Today, completely out of the blue, a good friend asked me for my advice on Bitcoin. They have a quite a bit of money to invest and and are seriously considering putting it into Bitcoin.
What would you say to someone who asked for your advice on Bitcoin?
Was I fair to my friend or reckless in giving advice about Bitcoin? Or did I even go off topic in answering her question about Bitcoin?
My friend has asked for more information so I will pass on comments to them.
Well here is the conversation I had with Caissa (changed name) for those who might interested (with some edits of course)
CAISSA: Bruce , do you know anything about Bitcoin or any of the cryptocurrencies?
BRUCE: I think I might know a little bit about Bitcoin. It’s red hot right now. Why do you ask ?
CAISSA: Because I want to invest in it.. if it’s not a Ponzi scheme
BRUCE: I’ve got a lot to write about Bitcoin. I will need to sit down
CAISSA: Ok, whenever you have time, no hurry…
Actually Bitcoin has become very expensive, I was thinking of buying Ripple!
BRUCE: Ok firstly I am blown away that you would actually ask me for investment advice. Why would you do that?
CAISSA: Thank you Bruce! I just followed my instinct.
BRUCE: What I will share is my thinking and I might be wrong but I think it’s important that I say this beforehand.
So it’s a huge responsibility so here goes. When it comes to Bitcoin, it’s one of the hottest topics at the moment. There are a few camps at the moment around Bitcoin, some who say it’s a ponzi scheme and others who say it’s the future.
I have read quite a few debates about it and here is what I think.
The technology that Bitcoin is based on, BlockChain Technology is very sound, I believe it is the future, not just in the world of finance and banking but other fields as well. It is the next level in security, transparency and robustness of financial transactions.
However, the issue of Bitcoin itself is rather tricky. The increase in the value of Bitcoins has far exceeded expectations. As far as I can tell no one really knows what is going on, what is driving the price. I am worried that there is now a bubble with Bitcoin, that it can crash anytime now, anytime being within the next year or two. There is a chance that people can still make a lot of money with BitCoin but my greatest worry about Bitcoin is that I don’t understand what it is.
With many things you can see or understand the value, like a R100 rand note, or the Euro, but BitCoin seems to be lines of computer code.
It took me a very long time to understand what it is. Even more confusing is how people can get more BitCoin through activities like mining. I just could not get my head around it.
CAISSA: Is it not the demand that’s driving the price up.
BRUCE: Yes there is massive demand for Bitcoin but the real challenge is from where it is coming..
I have read that some people are driving the price of Bitcoin waiting for the perfect timing to dump their Bitcoin and crash the market, then when the market crashes, they buy again when it is cheap and the cycle begins all over again.
BRUCE: I believe that some people have made huge huge huge amounts of money enough from Bitcoin to retire early.
BRUCE: But I fear that some people might also lose their life savings. I guess one has to put money they don’t mind losing
BRUCE: Someone who bought 5,000 bitcoins in 2009 for $27, that investment is now worth $886,000 Caissa.
BRUCE: Yes Caissa that is so critical, to invest money you won’t lose ANY SLEEP OVER if you lose it all. THIS IS IMPORTANT.
CAISSA: Ok… it’s complicated just to start…
BRUCE: Bitcoin was intended as a replacement for normal currencies which are being term FIAT currencies but unfortunately it is so volatile that it is no longer serving that purpose at all. In one day Biticoin can gain or lose 25% in value.
CAISSA: Do you know any trustworthy site to start buying.. I’ll look at buying Ripple, it’s still very cheap! Bruce, These are huge huge fluctuations.
BRUCE: I want to share with you a very powerful quote by Warren Buffet. Please keep it and refer to it as often as possible.
BRUCE: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
Warren Buffett is the world’s successful investor by a long shot.
CAISSA: I know of him..
BRUCE: One of the things I learnt from him, is only invest in what you actually understand.
CAISSA: This is a new venture for me
BRUCE: You can still make money from something you don’t understand but it’s probably better to get into something you are really comfortable with.
CAISSA: I have no business background
BRUCE: Caissa, in investment there is something called Risk profile, this is basically what kind of an investor you are. Do you want something safe with low risk or something a bit risky but also potentially high risk?
CAISSA: A bit risky and potentially high…
BRUCE: You are probably at a stage where you might be considering retirement within the next 20 years.
This will affect your risk profile, you can no longer take decisions you could have taken 20 years ago. I regard BitCoin is VERY HIGH risk, this is my personal opinion.
Which means one could score a jackpot or there could be tears as well.
CAISSA: Ripple could be safer
BRUCE: I think there will be so many alternatives to Bitcoin but I don’t know if they will be any safer or better. I believe there will be so many alternatives that some of them will be dead end going nowhere. So one has to really do their research before diving in. I had never heard of Ripple.I knew of Ethereum.
CAISSA: Any info you get please pass it this side. I will research more as well. Ok bye for now and thank you once again, Bruce
BRUCE: Caissa, I used to give financial advice so readily before but I have come to realise that it’s a huge burden and responsibility because the implications and consequences can be HUGE