Bitcoin: When Fear Is Good

  • Many Bitcoin investors are speculating.
  • Downside risk is not being appropriately assessed.
  • Financial history has been forgotten.

There isn’t enough fear of Bitcoin (BTC).
Released to the world in 2009, Bitcoin is an open-source form of crypto-currency. It was designed to be a trustworthy means of exchanging value with no need to rely on government or other central repositories. Indeed, many of its earliest (and most vocal) backers are very distrustful of government and very interested in all aspects of privacy.
Blockchain, the digital ledger tech underlying Bitcoin, is very interesting and has a lot of the major players in business and finance looking to use it for various applications. Year-to-date BTC has seen a meteoric rise catching the eye of many an investor and the public in general.

Recently, my brother’s father-in-law came to me and asked if he should invest in Bitcoin. Such has been the fervor around Bitcoin that even he, a complete financial novice, had heard that buying Bitcoin was an easy slam-dunk method to make money. He had heard about Bitcoin from a friend at work that was very enthusiastic following his own incredible short-term returns. We discussed it in detail and he decided that it probably wasn’t something that he should get into without gaining some knowledge on the both the subject of Bitcoin and Investing itself.
That anecdotal story seems to capture in a small way the growing number of very unsophisticated investors interested in Bitcoin. Hearing of the great returns experienced by acquaintances, friends, and family (often within a relatively short window), they want to find a way to get in on the action… and those that seek... find. Spurred on by their own amazing short-term gains, they invest more and spread the tale of easy money.
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