Bitcoin’s Crash Is Great News
If you didn’t know, over the last year I’ve concentrated on connecting with my followers and became pretty active on Twitter. I know that may surprise most of you since I’m a self-proclaimed technosaurus.
But recently, I tweeted about the crash of Bitcoin, and it received a ton of comments so I thought I’d share what I tweeted:
Bitcoin crashing. Good news. Getting ready to buy more. Remember the problem is not Elon Musk or Bitcoin. The problems are the Fed, Treasury, and Biden. Gold, silver, and Bitcoin are the solutions.
If you read the comments I received from this tweet, you will see many of the “Bandwagon Bitcoiners” are bailing.
This is where we see the separation between investors and traders.
Investors see the bigger, macro picture and act accordingly. Traders jump in when a coin is “hot” and bail when it corrects. This is the complete opposite of what I’ll be doing. Traders are gamblers only winning when they accurately predict the future.
Today, you’ll see how a true investor views Bitcoin in our current economic situation.
But first, let’s debunk a myth…
Behold, the Investor in Its Natural Habitat
When I was in school, my teacher showed the class a movie on the life cycle of lemmings. The class was excited to see a mother lemming give birth to tiny baby lemmings.
We laughed and giggled as the movie showed the cute furry creatures playing, nursing, and growing. Suddenly, my young classmates and I gasped as the movie showed thousands of these now grown-up, but still cute furry lemmings, en masse, jumping off a cliff into the ocean and swimming out to sea and their deaths.
It turns out that the scene from that 1950s movie was a fraud. The filmmakers staged it because they — like much of the public at the time and even still today — believe in mass lemming suicide, even thought it’s a myth.
So why do we cling to a myth like that?
Because it perfectly describes human behavior sometimes. Which brings us back to investors…
Millions of investors act like the mythical, mass-suicidal lemmings. But instead of losing their lives, many lose their life savings. Why does this happen? As always, there are many reasons.
One reason is that investors blindly follow the pack, doing what is popular rather than what is profitable.
When the cryptocurrency market began to heat up in 2020, lemmings began to poke their heads out of their burrows. Upon seeing their friends getting rich and not wanting to miss out on the action, many emerge from the safety of their burrows and follow the herd as they jump off the cliff into the hot crypto market.
Bitcoin Is Crashing and It’s Great News
When anything else goes on sale everybody rushes in to take advantage. Parents trample each other to death just to get in on the latest Christmas sale. But when a stock or crypto coin goes on sale, traders panic and run the opposite way.
When I hear investors say with confidence, “I don’t have to worry about a market crash because this time things are different” I know that they are new investors, often uneducated investors.
Seasoned investors know better. They know that markets always go up and down. They know that when a bull market is hot, it will come crashing down at some point in time—and the higher a market rises, the faster and harder it crashes.
Sir Isaac Newton, who lost most of his fortune in the South Sea bubble, is quoted as saying, “I can calculate the motions of heavenly bodies, but not the madness of people.”
When there is madness and everyone is thinking about getting rich quickly in the market, it’s usually just a matter of time before many people lose everything. Often this is because people start investing in the markets with borrowed money, instead of first investing in their education and experience. When that happens, many people sell in a panic.
Of course, that is when seasoned investors become wealthy, profiting on the madness of others.
If you only bought Bitcoin to trade, then you could be putting yourself in danger. If you bought it to invest and as a hedge against a falling dollar, then great! You win no matter what the dollar does.
That mindset is the difference between an investor and a trader. Investors create win-win solutions. Traders can only win if their prediction comes true.
Bitcoin is in a slump. Great! I’m going to buy more because Bitcoin creates a win-win situation for me.
The Worst Time to Invest
There is a lot of truth to the statement: “When taxi drivers and shoeshine boys are investing, it is time to get out of the market.” Rich dad used to say, “The worst time to invest is when the market is good.”
Instead of teaching us to chase the next hot investment trend, my rich dad taught his son and me to sell our bad investments when the market is high and buy value investments when the market is low. He said, “The best time to get rid of the non-performing assets in your portfolio is when the market is good and amateurs are in the market buying.”
He also said, “One of the ways to find great investments is to become an expert on the mistakes that other investors make.”
One of the most common mistakes is when people become lemmings after a market heats up. In other words, once a market is hot or famous, it is too late. So the words of wisdom are: When markets heat up, remember to not be a lemming. While that sounds like good common sense, when everyone is jumping off the cliff, it’s often difficult not to follow.
Generally, crashes aren’t that bad, but the emotional panic that occurs at times of such financial downturns is. The problem with new investors is that they have not yet been through a real bear market, so how would they know what a market crash and a bear market feel like, especially if it goes on for years?
As with many things, those with experience are in the position to win.
Rich dad simply said, “It is not possible to predict the markets, but it is important that we be prepared for whichever direction it decides to go.”
He also said, “Bull markets seem to go on forever, which causes people to become sloppy, foolish, and complacent.”
Today, times are pretty good for investors. The question is, are you ready for the next bear market? Because it will come, and while it’s easy to make money in a bull market, only qualified investors will make money in the next bear market.
Take advantage of this time to invest not only in the markets but also in your financial education. It will pay big dividends when others are losing it all.
Editor, Rich Dad Poor Dad Daily