Why cryptos are not for everyone

It’s not a thing under the radar anymore for bitcoin or other cryptos that hardly anyone knew it. Cryptos are one of the mostly talked about topics these days in the media and you would be a being from the Mars if you haven’t heard of bitcoin by now. Naturally the interests in cryptos have skyrocketed in the past year. That’s the nature of human beings that we just feel more comfortable with something when people surrounding us are generally like it or in it. I get the sense that more and more used-to-be strong crypto doomsayers are gradually converted to start to become more interested in cryptos and may even want to get their feet wet now. The question is whether cryptos are really something suitable for everyone if they are interested? A big NOPE for me!!

 

By now you must know that I’m a strong believer in bitcoin and the whole crypto future due to my faith in their underlying technology, blockchain (BC). As I said before, BC will be part of our daily life much sooner than we may realize. So why I’m sounding a bit “negative” about it and I’m quite hesitated to make general recommendations on specific cryptos, especially these days? There are a few strong reasons:

• While bitcoin has been around for a decade, there are over a thousand of other cryptocoins out there that are created fairly recently and actually dozens of new cryptos are created each day. So cryptos as a whole are still in the very early stage of its infancy. We probably can only say that BC is still at its concept stage and it may take much longer time to start to see its real life application and utility. Per experts’ estimate, over 90% of various cryptos are likely just junk and will go to zero overtime. Just think about what happened to a vast majority of the dot.com companies at the early time of the Internet back in 1990s. Inevitable, the majority of cryptos won’t survive long. Unless you are just a short-term gambler, for serious money investment in the cryptos market, you got to first well educate yourself  and know what they are and what you are doing. I was first introduced by my connection about bitcoin and other cryptos about 3 years ago when bitcoin was around $200-$500. I wish I took it seriously by then and learned about this field as quickly as possible but stupid me, I didn’t do my homework but simply thought this was something not real and wouldn’t survive long.  It took me almost two years to educate myself well enough to really understand what BC is about and how it may shape up our future. Without such a strong knowledge and understanding, there is no way for anyone to handle the extreme volatility born with cryptos.
• In the past few months, mostly people have heard about is probably how much bitcoin has gained since its birth, cumulatively over 2 million times in the past 10 years and over 10 times even just last year. That’s why it may really sound easy money to make that seduces more and more people into it.  But most people don’t know or haven’t got a real life experience is its volatility, which can be extremely high. I jokingly tell my friends that compared with cryptos, trading stocks  is just like a kindergarten play in terms of the upside potential but equally its downside risk. I showed a crypto that has shot up 30 times since I got it just 3 months ago but has swung widely, 40% down initially and up and down crazily all along depending on the moods of the traders. Without good faith in it, I wouldn’t be able to stick to it when it dropped by 40% when I first got in.  Even for more matured cryptos like bitcoin and ethereum that I have got in for just about one year time, I have personally experienced them crashed by over 50% a few times. A vast number of people will likely not make much from cryptos due to the common herd nature in them: feeling well and comfortably chasing/buying high when everyone is buying during good times but getting panic and selling low when others are dumping during bad times. We have recently got a taste of this kind of moment  about 3-4 weeks ago when bitcoin tanked from $20000 to nearly $10000 within a day. For well prepared traders, this is actually the best time to buy when there is a huge run that almost everyone is dumping with a widespread feeling like the end of the world. I indeed happily picked up more ETH and LTC to increase my positions. So before jumping into cryptos, it is better to honestly ask yourself if you are ready to handle the volatility. If you think the stock market is already too risky and volatile for you, then it may be the best idea not to touch cryptos, especially the individual ones. You may better just wait for the crypto ETFs that may likely be approved and available this year.
• Last but not least, it is quite challenging to buy/sell cryptos compared with stocks. There is no one or two exchanges that have all the cryptos listed. You may have to open many different accounts for different cryptos. Then except a very few that can be directly bought with dollar, the vast majority must be bought via exchanging with bitcoin or ethereum. More headache is the tax consequence for each transaction. Each buying of a crypto via bitcoin will be a taxable transaction as it will be treated as you’re buying and selling bitcoin each time. Don’t expect the exchange will send you a 1099 form for transaction records. It is all up to yourself to make detailed tracking records for the tax filing. I must say it is very cumbersome and a headache and I’m still struggling with it. This is probably one of the reasons why I tend not to actively trade for cryptos but stick to them when I got them unless something terribly wrong with them.

In a nutshell, although I’m a big believer in the crypto field, I won’t generally recommend to people at this stage, especially when I personally believe there is too much froth built up already and it is very much vulnerable to some serious correction at any moment.