It has been some time since the first decentralised cryptocurrency in the world, bitcoin, was created in 2009. But even after a decade of growing interest in cryptocurrencies, and their bold entry into the mainstream of the financial services industry, there are still many would-be crypto investors who are reluctant to explore the tremendous potential of this new asset class fully.
Why? Largely because cryptocurrencies are grossly misunderstood by everyone from the public to the media to the crypto investors themselves, causing them to succumb to various thinking mistakes. In this article, we’ve identified seven such mistakes and broken them down into tangible and answerable components to expose the fallacies behind them.
Perhaps the most common thinking mistake crypto investors make is that they are not convinced there is an actual need for cryptocurrencies, leading to disinterest and making them miss-out on many fantastic opportunities. This thinking mistake is typically caused by a lack of information about cryptocurrencies and the technology behind this new asset class.
Many regions of the world are either unbanked or under-banked, and the people who live in them have difficulty participating in the 21st-century economy. Cryptocurrencies such as bitcoin can instantly solve this problem and provide a secure, convenient, and decentralized digital wallet with a worldwide reach. Venezuela is an excellent example of a country whose citizens have been failed by their own politicians and turned to bitcoin for help.
In the developed world, thousands of businesses have already discovered how cryptocurrencies open new markets and liberate from the shackles of traditional financial institutions. Some see cryptocurrencies as a long-term store of value and an excellent alternative to gold and silver, and their position will only become more prevalent as we approach the next financial crisis.
Influenced by doom-and-gloom headlines, some crypto investors have been led to believe that cryptocurrencies are unacceptably risky so they decided to stick with traditional financial instruments. While there are certain risks associated with cryptocurrencies, their magnitude has been wildly exaggerated.
Modern cryptocurrency wallets and services are just as secure as online bank accounts, and the companies behind them have adopted the same security practices as leading banks. Since bitcoin’s release in 2009, many cryptocurrency hardware wallets, including the extremely popular Ledger Nano S, have come to market, offering an unbreakable level of security and unprecedented convenience.
Even crypto investors who aren’t particularly tech-savvy can safely purchase bitcoin and store it without any worries and with minimal effort.
Technical white papers aren’t everyone’s cup of tea, but crypto investors mistakenly think they have to understand them in order to understand the cryptocurrency market, and they often refuse to participate in it because of this false belief.
Yes, the technology behind bitcoin and other cryptocurrencies can be very complex, but so is the technology behind credit cards or even banknotes, with their sophisticated counterfeiting and security measures. But the fact that Warren Buffett doesn’t understand how money is printed and how Mastercard and Visa process millions of transactions every day doesn’t influence his ability to make sound investment decisions in any way.
Just like Warren Buffett didn’t start his investment journey by learning the ins and outs of stock market information systems, there’s no reason why crypto investors should ruminate on the technical intricacies of a particular cryptocurrency.
Surprisingly many crypto investors think that they need a lot of money to invest in cryptocurrency, so they don’t invest anything at all, robbing themselves of a chance to experience fantastic returns.
For example, in July 2017, one bitcoin was worth around $4,000 AUD. Six months later, the same one bitcoin was worth over $28,000, eight times its original value. Even a relatively modest investment of $250 would balloon up to $2,000 over the same period of time and could increase in a similar manner in the future.
Simply put, it doesn’t make any sense to miss out on excellent early opportunities because the cost of entry seems prohibitive. In reality, anyone with any amount of money to invest can join a cryptocurrency exchange and start trading.
Because bitcoin and several other cryptocurrencies have been associated with the seedy underbelly of the internet, a large number of crypto investors now believe that the entire cryptocurrency market is a scam that has nothing to offer to anyone but criminals. Naturally, such crypto investors are reluctant to invest any significant amount of money.
What these crypto investors don’t know is that the connection between the cryptocurrency market and traditional financial institutions is now very strong. Compared to 2014, cryptocurrencies are far more institutionalized, and this will only increase as time goes on. “As institutionalization increases, so does regulation and governmental guidance which is all good news for end customers,” says Can Gulec, a co-founder at Kambo Finance.
Gone are the days of rogue cryptocurrency exchanges and haphazard business practices. Anti-money-laundering legislation (AML) and Know Your Customer (KYC) laws are now an integral part of the cryptocurrency world, and crypto investors are those who benefit the most from the new state of things.
Cryptocurrencies, and bitcoin in particular, have had a tough year. From its peak value of over $28,000 AUD, bitcoin has plummeted to its current value of around $9,000 AUD in a span of just a few months. Not realizing the true cause of this crash, many crypto investors have surrendered and started to assume that cryptocurrencies are in a bubble.
But there are other ways how to explain the past volatility of the cryptocurrency market. First, almost every government around the world has put roadblocks in front of bitcoin and other cryptocurrencies since the second half of last year. These threats against the very existence of cryptocurrencies have spread fear among crypto investors, causing them to sell their assets in panic.
Second, unregulated initial coin offerings (ICOs) first appeared right around the time when the value of most cryptocurrencies started to exhibit unusual behavior. It’s very likely that ICOs temporarily destabilized the entire cryptocurrency market, which is just now starting to stabilize again.
Finally, cryptocurrencies are still entering mainstream awareness. When the dot-com burst was in full effect, over 43 percent of the US population was using the internet. But according to a recent survey by Coinbase and Qriously, only 18 percent of US students, the population who is most likely to use cryptocurrencies, owns bitcoin or some other cryptocurrencies.
There’s a widespread feeling among crypto investors who’ve been reluctant up to this point that they’ve already missed their chance and there’s no reason to even bother anymore. This thinking mistake is based on a misleading short-term mentality that prevents crypto investors from seeing the bigger picture.
“Cryptocurrencies follow and build on many ambitious ideas of the early days of the internet—decentralization, liberty of information flow, liberty of flow of value, borderless, non-sovereignty. However, utopia and drastic changes can’t happen overnight. Many early dot-com companies failed not because their business ideas were infeasible but the world wasn’t ready. The adoption potential just wasn’t there,” says Gulec.
Cryptocurrencies are in a similar situation right now, and crypto investors should try to understand that the game has just begun. The question is who will keep on playing and who will leave prematurely.
In this article, we’ve exposed the thinking mistakes made by reluctant crypto investors and debunked the fallacious reasoning behind them. The bottom line is that bitcoin is one of the most game-changing technological innovations of our time, and its implications are so far reaching that it will likely take many more years for us to comprehend them fully. The crypto investors who develop the foresight to see how bitcoin and other cryptocurrencies will mold the future and shape our daily lives will be among those who will benefit the most from their entry into the mainstream.
Are you interested in investing in this new asset class to diversify your existing portfolio?
To learn more about how to get started check out this article I have written:
Beginner’s Guide On Buying Bitcoin (BTC) In Australia, With Step-By-Step Instructions