I don’t see where the explanation is. Someone just called it a “new paradigm” but never explained what makes the new paradigm bubble proof. At the moment, Bitcoin operates a lot like other markets, except it’s not regulated and as far as I am aware there are no mechanisms in place to keep it from crashing. Once derivatives and other financial instruments that create leverage come into play, it seems to me that players with deep pockets will control the game more than 20-somethings wagering their life-savings.
If Bitcoin goes up, when do you decide to take some profits off the table? Several people have said “NEVER! You just don’t understand!” They seem to have a belief that Bitcoin is money, or will be, despite it not being fungible at the moment (they’re certain it will be soon). The IRS, by the way, considers Bitcoin gains to be capital gains and wants you to pay taxes on them.
If you sell bitcoin to take some profit off the table, will you feel like a fool if it keeps going up? Will the thought of that possibility keep you from ever taking a profit off the table?
If Bitcoin goes down, what will you do? Hold it and wait for it (hope for it) to go back up? What if it goes down more? How do you know what it’s going to do next?
Bitcoin is going up at the moment because it’s gotten a lot of publicity, and a lot of people are rushing to buy “before they miss their chance.” I don’t have a survey of who is “investing” (speculating) in Bitcoin versus who isn’t, but anecdotally, none of my friends who are particularly sophisticated about investing are interested in “investing” in Bitcoin at the moment, whereas a lot of my younger, poorer, and financially unsophisticated acquaintances are lecturing me about why I’m an idiot for not “understanding” Bitcoin.
To me, it’s a red flag that someone who has no great financial successes in life, and has all the symptoms of “gambler’s fever”, is being dismissive of and condescending to someone who does have some successes under his belt, and understands something about how irrational emotions impact decision-making. Ironically, I’m trying to look out for the best interests of the very people telling me off. Some lessons in life are best learned from others, rather than having to pee on the electric fence yourself to find out what’s going to happen next.
What the article after the next link is about is volatility, or in other words, a price that is fluctuating a lot. You can make, or lose, money really fast when prices are volatile, and it’s usually more experienced people who make the money, and less experienced ones who lose it:
All those rapid ups and downs require decisions to be made, without knowing whether it goes up or down next. Most people will react emotionally, and will lose money.
The rational way to speculate on Bitcoin would be to observe the following rules:
WAGER NO MORE THAN YOU CAN EASILY AFFORD TO LOSE! Only a small fraction of your SAVINGS (it’s usually a good idea not to gamble with borrowed money), which assumes that you have any. Most Americans have negligible savings if not negative net worth.
Take some profits off the table from time to time, and diversify them into something more tangible.
If you double your original investment in something—anything, not just Bitcoin—and then sell half, you have your original investment back, and so “can’t lose” holding the rest and letting it run. Of course, then you’ll still need a way of deciding when to take profits.
Fortuna imperiatrix mundi (Lady Luck, Empress of the world)
In case it’s not obvious, it’s a song about gambling.
Personally, I prefer to make investment profits by knowing something about cycles of credit expansion and contraction, and the effects that they have on economies and investments. Not as thrilling, I suppose, just slow but accelerating, somewhat predictable, accumulation of wealth.