Ride the Bitcoin Rollercoaster… and Win
Unless you’ve been living under a rock, then you’ve probably heard about Bitcoin’s recent volatility. On May, 12th Bitcoin fell 12% after Elon Musk announced that Tesla would no longer accept Bitcoin due to its negative impact on the environment.
Following Musk’s announcement, Chinese officials announced a crackdown on crypto use in the country. The People’s Bank of China warned Chinese financial institutions and businesses not to accept digital currencies.
Both these announcements caused major panic in the crypto space and Bitcoin fell more than 50% from its high of $65,000 in April. The panic was primarily among amateur investors looking to make a quick buck who sold their Bitcoin to salvage any gains they had made during its rise earlier this year.
True investors, however, held tight — as did I. At the start of 2020, Bitcoin was trading around $7,000, which means it’s still up more than 400% — even after crashing last month.
To understand what happened, first, you need to understand there are three kinds of people in the world when it comes to money. There are investors, traders, and speculators. I am an investor.
In real estate, for example, the trader is the person who flips properties for capital gains. A speculator is a gambler.
Markets Go Up and Down
Remember that all markets follow three main trends: up, down, and sideways.
Some markets go up, down, and sideways over years. Sometimes markets can trend up, down, and sideways in less than a minute.
That’s why, when someone advises you to “Invest for the long term,” ask them what they mean because most financial advisors are simply parroting what they have been taught by their sales manager, so they may have difficulty explaining what they say.
Long-term means one thing to the average investor, and something else to a professional investor. If you want to get rich and stay rich, you can’t be an average long-term investor. You must be a professional investor who is far better educated than the average investor.
One of the best ways to get rich is at the point where a trend changes.
If you will look at deals daily, you will better sense changes and improve your chances of being at the right place at the right time.
For example, if you had entered the stock market in 1991 and invested a lot of money in technology stocks you would be rich today. But when the trend changed in March of 2000, if you did not change your strategy, you would have lost all that you had gained. If you had changed strategy in March of 2000, you would have made money faster on the way down, increasing your wealth instead of losing it.
Knowledge is the New Money
I always say knowledge is the new money. Knowledge does not go away, it stays with you and it evolves with you. No one can take it from you.
The hours following the two major announcements regarding Bitcoin is when you saw the “bandwagon Bitcoiners” bail. 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.
I buy Bitcoin not to trade, but for a bigger reason. It’s a hedge against the dying dollar which is being killed more every time the Federal Reserve prints more money. Do you think the Federal Reserve will stop printing money?
If you do, then sell. Since I don’t think they will ever stop printing, I’m buying.
I talk a lot about how difficult it is to predict the future. Predicting the future is a loser’s game. It’s easy to be wrong and nearly impossible to be completely right.
Don’t think I am any different. In my book, Rich Dad’s Prophecy, I predicted that the biggest stock market crash in world history would happen sometime around 2016. I was wrong.
Case in point, it is difficult to predict the future. It’s 2021 and the crash hasn’t happened yet. Many people are happy to point fingers and say, “I told you so.” But I believe the correction will still happen — and I’m preparing.
In the same vein, I believe the dollar is dying. Is this a prediction? Yes. So how do I prepare for my prediction? I buy gold, silver, and Bitcoin. What happens if my prediction does not come true? Great! I still have my gold, silver, and Bitcoin.
What if my prediction does come true? Great! I have gold, silver, and Bitcoin.
My point, 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.
Old Dogs Learn New Tricks
Sir John Templeton is known as a value investor, investing globally in undervalued stocks and watching them grow. He learned to be a technical trader investing in a bear market. In 2000, instead of investing for the long term, which he used to advise, he went short for the first time. It was a new way of investing for him. In one year, he made over $86 million by learning a new way of investing.
As rich dad said, “Money is just an idea.” In this day and age, you do need to keep coming up with new ideas. If Sir John Templeton can change his context at 88 years of age, so can you.
Over the years, I’ve taken rich dad’s lessons to heart and tried my best to always ask questions so that I can learn, grow, and push myself to become more successful. I do not take where I am in life for granted and I do not think I have all the answers.
This is why even though I hold financial education webinars, write books and articles, and speak with the media, I still watch YouTube, read many books, and pay attention to the news. I always have something to learn, and the world is full of teachers.
Editor, Rich Dad Poor Dad Daily