Cryptocurrency is one field that has gotten Billionaires Tongues rolling. Its virtually impossible for a week to go by without one of these rich folks saying something positive or negative regarding this asset class.
Take Warren Buffet, for instance, in January, he went bearish on cryptocurrencies and even swore never to associate with cryptocurrencies-including Bitcoin.
Speaking to CNBC, Warren said that all cryptocurrencies are set for a bad ending. Well, here is the interesting part; he acknowledged that he knows nothing about Bitcoin, blockchain and anything cryptocurrency-related. Sure, this would not be the first time someone is referring to crypto assets as speculative but thing is, no one wants to learn how they operate before throwing dirt at them.
In 2014, this business acumen went straight after Bitcoin calling it a mirage and warning people to steer clear of it. All the time this happened, Bitcoin and other cryptocurrency prices remained stable. Here is what Warren needs to know about cryptocurrencies and blockchain, the technology that underpins it:
Cryptocurrencies as payment methods
With the recent cryptocurrency price slumps, sham ICOs duping investors and the ever-growing list of crypto assets with no real-world uses, you could be forgiven for thinking they are Ponzi schemes. However, cryptocurrencies present an alternative payment method with little to zero setbacks. For instance, you can send money to your relative in another country without having to pay tariffs set by your government.
Smart contracts protect all the parties
One huge problem with traditional payment systems like PayPal is double spending. You send a product to someone who after getting it, they decide to file a complaint and request their money back.
With cryptocurrencies, once a payment has been dispatched, the transaction can never be recalled. Additionally, the conditions set in a smart contract must be met before a payment is released.
There are issues to be worked on
Nothing about cryptocurrencies is perfect; if anything, they are a work in progress. The complex cryptographical arithmetics may ensure immutable security but blockchains can still succumb to plundering. Nonetheless, this doesnt mean they are a scam.
Cryptocurrencies were never meant to be get-rich-quick schemes.
When bitcoin went live in 2009, many people were skeptical of it standing up against fiat currencies. Four years down the line after Litecoin and Ethereum joined the game, Bitcoin was doing fairly well although only a few people knew about it. Its until 2017 when people realized that cryptocurrencies are heading somewhere.
Like stock market products, cryptocurrency prices too tend to swing in response market conditions. The more people adopt them, the more precious they become. For now, you can expect Bitcoin or any other altcoin to go as high as a million dollars per token but once adopted by many people, they wont be get-rich-quick schemes anymore but rather some of the most important tools for business operations.
A few lessons to learn from Warren Buffets investment style
Although Warren Buffet has a skewed view of cryptocurrencies, there are a few lessons crypto investors and warriors who are looking to make some profit can learn from him. Lets have a look at a few of them:
- Avoid get-rich-quick schemes
Rich people dont believe in becoming wealthy overnight. They know you have to pick a worthy investment and burst your ass for some time before you can make it. Cryptocurrencies are good but the fact that anyone can come up with one can make them look pointless. To avoid losing your money, make sure you invest in altcoins with a bright future ahead-something that aims at solving real-world problems.
- Circle of competence
Studies in Buffetology reveal that Warren hardly invests in a business he doesnt understand. This explains why he didnt suffer great losses during the dot-com bubble burst. Once you understand a business, its easy to analyze it and forecast future prices.
Cryptocurrency day traders and HODLers need to invest in projects with good performance history. For new ventures, a little digging into the history of its founders will tell if it will hold water.
- Stick to long-term investment strategies
Fear and greed are two things that impair the vision investors. If you let outside forces like FOMO (fear of missing out) pull you into making a move, then be sure you made the wrong one. Patience, mental stability and ability to control your emotion is the key to successful trading. Above all, always think long-term.
- Dont over diversify
Warren believes that traders who over diversify know very little about investing. As a shrewd investor, you need to pick your options with long-term goals in mind and have faith that they will do well. The problem with over-diversification is that it becomes hard to keep tabs on all your assets.
- Learn from your mistakes
Its easier to think Buffet never made any mistakes. Well, he did and advises that the only way to avoid repeating them is to learn from them. So be prepared for some pitfalls.
The bottom line
Warren Buffets experience in stock markets is certainly unparalleled and being a billionaire that he is, we can all agree that he makes the perfect individual to emulate. Unfortunately, he might be losing his ability to identify productive ventures.
During a Berkshire Hathaway meeting, Warren admitted that he regrets not investing in Amazon and Google (now Alphabet) a year ago.
Bitcoin and most cryptocurrencies have a bright future ahead and those who do a good read up on them can see that. When the prices are dipping, perhaps because a certain billionaire has spoken ill about them, make some purchases for sale on a bullish day. As we wrap this up, do you think Warren is wrong about bitcoin and other cryptocurrencies coming to a bad ending? Lets know what you have to say via the comment box below.