CryptoCurrency – Are you Investing or Speculating
Unless you have been living under a rock, you would have heard about the rise of Cryptocurrencies over the past several months.
This rise in value has seen many people begin to put more and more money into these assets in the hope that they will continue to rise in value. As more people put money into these assets, the values go higher and higher and so on. We are not going to give an opinion on whether we think Bitcoin and other cryptocurrencies are good investments or not. This would be pure speculation.
But it does pay to ask the question, are you investing, or are you speculating?
The main difference between investing and speculating is the amount of risk you are taking on to try and get a return. High-risk speculation has many similarities to gambling, whereas investing uses a basis of fundamentals and analysis.
Investing typically involves diligent analysis of the underlying fundamentals to determine whether an asset is under, over or fairly valued. An investor then based on this analysis can make an informed decision as to whether or not they should invest in a particular asset. This can be a company, a property, a commodity or other asset that can appreciate in value.
Speculating on the other hand is putting your money into an asset and just hoping it will increase in value. Usually, speculators seek abnormally high returns in a short period of time. A bet so to speak. If I buy this asset today, I hope it will be worth significantly more in a week or a month from now.
Speculating can see you make a lot of money very quickly. This is what is happening now and as more people make quick, abnormally high returns, others who are not speculating get a fear of missing out and then decide to jump on, in hope of getting similar returns.
This is where the real danger lies in speculating. Speculators are looking at past returns and hoping it will continue. It may continue, but it also may not.
The number of conversations we have had over the past couple of months regarding how to buy Bitcoin and other cryptocurrencies has increased dramatically. The same conversations were happening during the last Crypto boom and that ended in tears.
We are not saying you should or shouldn’t buy Bitcoin or other cryptocurrencies. What we are saying is to be diligent and do your research.
Everyone is now an expert because they may have made a quick buck. Winning a bet doesn’t make you an expert. How many of these people can actually explain what cryptocurrency is and why it is worth what it is?
If they cannot answer this question, they are speculating.
It is important to do your own research and not put more than you are willing to lose into these high-risk assets.
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