Cryptocurrency took a bullish trend from the ending of 2020 through to the first quarter of 2021. Everyone wanted to invest in Bitcoin and another crypto.
On Twitter, TikTok, everyone was promoting one meme coin or the other. Investing in crypto seemed like the next cool thing. As some people are making 10 to 100 times their investment, most new comers are losing money.
By mid-May, after Elon Musk tweeted that Tesla will no longer accept Bitcoin as a form of payment, the crypto market went on a downward spiral; losing over 50% of its value.
It’s generally known that cryptocurrency is a highly volatile asset; which means high risk. You can make a lot of money as well as you can lose a lot quickly.
Interestingly, the market crash is not exclusive to the crypto market.
In the early to mid 2000, the real estate market was booming. The real estate market was creating millionaires in record time, attracting more and more investors.
As the demand increased, banks were more than ready to issue mortgages because there was a lot of money to be made from trading the debit.
The value of real estate kept skyrocketing until the entire system was no longer sustainable. Then the inevitable happened; the market crashed in 2008, taking the global economy with it. This event is recorded as the Global Financial Crisis.
Large corporations made huge profits, but everyday people lost their lives savings and jobs. The point is every market experience up and down cycles.
Here is another example.
In early 2000, more than a handful of people discovered that you could make a living off writing about anything that interests you and publishing it on the internet. The blogging revolution began.
Early adopters built large media companies rivalling established media organizations. As soon as the crowd heard the success stories, everyone and their grand-ma wanted a piece of the action.
Millions of blogs were created every week. It was almost as if blogs were outnumbering readers. With time, the majority of these blogs are dead and forgotten. The owners are probably looking for the next trend to go after.
This pattern repeats in every aspect of commerce and investing; from real estate to the stock market, cryptocurrency and niche tech startups.
A few people identify opportunities in new technology or innovation. They invest through its different stages of growth and development. As soon as the market starts producing remarkable success, everyone wants to be a part of it.
And when everyone wants to get their own share, supply quickly surpasses demand. Then the law of diminishing return sets in.
Eventually, the early adopters make a huge fortune. The mid-early adopters make a fortune. A tiny fraction of the mass adopters gets lucky. The rest of the masses pay the ultimate price of losing out or being the greater fool.
There are two stages of lessons to be learned from this.
Get in early
This is the pretty obvious lesson. The surest way to create wealth is to be an early investor in a growing market. To get in when no one is talking about it or when everyone is laughing about it.
Any crypto enthusiast will remind you that if you invested $100 into Bitcoin in 2010, you will be worth $500million today. But not many people would have had the courage to invest in such novel unproven technology.
Likewise, when people started blogging professionally, no one would take you seriously if you introduced yourself as a blogger. That changed ones blogging starting proving profitable.
People who can withstand such rejection are the ones who end up succeeding greatly.
To be fair, it is not easy to get to know about new opportunities that most people haven’t heard about.
But with the internet today, information is easily available and spreads very fast. There has been talk about Bitcoin since 2010. In fact, I read about Bitcoin as early as 2012. But due to credit card restrictions from my location, and largely due to lack of will, I didn’t have access to purchase Bitcoin.
May be if I had dug deeper about Bitcoin, as I did with blogging, I might have done everything possible to get even a few coins for a few dollars. Interestingly, I didn’t miss out on the blogging revolution. I got my fair share of ridicule when I was building my online platform, but my result silenced the critics.
In essence, the secret of investing most people don’t know or even don’t care about is getting into an opportunity early enough.
Everyone else wants to get in when the overnight success stories is all over the media. By then, it’s more difficult to succeed because of high competition and economics of demand and supply.
Be fearful when everyone is greedy
If you have been in the business of investing for the shortest possible time, you would have heard of this rule of investing by the greatest investor of all time, Warren Buffet – be greedy when others are fearful; be fearful when others are greedy.
In other words, when people are afraid to invest due to novelty, uncertainty, or market crisis that is when you want to invest as much as you can.
When there is a lot of money to be made and everyone is jumping onboard out of greed to get their share that is the time to fear for the worst.
After the global financial crisis, most people were fearful to invest in real estate and affected industries. But smart investors started investing heavily in these assets because prices were cheap at the time.
This is why mastering your emotion is the toughest job of an investor.
Follow the wave not the trend
To explain this, let’s go back to the boom of online content creation and publishing. The trend started with blogging. By the time everyone and their mama was jumping into blogging, the wave had moved into a podcast and social media influencing, and then to video blogging.
Innovation usually brings a wave of opportunities along. Unfortunately, most people get too fixated on the trend of the moment that they don’t know when the wave has moved on to the next stage.
The secret to getting in early is to look ahead for the possible direction of the wave. If you focus on trend, like most people, you will miss the wave. If the current trend is already crowded, it’s still possible to learn the rudiment of the trade and profit from it. But if you want to play a bigger game, look out for the wave.
In January 2017, Bitcoin hit the $1,000 mark. By December of the same year, it hit close to $20,000. People who jumped in at that point, which were actually the majority, lost a lot of money as Bitcoin worked its way down to $3,000 by December 2018.
At this time Bitcoin and the crypto market had lost their popularity. Only a few people cared about it. But by the time the momentum picked up in late 2020, everyone wants a piece of it.
It goes to show that if you want to be successful, you have to do the opposite of what everyone is doing. Unfortunately, this is tough for most people. But this has created more millionaires and billionaires out of nothing.
Today, most people just want to make money trading cryptocurrency. But they fail to recognize the wave powering the trend; which is Blockchain, the technology that powers cryptocurrency. Blockchain technology has numerous possible implementations that transcend cryptocurrency.
Here is the take away from this video; if you want to succeed as an investor, don’t follow the masses. Do what most people don’t do; study and look beyond trends to see where the wave is headed. Get in early. Master your emotions.