Whatever the reason you are here, I think it is quite certain that we are experience a market that is downward cha-cha.
Disclaimer: It is anybody’s guess where the market is going to be. This should not be taken as a buy/sell/hold recommendation. Please consider your own context or approach a financial advisor for advise.
Bear Market Survival Tips
Despite the fear, bear markets are nothing new. To put everyone on the same page, a bear market occurs when major stock indexes like the S&P 500 fall 20% or more from their most recent peak. They’ve occurred 12 times since 1946, which is on average once every 8 years. Most pullbacks above 20% have been associated with recessions. Hence, with the perfect long storm, politicians all over the world are most concerned about recessions.
On average, a bear market is around 9.5months. This would mean most of us will live to tell the tale assuming we are not shaken out of our position (mentally or by margin calls).
As I get more and more about how to invest in a bear market, I hope this article will be able to share with you some bear market survival tips to prepare yourself for the weeks to come.
Bear market survival tips
#1: Avoid making impulsive decisions
This makes the top of the list. Emotionally, people don’t like to be wrong (whether temporary or in the long run). Hence, when they see their portfolio in the red, many people have the temptation to “reset” their portfolio. This is detrimental to your wealth management journey and it is just a “quick fix” of escaping the mental strain.
Stay calm is the key in bear and highly volatile markets. If your time horizon is decades away, the best thing to do is to invest as if nothing has changed. Let me give you an example of a $1000 investment in the S&P 500 between 1/1/2009 and 12/31/2018 (the last market crash).
If you stayed invested the entire time, you’d have $2,775.
If you missed the 10 best-performing days during that period, your account value would be $1,722.
If you missed the 30 best-performing days in this 10-year period, you’d be left with $918.
I can’t emphasize how important it is to stay invested.
#2: Build your positions regularly over time
With dollar-cost-averaging (DCA), no thinking is really required. However, I recognized that it may not be easy. I saw friends who were excited about the recent bear market and have dollar cost average down the last few months.
However, they are all now NOT adding into new positions as the market is still going down. DCA is somewhat easy to say but not easy to execute consistently unless there is a system that is set up. Personally, I have averaged down on the China Market previously and it is still a bleeding position (Check out my latest SRS positions).
Time will tell. That being said, stay tune for my upcoming article: The pros and cons of dollar cost averaging.
#3: Change your strategy, diversify or play defensive
As a wealth manager, I realized risk management is something that I constantly address. If you’re still active in the markets and it is not working anymore, it might be time go passive with a lazy portfolio. If you find yourself taking too much risk, you might want to seek a more defensive portfolio.
Your current life stage might not allow you to take too much risk as compared to before. It is vital to re-assess your situation, your goals, your risk tolerance and discuss with a professional on your options.
#4: Go contrarian (Not recommended)
If you are a trader, you know better than to go against the trend. Consider taking a buy put options position to bet against a stock or ETF, this allows you to have a limited downside (as you are a buyer of the put option) and able to participate in the downward trending market.
WARNING: I have to emphasize that buying options is speculative. They may expire and be worthless if you do not have a game plan. If you are wondering what this is, do not do it.
Final Thoughts
Stay strong. This may be the pivoting moment in your investment journey. There are so many resources you can turn to nowadays to prepare for a bear market. You can consider what Warren Buffett is doing amidst the noises.
Definitely reach out if you need help. I will be more than happy to have a conversation with you.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
The Future Is Here – A Book Review on “Futureproof – How To Get Your Business Ready For The Next Disruption” by Minter Dial & Caleb Storkey
Futureproof How to Get Your Business Ready for the Next Disruption
Foreword: Special thanks to Chengkok for giving me the opportunity to read and write a review for this book. The contents expressed are of the author’s own opinions and are in no way meant to serve as financial advice. Written By Minhui.
Introduction:
The book is split into 2 parts, the first part focuses on the mindsets that will help to embrace disruptions to become “futureproof”. The three mindsets are namely: meaningfulness, responsibility and collaboration.
The second part focuses on 12 of the prominent driving technological disruptive forces across the various industries. Minter and Caleb use humour, personal experiences and passion to bring across important lessons of disruptions for businesses today.
Part 1: The 3 Mindsets
Meaningfulness: The desire to find purpose is not something new, in fact, I argue that it is deeply rooted in human nature for one to search for meaning to have something to live for. Meaningful work helps us to lead more rewarding lives. As such, Minter and Caleb have outlined a framework of 5Ps of meaningfulness for businesses. The 5Ps are Purpose, People, Prize, Profit and Planet. It is with these 5Ps that businesses are able to position themselves in a different light from the others and contribute back to society purposefully. Meaningfulness helps a business to attract the right people who share the same values to scale to greater heights, making profits whilst balancing a higher goal of sustainability for the environment and impacting people’s lives positively.
Responsibility: The need for accountability is greater than before as disruptions take place, with disruptions, we are being exposed to consequences that we may not have answers to yet. Take the example of the debate over genome-editing, the benefits are clear, we could potentially create humans free from diseases but what happens when the gene-editing process goes wrong? Moreover, there are concerns over the justice and equity of access to such technologies. Hence, the moral permissibility of such technologies should be part of the public discourse. Responsibility is essential to a business in that it influences the ultimate purpose of the business and the ethics behind the means to achieve the goals.
Collaboration: No man is an island as the famous adage goes, the need for collaboration has been emphasised through the interconnectedness of today’s world. No one can be an expert in every field and accomplish everything by himself. By being receptive to others’ ideas, collaboration allows the cross-fertilisation of ideas and helps businesses to be more nimble to gain a competitive advantage. Sharing economies utilises collaboration very well, disruptive companies such as Airbnb in fact is asset-light as opposed to traditional hoteliers. Airbnb serves as a platform for connecting accommodation seekers to renters, making under-utilised spaces productive. In this example, collaboration requires much trust from both parties. Trust is a currency that is earned through the fostering of a collaborative culture and not commanded immediately. Businesses have to leverage on each other’s specialisation for greater efficiency.
With that, these three mindsets are crucial in helping you to harness the opportunities from disruptions and “futureproofs” you as you will be better prepared when you question the meaning of your actions and factor in the responsibility behind the actions taken. Lastly, a collaborative spirit should always be encouraged as it helps us to be open-minded for opportunities.
Part 2: The 12 Disruptive Technological Factors
The Web
The Smartphone
The Cloud
Security
Internet of Things (IOT)
Artificial Intelligence (A.I)
Big Data Analytics
Blockchain & Cryptocurrencies
3D Printing
Energy Storage
Self-Assisted Driving
Genomics
I will not be delving deep into each of the 12 disruptive forces but will instead leave it up to you to do your own research or read the book for a deeper understanding. Minter and Caleb have pointed out these 12 technologies that will (if they are not already) disrupt businesses. Some of these forces are in fact intertwined.
The worldwide web became publicly available on 6 August, 1991. Much has changed since then, with its ever-increasing speed and ubiquity, it has allowed us to be reliant and engaged in it like never before. The plethora of tools made available by the web such as social media, e-commerce, peer-to-peer funding or marketplace and e-learning have been nothing short but amazing. It has simply changed the way we live, communicate and handle our daily tasks.
Next, the smartphone, has vastly improved over the years to allow it to function like a mini-computer in which we are able to conduct transactions, communicate with people and get a daily dose of news from Wealthdojo. The third disruptive force would be “the cloud”, which has enabled us to store our data on the internet instead of having it stored locally on a desktop or phone. This has allowed us to work from anywhere and share access to edit documents together with our colleagues who might not be in the same location as us, thus, boosting productivity for companies and institutions.
Cyber security is the protection of computerised systems from theft, corruption, or disruption. From individuals to corporations and governments, the importance of cyber security cannot be understated. The global cyber security market is estimated to be projected at USD 500.7 billion by 2030 according to research by Grand View Research Inc. The internet of things (IoT) are objects that have sensors to communicate both with one another and with us. IoT helps businesses to provide and deliver more customised, contextually relevant content and enhanced customer experience through data analytics. This will be explored further.
The sixth disruptive force is Artificial Intelligence (AI), it is the development and use of machines to function in ways normally associated with the cognitive functions of the human brain. These technologies include: 1) Logic programming- using facts and rules to create logical formulas, 2) Bayesian systems- using statistics and probabilities for prediction. 3) Expert systems-using knowledge-based systems for decision making 4) Semantic knowledge bases – understanding language sets, identifying content by its types, meaning, metadata or tagging. 5) Deep Learning – using algorithms to create models of high-level of abstractions. Being a laggard in adopting AI could jeopardise your businesses. Big data analytics is a function of the combined forces of the web, smartphones, IoT, the cloud, AI. What makes big data powerful is not the data itself but rather what one plans to do with it. It is crucial for companies to know how to navigate through these data to assist their decision-making process.
The eighth disruptive force is one that has been making headlines in recent days. Cryptocurrencies are digital currencies, operating independently of any central bank and through digital encryption, the transfers of these currencies are self-regulated. The most disruptive element of the cryptocurrency force is the underlying blockchain technology. Blockchain, operates as proof of existence. Laura Shin from Forbes wrote “Blockchain technology is likely to disrupt financial services first by making existing processes more efficient, secure, transparent and inexpensive”. Now, with the arrival of the metaverse, blockchain technology will become more significant, as cryptocurrencies and non-fungible tokens (NFTs) will enable purchases and value storage in virtual reality. Gartner forecasts that the business value generated by blockchain will grow rapidly, reaching $176 billion by 2025 and $3.1 trillion by 2030.
Next, 3D printing is the construction of a three-dimensional product from a CAD model. There are many exciting applications for 3D printing. Examples, where 3D printing could be use, includes:
Rapid prototyping
Quick design iteration
Low volume production
Mass customisation
Virtual inventory
Prosthetics
Production of less common spare parts
Renewable energy is hugely beneficial for the environment, however, one of the big challenges to such alternative energy sources is the storage for it. This is due to the intermittent nature of the generation and the inadequacy between when it is created and when it may be needed. Today the mechanisms to store this energy effectively and cheaply remain to be developed. Energy storage is a good example of how all the changes identified by the authors, will not all have direct relevance for all businesses. However, it is of concern to businesses that are involved in producing and storing energy, or those that are heavily energy-dependent.
The eleventh disruptive force is self-driving which enables vehicles to use a combination of sensors, cameras, radars and artificial intelligence to travel between destinations without a human operator. Tesla, has arguably been leading the way with its large fleet of electric vehicles, and more companies such as Volkswagen and Rivian, have jumped on the bandwagon in a bid to achieve a slice of the pie
Lastly, Genomics which is the twelfth disruptive force is the study of the full genome, including all genetic material. Roughly, 2 per cent of our genome is allocated to genes that ‘code’, with the function of programming or encoding a particular product. The study of genetics remains embryonic for businesses outside the medical sphere, nonetheless, the analysis and interpretation of epigenetics (the study of changes in organisms caused by modifications of gene expression rather than alteration of the genetic code) brings the hope for greater robust business applications. Although businesses’ relationship with genomics is in its infancy stage, we can expect to see significant changes in this area in the upcoming years.
Conclusion
These 12 forces of disruption are just examples that Caleb and Minter have pointed out to keep a look out for in the coming decade, they might not be relevant for every business out there, but one takeaway from the book is that we should embrace disruptions as opportunities and prime ourselves for changes.
Humans are more adaptable to changes than perceived, Covid-19 has been a good example, working from home may have been unimaginable for most companies pre-covid but the nationwide implemented circuit breaker has forced most of us to adapt to a whole new working environment at home within such a short period of time, and very likely this new normal is here to stay. More companies have called for a permanent work from home (Twitter, Spotify and etc.).
This book cannot make you “futureproof” but it will open your mind to think about how to do so. Companies and individuals should carry out an honest assessment of ourselves for the mindsets that are required to embrace disruptions as discussed in part 1 because we simply cannot afford to be slow to react to the disruptions that will continue to change the way we live and work in the future.
Final Thoughts
Thank you Minhui for writing this lovely book review.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
Disclaimer: I do not have any position in GME/Bitcoin. Indeed, I have “missed” out on the huge runs of those companies but time will tell. Here at Wealthdojo, we seek to understand what has happened fundamentally. Even in the insane movement in the stock market, we aim manage our wealth in a logical and systematic way.
Several brokerage companies started to restrict trading. On 28 Jan, they only allowed people to sell their shares of selected companies. On 29 Jan, they allowed people to buy only one share of selected companies. This came as an outrage as if you restrict people to only sell. There is only one direction the company can go.
Robinhood started to draw up to $600 million from their line of credit. They have also raised more than $1 billion from existing investors. It is to pay customers who are owed money from trades and also fulfil regulations. They probably did not manage risk properly by allowing those shorter to short too much.
From this episode that is still ongoing, I hope to share 3 important lessons that we can learn as retail investors.
Leverage
Time and again, this word comes out to haunt the financial market. If you can remember the 2008 financial crisis, lines of credit is so easily available that even a prostitute can take a dozens of mortgage loan (Unverified information from Netflix: The Big Short).
When you leverage, you are using money that you don’t have to purchase a stock.
Leverage example:
You have $100,000. You want to invest in ABC shares (assume it is $1) because you believe the share price will double for whatever reason in the next few days. You leverage by borrowing another $100,000 to invest paying an interest (we are going to ignore interest in the calculations). You buy 200,000 shares using your $200,000.
When ABC shares doubles (now $2), you would have $400,000. You pay back $100,000 and your portfolio is now $300,000.
If you didn’t leverage and borrow, your portfolio only grows to $200,000.
Your money grows “faster” when you leverage.
However, if ABC shares drops to 0. Your original $100,000 is now 0. However, you now owe $100,000.
If you didn’t leverage and borrow, your portfolio just suffers the maximum lost of $100,000 but you do not owe people’s money.
The above is a 1:1 leverage. It is possible for you to have a 50:1 leverage in the financial market. Imagine how scary it is if the trade don’t go according to plan. That’s 50x of $100,000.
Investing with margin or leverage is the fastest way to lose all your money. We won’t deny the fact that it is also the fastest way to make more money. Ideally, you should only invest with the money you already have. I believe we will see how this spans out in the days ahead especially if there are big hedge funds using leverage in their GME positions.
Prisoners Dilemma
I never thought I would see this happening after my university days. Readers of Wealthdojo will probably know I’m a behavioral economics fan. Seeing prisoners dilemma play out in real life is somewhat very fulfilling.
Let’s set the context first. When the brokerage stopped people from buying. All you could do was to sell the stocks. Hence, it became a situation of sell or don’t sell among the retail investors.
3 Things I Learnt About Gamestop Prisoners Dilemma
I have created a payout table to facilitate the discussion on the prisoners dilemma.
3 Things I Learnt About Gamestop Prisoners Dilemma Part 1
Shareholder #2 best response is to sell. This is because if Shareholder #1 were to sell, Shareholder #2 is better off selling than not selling (2 > 1). If you sell but other investors don’t sell, you win but other investors lose. If Shareholder #1 were to not sell, Shareholder #2 is better off selling than not selling (5 > 4).
3 Things I Learnt About Gamestop Prisoners Dilemma Part 2
Similarly, Shareholder #1 best response is to sell. This is because if Shareholder #2 were to sell, Shareholder #1 is better off selling than not selling (2 > 1). If Shareholder #2 were to not sell, Shareholder #1 is better off selling than not selling (5 > 4).
3 Things I Learnt About Gamestop Prisoners Dilemma Nash Equilibrium
The Nash Equilibrium for this game is for both of them to sell getting a payoff of (2,2). Logically, both shareholders will sell.
Although (4,4) is the most ideal for them, it requires all the GME investors to coordinate and don’t back out on the deal. It will certainly play on the motivation on the GME investors to stick on with don’t sell.
Motivation
3 Things I Learnt About Gamestop Wall Street Bets VS Hedge Fund Short Sellers
I have learnt that in investing, different people will have different motivation. I find it bizarre for people to randomly ask someone on their opinion and whether to invest in the stock market at this moment of time.
If you ask a trader, he will say yes because the S&P is upward trending.
If you ask a growth investor, he will say yes because there is still growth.
If you ask Warren Buffett, he will just buy back his own shares.
If you ask Elon Musk, he will tweet Gamestonks!
If you ask me, I will sit at the sidelines and continue to collect excellent companies and a sensible price.
For the people at Wall Street Bets, they are there to send a message.
If you decide to follow any of them, make sure they have the same motivation as you. Otherwise, you might find yourself in an awkward position.
Final Thoughts By Wealthdojo
When you thought 2020 was an epic year, 2021 came as another surprise. This episode definitely hasn’t closed yet. Who knows this might be a trigger for another financial crisis. If it comes, the question is “are you ready?”.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
It is official. Gamestop (GME) is now giving a “better returns” than Tesla (TSLA). GME returns stand at 3300% vs TSLA 691% over the past one year. It is even better than bitcoin which is giving a 257% returns over the past one year. Just how did it happen? Is it too late to invest in bitcoin, Tesla or even Gamestop?
Here at Wealthdojo, we seek to understand what has happened fundamentally. For example, the impact of raising $5 billion from Tesla offering. We then see if it makes sense to invest in it or just speculate. Even in the insane movement in the stock market, we aim manage our wealth in a logical and systematic way.
Disclaimer: I do not have any position in Bitcoin, TSLA or GME. Indeed, I have “missed” out on the huge runs of those companies but time will tell.
Tesla VS Gamestop
How did this happen?
It happened for TSLA. It is happening for GME. This movement in the stock market can be summarised into 2 words.
Short Squeeze
What is a Short Squeeze?
A short squeeze happens when there is a (1) sharp rise in the price of an asset. For traders who previously short the asset, they are (2) forced to close out their positions. As they are forced to now (3) buy the asset at that current price, this tends to send the prices even higher.
In simpler words, a strong buying pressure “squeezes” the short sellers out of the market.
Example of a Short Squeeze
For example, stock ABC price has been falling over the last 2 years. Let’s assume that it is now $10. Short sellers (people who sell the stock without having them) sell the stock ABC at $10 hoping to profit from the decrease in prices. (In a hypothetical example, if price becomes $1, they just buy it back at $1 and profit the $9 difference).
However, something happened. This could be a favorable earnings or simply a tweet. The price (1) rapidly increase. Let’s assume prices is now at $20. They are now under pressure if they are on margin (2) to buy back the stock at $20 or risk having the price going up further. At this moment of time they would already be losing $10. They scramble to close/buy the stock (3) at $20 sending the price even further. This keeps escalating until all the short sellers are pretty much out.
Case Study of Short Squeeze
In July 2020, the dollar value of all shorted Tesla shares is close to hitting $20 billion. No US stock in history has ever been that shorted. On 23 Oct 2020, TSLA reported a profitable quarter. When the (1) share price increase, the short sellers were forced (2) to buy Tesla shares. This in turn send the price even further (3).
Another example is Volkswagen in 2008.
How to identify a potential Short Squeeze?
There are many indicators to identify a potential short squeeze and I will try to explain it in a quantitative and qualitative way.
Quantitative: Short Interest
Short Interest is number of shares that have been sold short but have not yet been covered or closed out. Short interest, which can be expressed as a number or percentage, is an indicator of market sentiment. The larger the percentage, the more shares that are being shorted.
Quantitative: Hated Company / Movement Driven
The 3 above are just an example of strong emotions in retail investors. The more someone “hate” the company, the more he is committed to short them. This can be seen from Tesla cult-like investors who either love them or hate them.
After that, it is just waiting for the right moment for it to pop.
Can you profit from a Short Squeeze?
You definitely can. This screenshot has been making it’s way on the internet and this isn’t the final profit that he has. The current price of GME is $209 (27 Jan 2021) and the last price in this screenshot is $65. He has amplify his returns using options so god knows his returns now.
However, I would advice otherwise from chasing this return. This is purely speculative and nothing short of a gamble.
GME Short Squeeze Profits
Final Thoughts By Wealthdojo
Short Squeeze
The market is an representation of the collective human behaviour. I personally think that it is an amazing run for GME. However, I rather sit on the sidelines along with Warren Buffett to watch this play out. Congratulations for those who profited.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
Happy Birthday!! On 12 Jan 2009, Nakamoto sent 10 bitcoin to Hal Finney. This became the first “transaction” in bitcoin history. 12 years later, prices of Bitcoin exploded to reach USD$40K (on 9 Jan 2021). What a journey! Such exponential increase in prices tend to spike interest among the retail investors on their wealth management journey. If you reading this, welcome to the club.
In this article, I will write about my understanding of bitcoin, where we are at the moment and also answer an important question in your mind.
Is it too late to invest in bitcoin?
Is it too late to invest in Bitcoin? Source: Logo vector created by starline
Disclaimer: I don’t claim to be an expert in Bitcoin. All views represent my own. I would love to engage in a healthy discussion of bitcoin in the comments section below.
Context Of Bitcoin: Currency Of Trust
Bitcoin was born slightly after the full swing of the banking crisis. What started as a subprime mortgage crisis eventually created a domino effect that crippled the ENTIRE world financial system. You can imagine the distrust in the financial industry at that time.
The original Satoshi Nakamoto white paper states: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Financial institutions now have new and stricter regulations to comply. At the same, another school of thought arose. Skip the financial institution altogether. It is what it meant by disruption. Imagine a world where you can make financial transactions without going to a bank. This loosely translates to a more efficient and cheaper financial services.
This is where Bitcoin was born.
Bitcoin is positioned to be the “currency of the future”. This boils down to back to the fundamental of money which is trust. The US Dollar has been positioned to be the global currency because it is widely accepted and “trusted” (consider why you won’t want to hold Zimbabwe’s currency). 61% of all foreign bank reserves are denominated in U.S. dollars, and nearly 40% of the world’s debt is in dollars. On the dollar bill, you will see this world called legal tender which means that it is acknowledged by the laws as a mechanism to settle a private or public debt or in order to meet a fiscal responsibility which includes paying taxes, abiding by contracts, and finally damages or fines.
Bitcoin is making waves as it becoming more “widely accepted” (I will discuss more about this later). It is also “trustable” as it is backed by blockchain technology. To put loosely, blockchain technology is used to share valuable data in a secure, tamperproof way. That’s because blockchains store data using sophisticated math and innovative software rules that are extremely difficult for attackers to manipulate. At this moment of writing, Bitcoin is not legal tender yet but is deal with as property or goods.
For a deeper understanding of cryptocurrency, blockchain technology and bitcoin, here is a good article by PwC.
Can it ever be used as money?
In the economic literature, something can only be used as money when it has these 3 functions. A medium of exchange, a measure of value and a store in value. Perhaps the heavily debated issue is if Bitcoin if it has a store in value.
Is there a store in value?
Bitcoin Price Volatility
Consider this graph on the volatility of bitcoin over the past year and also past 10 years. The prices of bitcoin was never in any sense stable (which is what makes it exciting). Prices volatility have been north of 20%. A store in value is defined as something that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. Whether you are a bull or bear for bitcoin, I think we can agree that there is no predictability for the value of the coin in the near future.
Is it being used as a medium of exchange?
While Bitcoin transactions has been increasing over the years as it slowly become more “widely accepted”, we are unsure how much of it is being translated into real goods and services. According to newbtc, only 33% of bitcoin transactions are being used to purchases goods.
Bitcoin Transaction Trend
That being said, I believe that there will be more transactions in future. My question is IF my Bitcoin is appreciating at such an insane level, why would you ever use it to buy something? Taking a note back into May 22, 2010, now known as Bitcoin Pizza Day, Laszlo Hanyecz agreed to pay 10,000 Bitcoins (USD$400,000,000 or USD$400million today) for two Papa John’s pizzas for USD$25. Who in the right mind would want to use Bitcoin to buy anything? Imagine something that you bought at $25 then would now be USD$400million. There would be an extreme incentive to keep money or HODL (someone that keeps cryptocurrency rather than selling them).
Will more people start to use Bitcoin?
It is written that there is an “increasing adoption” of Bitcoin. I have my doubts as shown by this Bloomberg article. About 2% of the anonymous ownership accounts that can be tracked on the cryptocurrency’s blockchain control 95% of the digital asset. Due to the finite nature of Bitcoin, an increasing adoption have to mean that the number 2% should start to go up. I believe there are some whales that are currently holding the bulk of Bitcoin for it to be used meaningfully as money.
Personally, I believe the original intent of it being used as money is now being shaken.
Bitcoin As An Investment Speculation
While I believe the original intent of Bitcoin have not been carried out, you cannot not deny that the people have been making money on it. Whether Bitcoin should be invested depends on who you are asking or who you are.
Futuristic Individual – Yes. We will be using cryptocurrency in future.
Value Investor – No. Because there is no value creation in Bitcoin (No revenue/cashflow/earnings).
Technical Analysis Trader – Buy at signal. Sell at signal.
Bullish Retail Investor – Hell Yeh. Huat ah!
Bearish Retail investor – Run for the hills! Let me tell you a story of the Tulip bubble.
Personally, I believe that there is room to speculate on this. With no foreseeable future usage (in my own humble/limited capacity), I feel that it is a strange asset class but an attractive tradable instrument.
Final Thoughts By Wealthdojo
There are still many things shroud in mystery. Who is Satoshi Nakamoto? Who are the 2% who is holding Bitcoin’s wealth? Are they the Russians, Chinese or terrorist? We will never know (at least for now).
With Bitcoin entering into the financial system, they have became part of the system they have set out to replace. The disruptor seemed to have become absorbed into the legacy system. The banks will live another day.
All views represent my own. I would love to engage in a healthy discussion of bitcoin in the comments section below.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
