reason #14
BITCOIN is giving you a second chance
How often have you heard the words, if only I had bought bitcoin 5 years ago? Guess what? Bitcoin in November 2022 is trading in exactly the same place as it was in December 2017. Sure, Bitcoin has been on a wild ride for the past 5 years. It touched $3,000 in 2018 and $64,000 in 2021. There is enough volatility on Bitcoin to rip the skin off your face but you need to believe that this short-term volatility is noise. Financial markets are like humans. They tend to overreact in the short term. They get spooked. A tornado hits their town and they think it is the end of the world. After a few weeks, life settles down and the memory of that extreme weather subsides and is eventually forgotten and the town gets on with its business. Bitcoin is still a new and immature asset. It has only been around for 14 years. It is an impetuous teenager that is susceptible to fits of irrational rage but as it matures its price performance will become more predictable.
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Most major cryptocurrencies are down between 50 and 70 percent over the past 12 months. This means that these assets are on sale! Bitcoin is down 67 percent this year and down 71 percent off its highest price. So what is driving this downward pressure on crypto prices? The simple answer is that crypto is being driven lower by the same factors that are driving down the prices of other financial assets such as stocks and bonds, namely the war in Ukraine, inflationary fears, and higher interest rates. But there are also some crypto-specific events that have lubricated the downward trend such as the continued crackdown on crypto in China and speculation that Russian officials were considering similar actions.
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Now is the time to make a long-term investment in crypto, and by long-term, I am talking about a time horizon of at least one decade (aka 10 years). Let me explain the importance of the phrase “at least 10 years”. Bill Gates of Microsoft, Jeff Bezos of Amazon, and Elon Musk of Tesla are three of the wealthiest men in the world. Their combined wealth could almost buy my entire country of South Africa, which is a little ironic seeing as Elon Musk was born in South Africa. Microsoft is the oldest of the three and was founded in 1972. It was then listed in 1986. If you had bought Microsoft stock at the beginning of 2000 and if you held it for 16 years until November 2016, how much would you have made excluding dividends? A big fat zero percent. The stock was basically a flatline for almost 2 decades. But if you had the patience to hold the stock for another 5 years until 2021, what would have happened? Your return would have gone from zero percent to almost 500 percent. Amazon paints a similar picture. Between 2000 and 2010, Amazon moved up and down a lot (ie it was volatile) but the price in 2010 was more or less the same as in 2000. Then from 2010 to 2020, the stock went from $5 to $100 which means it went up twenty times. Tesla shows a similar pattern. The price in 2019 was almost the same as in 2014. In 2020 the price exploded.
If you had taken a short-term view of any of these three companies, you would never have profited from their exponential gains. You need two things to make crazy money from investing - balls and patience. Microsoft, Amazon, and Tesla are all highly volatile, which means that they are highly unpredictable in the short term. In short periods of time like days, weeks and months these stocks experienced dramatic gains and losses and for a large part of their initial history, the losses canceled out the gains. This forced many impatient investors to sell out of these stocks before they could come into their own and blossomed into fantastic investments.
The same is true of Bitcoin. It is easy to be scared off by the violent short-term volatility. Crypto is like riding a bull at a rodeo. American bull riding has been called the most dangerous 8 seconds in sports. If you are able to position yourself towards the front of the saddle so that your body is a counterweight to the bull, and if you can hold on long enough, you will break that bull. Before you get into Bitcoin, you need to understand the long-term structural thesis (which I will attempt to explain in this blog). When you take a multi-decade approach to crypto, you will be handsomely rewarded for your patience in the same way that Bill Gates, Jeff Bezos, and Elon Musk were rewarded for their belief and patience in their own companies.
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