyer there has to be a seller; what makes you think all the sellers of cryptocurrencies are fools?

Investors should always remember that the only reason to buy something is because there is some intrinsic long-term value.

The best investors in the world will tell you that speculation/gambling and investing are two different things.

Our firm doesn’t speculate with your money. We intelligently invest your money. We do not get caught up in the hype of an unrealistic dream. When I speak to crypto investors, I always ask, “If this was such a brilliant idea, why did it take you so long to get in?” and “Where were you with this brilliant idea 3 years ago?”

It is dangerous to buy on past performance. Via Four utilizes science and academic research to buy future performance. Contact us today!

Jeff Holland

Leave a Reply