Issued in Public Interest
Since bitcoin is rage and everybody around me talking about it, I thought to write a small post.
Look s/he did it / FOMO
This is classic behavioural mistake that most are likely to commit. News like this makes you commit mistake – one random person becomes millionaire, their story gets posted all across world in various m media, you are continuously bombarded by his/her side and you think this is best way to make money, you sell everything and put money in single asset and wait for your dream to come true… But alas money making is difficult.
So you jump into it because you have Fear Of Missing Out (FOMO) everybody is doing it except me, everybody will become rich except me.
Its alternative currency
I have no clue where bitcoin value would be tomorrow or week or month or year from now. Forget that I have no freaking clue how to value this stuff, coming from equity background we look at ability of asset to generate cashflow (you buy shares of a company that sells product/service – so it gets revenue by selling that – after cost it has profit – which shareholders get) , here you have a thing or currency which has no such product/service/cashflow.
One may say there is no cashflow when you buy dollar or yen or euro or pound – agree but there is Sovereign Country behind it. Currency derives its value from nations economy, its financial position in global economy, trade position, law & order etc – here which nation is behind Bitcoin?…. Nobody (maximum Bitcoins are minned in China, I think 70%).
So to me one is betting, price of Bitcoin will continue to rise & one has probably no clue about it’s value (Price is what you pay, value is what you get, it took me 10-years to understand that and believe me lot of times market confuses you between both). Also,you are hoping, you are lucky that price would rise after you buy. Playing luck is playing gamble, you might as well go to casino, but I would advise against that too – odds are just stacked against you.
The others are idiots or have missed the bus
If you track what most of senior people have to say – like CEO of J P Morgan or Warren Buffet or RBI governor everybody says to avoid this – here I have observed more they say to avoid, more price rises. Again I think it’s classic behavioural mistake, everybody seems to of view these guys have missed the bus or doesn’t want me to be rich hence they are saying so.
Few people are of view that there is lot of demand from black money hoarders, who are converting money to Bitcoin for safety reasons. Just Google how many times hackers have stolen Bitcoin, so safety is concern for me. It shouldn’t happen that one ends up spending more for security (Read here) then for actual buying currency.
Youth is huge driver
World’s median age is around 30 and that’s the population (below 30) who are driving and crazy about this Bitcoin. So I think that also plays some role in being it famous. Remember young generation is always determine to prove themselves and Bitcoin is just one of their way.
Think of SnapChat or Twitter or something’s else that is barely used by 200-300 mn user (and yet to be profitable), that too of developed world when bulk of youth residing in developing world, has barely gained access to phone. But still Market cap of all these companies is beyond comprehension for most of us (who have been in market for more than 10years and have seen bull & bear market cycle). There is beautiful saying for such things, market can remain irrational for long time then you can remain solvent.
Anti-establishment / Government Chor hai
Then there are people who are anti-establishment, they always either hate government or worry that government would steal from them (think of taxes, Demonetization, etc etc) and you have a substantial number of people who want diversify their wealth or safeguard their money, you have demand for alternative, i.e Bitcoin.
Then there are people who have black money and they want safety ( questionable in case of Bitcoin) and anonymity, which Bitcoin offers them easily.
So to sum up there seem to be enough demand drivers for bitcoin, however it is still not convincing for me to go ahead and buy it. Rather I think there is heavy chance that some Network Marketing / Chain marketing / Multi Level Marketing firm would come up with scheme that would use Bitcoin or variant there of that would further fuel demand. And Voile you would have perfect recipe for a SCAM.