Page 109 - January 2022

he thinks it’s going to be around for a long time. When I hear these things, it makes me think of the Dot-com bubble. The Dot-com bubble was
a rapid increase in technology and internet stock equity valuations. The bubble grew as interest in internet-based companies rapidly increased. In the late 90s, there was a large variety of internet start- up companies and investors became speculators, wanting in on the anticipated market gains. What most people failed to understand is that most of these companies had zero earnings. Many of them didn’t even have a business plan. Similar to the crypto market, people didn’t totally understand what they were buying. They heard success stories from other people and wanted a share for themselves. The Nasdaq, which is dominated by technology stocks, rose from under 1,000 points in 1995 to just over 5,000 points in 2000. The returns during this era were well beyond long term averages. Is this starting to sound familiar? When people aren’t satisfied by 10%-12% returns, you can assume they’re chasing a big win. This is what turns me away from digital currencies. Whenever the crowd flocks to one area, the smart people tend to go the opposite direction. How did it end for these investors in the late
90s? The answer is, not exactly as planned. When equities entered a bear market in the early 2000s, most of the dot-com stocks went completely bust. The Nasdaq peak of 5,048.62 turned into 1,139.90 in a span of two-and-a-half years. The investors lost nearly everything they had put into these companies. It was supposed to be the future, a new era. I can’t tell you how many times I’ve
hear that about cryptocurrencies in today’s society. It took over 15 years for the Nasdaq to reach its peak again after the crash in the early 2000s. Above is a chart showing the Nasdaq
year stretch.
REALITY CHECK
There are people who invest in Crypto because they want to hit the jackpot, and there are people who invest because they think virtual currency will overrun the dollar and become the future. Unless there are some major policy changes by the Federal Reserve and Congress, this won’t be happening. Cryptocurrencies, like Bitcoin, are completely reliant on the dollar. Digital currencies are all valued in dollars and when the cards start to fall, people will scramble to convert their digital assets back to the good ol’ greenback. The people who are on this trend even have the idea that they are going to pay their taxes in crypto. They have such a firm belief that this is going to change the world that
they are trying to make a statement by refusing to pay taxes in dollars.
However, the IRS nor any
other government entity
should be willing to
accept inflated assets
as payment with no
intrinsic value. It’s
going be a reality check
for some people when
they realize everything
is still dependent on
regulated currencies.
LESSONS LEARNED
One might assume that after sacrificing so much trying to chase a jackpot, people would learn their lesson. Consider the reddit users and Robin Hood investors who were chasing the meme stocks on a few short months
ago. We warned people about the risks that those message boards were promoting but the news media loved the
story so they promoted the action by broadcasting these speculators and their idiotic messages to the masses. Young and novice investors jumped in with both feet. Since then, nearly all of these “home run” stocks are trading drastically lower than they were at the height of the euphoria. I’ve begun to realize that people aren’t going to learn their lesson. They are always going to look for that massive return on investment. I’ve realized that the markets will run their course over and over again. These things will come and go like they have for hundreds of years. I’ve mentioned the tulip bulb bubble before. This happened in the 1600s and people were buying tulip bulbs at extraordinary prices because they heard success stories and thought it was the future. It sounds completely bizarre, but in my opinion,
it’s in the same boat as cryptocurrencies. Perhaps the most successful investor of all-time, Warren Buffet, had this
to say about cryptocurrency: “Cryptocurrencies basically have no value and they don’t produce anything. They
don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person has the same problem. In terms of value: zero.” If you are investing in crypto, tread lightly.
FINANCIAL PLANNING
“Whenever the crowd flocks to one area, the smart people tend to go
the opposite direction.”
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