Crypto currencies have excited private investors, with its promise of easy money and massive gains. It's tulip mania all over again.
The cryptocurrency market has recently seen a stunning reversal of fortunes: Anyone who has traded or invested in the financial markets would have seen it coming: The cryptocurrency market is not the place for private investors who fancy a “flutter” in the markets. When Bitcoin, one of the key players in the cryptocurrency markets lost 25% of its value in one day’s trading in late December the writing was on the wall.
Yet greed and fear entices private punters into markets which seasoned professional traders and investors have shunned for obvious reasons.
Volatility isn’t the only problem with cryptos:
In order to understand why the cryptos have seen such a meteoric ride one needs to understand what’s been driving price action. The Chinese have been driving the meteoric price rise of this market because they have been using cryptos to convert money into foreign currencies. There are strict currency restrictions in China which does not allow currency to be taken out of the country.
Any market that is unregulated in a world that is striving to regulate anything is vulnerable to government interference
Governments are likely to use potential money laundering concerns to hunt down crypto currency accounts across the world. In fact, this has already happened: The National Bank of Australia, some European and American banks have shut down or suspended accounts linked to crypto currency trading.
While this may not be a scenario the average punter might face, converting cryptos into “normal currency” isn’t as easy as you are made to believe and also very costly.
By far the biggest issue down the road is general taxation and over government interference and that does not bode well for this market as a solid wealth building investment opportunity. Governments will not allow a free market!
They want to control and above all they need to make money from your trading or investing. The entire financial market is heavily controlled, yet the average investor and most brokers and financial advisers, not to mention your bank manager, haven’t a clue how the game is played. Having traded for nearly 20 years and worked with many professional traders and investors I learned a lot about what really goes on in the market.
Ignorance is costly and will become even more costly in the near future as we are headed for a complete overhaul of the financial system.
Having the foresight and understanding about what drives market action and currency flows is vital to make sound investment decisions in the future. The average investor is still uneducated and driven to make investment decisions from the need to “save for a rainy day”. Such considerations fuel unconscious fears and greed which lead to market crashes.
The average investor has no idea about risk. They don’t know how to evaluate risk because nobody ever told them how to do this. What’s worse is that your average broker and your financial advisor doesn’t understand risk allocation too well either. They tend to ignore volatility and liquidity, both huge issues for cryptos.
I do not want to spread doom and gloom, just issue a caveat on investing in crypto currency of any kind unless you know what you are doing. The latest moves from governments around the globe to tighten up on the crypto currency market will make this market even more unstable for now.
Long term we will all be using electronic money if governments have their way.
We are living in times of immense change. The entire socio economic system is changing and this requires different investment strategies for the future. Being aware of these changes is a first step. A deeper understanding of what is driving these changes is vital.
Private investors need to understand what really drives their investment decisions. Common sense is only a very small part of making sound investment choices, because sound investing decisions to the average mind feel counter intuitive. Money has a way of bringing out subconscious fears in the untrained mind, and that is not a good place from which to make sound decisions about your investment portfolio. Buyer beware!