My dear average American, welcome to the jungle. Here, you will be playing in a world where regulation is a fairy tale and people are making and losing money all the time. However, you’re not that kind of person, are you? You’re the type who will make money. However, from the basics of the blockchain to the workings of a crypto code trading robot, you probably feel like you have a lot to learn yet and want some advice about how you can avoid the pitfalls and earn money in this tough world.
I’m going to go straight ahead with the assumption that you were too young to be seriously affected by the tech bubble of the late 1990s and the recession of 2008 that was preceded by the great opportunity to accumulate real estate in 2006. Well, don’t worry, if you lost that opportunity there’s a new one on the block: cryptocurrencies.
There have been some serious plunges in the values of cryptocurrencies like Ethereum and bitcoin which have made about $400 billion worth of wealth go belly up. Bitcoin alone has lost about $200 billion in capitalization since its fall from glory at its peak. Ethereum, meanwhile, has lost about $67 billion.
If you’re the kind of person who has had your cryptocurrencies for a very long time, then these major plunges haven’t made a dent in your net worth. Bitcoin, for example, is right back to where it was in November 2017. Ethereum, on the other hand, is high above where it was in November.
However, many people were devastated by the $400 billion that was lost during that magnificent plunge. If you bought your cryptocurrency around December last year or January this year, then you have faced some serious losses. Some of those losses were experienced by those who invested early in these cryptocurrencies or entrepreneurs who took advantage of this new asset class to make a vast fortune. But, a significant part of those losses was taken by average middle-class Americans who thought they would strike it rich real quick with cryptocurrencies.
These are average Americans, and no doubt their stories are heartrending to listen to. Many of them thought crypto would be their way out of piling debt or the key to their retirement. They thought the boom would never end, and they walked right into a bust.
These stories do not all have to be so devastating. There is always the chance that bitcoin might go back up. If they do that, they will end up making a fortune for those who are HODLing (holding on for dear life).
Bitcoin Is Gold
But, what if they will never recover? What if regulation by governments keep increasing or the blockchain technology behind these cryptocurrencies doesn’t live up to all the hype? The dreamers of the middle class will be completely crushed — at least ones who haven’t yet been conned by the many frauds in the unregulated cryptosphere.
There is also the chance that there won’t be any more investors available to buy cryptos in the future. Bitcoin is the digital version of gold. It isn’t very useful as actual money unless you’re a criminal. However, people believe it can be used to hedge against a dystopian future where world governments and banks fail. The very first investors who took up bitcoin did because they believed that fiat money had reached its natural end. Ironically, they ended up making more fiat money from people who later bought bitcoin under the same premises.
Search for the ‘Greater Fool’
However, the story isn’t a bleak one. There are plenty of opportunities to make profits from cryptocurrencies, especially if, like me, you still believe fiat money will be here for a long time to come. All you need to do is find someone who believes fiat is dead. They don’t even have to believe. They need to have the potential to believe. You can make a lot of money from these people.
The premise behind this idea is the same as the premise behind how bubbles are built up and collapse. Many economists call this the “search for a greater fool.”
According to economists, bubbles work a little like this: some investors have different beliefs about how many other potential investors exist in the wider world. The rise and fall of bubbles are all about the processes that make it possible for more investors to purchase an asset. Cryptocurrencies follow this model in an almost textbook fashion.
Bubbles are a way for some investors to prey upon others. They are a legal and perfectly natural Ponzi scheme that happens all the time, especially when a new asset or type of investment is born. We may like to sit and think that a bubble is a way for much paper wealth to be lost, but that isn’t true. Instead, bubbles are a way for wealth to be redistributed so that a different group of people has real purchasing power. There are the late buyers, who lose their purchasing power, and then there are the early buyers, who later turn into early sellers, who then snatch that purchasing power from the late buyers.
True believers are the greatest prey in this game, and they are often the most highly targeted. They are the ones who hold on and keep holding through the bubble and even long after the bust. These are the people who the bandits of the financial world — the speculators who like to prey upon. They aren’t just any kind of speculator. They are the ones who can guess correctly just how many other potential believers, or potential investors, still wait out there to sell the asset to.
Be a Speculator
If we have just witnessed the collapse of a crypto bubble, then that will be the third major bubble in 20 years. There will be more gamblers and true believers who will be born and technology will keep creating new ways to play the wagering game. As it does that, the bubble and the bust will be repeated. Each time, it is the speculators who will take the average person’s savings and put them in their pockets. That is how you can make money from cryptos as an average American. Don’t be average, be a speculator. Find a believer and ride the wave.