Bitcoin has been on quite the run over the last year; its usual fourth year bull market coupled with the current economic climate has seen it skyrocket in price in fiat currency terms. Naturally, when something increases in price over a short period, it gets a lot of attention. I would honestly say it’s been a bit of a frenzy at times.
I am no fan of Bitcoin bull markets when all the focus is on the price and lesson progress. Despite the surge in price, we humans quickly get used to new ranges.
If we consider the all-time high as a benchmark, then the Bitcoin price is in a bit of a gully, and whenever the price drops slightly, we see thousands coming out with their theory.
The two most popular opinions for the current drop in pricing is:
- The uncertainty surrounding the announcement of the new covid variant.
- Alternatively, it could be people liquidating to spend on Black Friday and for Christmas gifts this year.
At this point, they both are pandemics, COVID or consumerism; pick your poison. Bitcoin’s volatility is what makes it such an attractive investment for traders and those looking to get rich over a short period. The price moves and level of liquidity mean Bitcoin is the ideal market for people to try to increase or decrease their fiat very quickly.
To trade or hodl?
Now I am no advocate for trading; I’ve never traded Bitcoin, I don’t plan on it, I don’t see how I would be good at it. I am a hodler. All I want from my Bitcoin is to ensure that I don’t lose the purchasing power I put in.
The protection allows me to secure more purchasing power through my work and know that what I store will be there should I need it. I know many people aren’t that far down the rabbit hole, and everyone comes into Bitcoin with a different mindset.
Bitcoin is not a one size fits all investment; it takes time and works in learning its system of incentives before you have the conviction to hodl.
Newbies want wealth without work, and some will get it.
Many of those who have reached out to learn about Bitcoin come in with the trader’s mindset. They want to put in a certain amount of fiat and then take out a bunch of fiat in a short time. I’ve tried to explain that selling your Bitcoin this early in its monetisation process is always a losing game, but none take note as they don’t have my level of conviction.
The narrative to hodl tends to fall on deaf ears when your goal is more fiat. When you align your goal on getting more fiat, nothing anyone will say is going to deter you from your goal.
It makes it harder to think of holding as Bitcoin appreciates, and you’re rewarded with more potential fiat. The temptation to cash out your profits is a powerful emotion. Many newbies are going to make money without having to go down the rabbit hole. You can be a Bitcoin tourist at the right time and make some life-changing profits.
As those in previous bull runs, people have made a lot of money from Bitcoin without knowing much about it. It’s a case that will be valid for this bull run and many bull runs in the future.
When you earn wealth with very little effort, you don’t value it, nor do you value the process in which you acquire it. You can make a profit in Bitcoin without having a Bitcoin mindset, which I accept, but if you want to get the most out of Bitcoin, it would be wise to do the work.
The bitcoin mindset versus the fiat mindset.
When you’ve been through a complete cycle, you would see your net worth rise in fiat terms and then drop in fiat terms, but you remain with the same amount of Bitcoin. Once you become numb to the fiat value and realise your goal is to accumulate more Bitcoin, life becomes a lot easier; the price of Bitcoin in dollars or any currency becomes almost irrelevant.
You realise your Bitcoin is your savings, and you don’t need to tap into it unnecessarily.
When you still have the fiat mindset, you become fixated on the price of Bitcoin. Your goal is to make as much short term profit as possible, and once you acquire it, that’s only one part of the equation.
How value erodes once it leaves Bitcoin.
The next step is how do you take responsibility to protect it and ensure that it lasts. Once you cash out of Bitcoin, the vultures will be on their way.
The first person to be sniffing around your profits is the taxman. They will want their piece, and because you’ve cashed out to their currency and payment rails, you got to pay them their dues.
The next will be your own biases and greed; when you sit on a lump sum of the money without having a frugal mindset, and you didn’t work for it, you feel spending is the best option. You’ll spend on mindless consumerist purchases and creature comforts you didn’t need.
In some cases, friends and family will also be looking to grab a piece of your newfound wealth.
Then finally, inflation; now that you’ve cashed out to fiat, the longer you hold that value, the less it will buy you with time. Bitcoin offers you a risk-free rate of continuous appreciation over time; fiat offers you successive losses.
You can try reinvesting your profits into other assets, but good luck trying to beat out the CAGR you would have otherwise enjoyed under Bitcoin.
The fiat wealth curse
I may sound cynical, but it’s not without a shred of truth; we’ve seen this play out with many who have come into large sums of money. Be it gambling, be it trading, be it the lottery or an inheritance. Bitcoin will make many a millionaire, and many of those millionaires will also destroy their wealth should they not bother to improve their financial education.
As this destruction of wealth happens every cycle, it doesn’t mean the wealth disappears. It is reverted back to holders and those who quietly and consistently accumulate. Bitcoin is only a tool, but we humans aren’t infallible, and we will misuse the tool and end up hurting ourselves if we do not learn to use it in the way it was intended.