I can't think of a worse analogy than comparing crypto currency to gold.
People keep saying that crypto is 'virtual gold', and a 'wealth store'. But despite the effort to shoehorn gold related terminology into crypto, I don't think they can more different.
Gold has intrinsic value. It's been used as a currency for thousands of years. It's used as a base material for hundreds of industrial processes. It's used in everything from treating auto immune diseases like arthritis to covering the visor of spacesuit helmets. It has a useful purpose.
Gold is rare and takes some effort to obtain so it has scarcity value. If some new industrial process comes along, perhaps a new type of battery that uses predominantly gold then the price will go up as scarcity increases.
What if the world (at least the electronic world) ended tomorrow because of a mass coronal ejection or some other apocalyptic event ? We'd probably go back to gold as a basic barter system. The PC that you used to trade crypto would probably be broken down to recover the gold from the connectors.
No-one 'invests' in gold. Gold is a very temporary short term wealth store. When the going gets tough, an oil crisis or some world turmoil, people transfer their money to gold as a safe haven. As soon as things settle ? they take it back out again. I like to think of gold as being like a rechargeable battery for money.
Anyone invested in gold over the long term would be making a bad investment. Sure, the price has a tendency to rise over time, but not nearly anything like equities or other commodities.
Say I sold my medium size car in 1960 and used the money to buy a bar of gold. If I then sold that gold today, what would it be worth ? Yep, about the price of a medium sized car. It hasn't appreciated at all. In all likelihood, the same car would be worth more money today if I'd just kept it !
To emphasise the point, here's what a $1000 investment in gold would look like today if I'd invested in 1985, compared to just having cash in an equity earning only 10% interest. I could have bought a house in 1985 and made more money just by renting it out.
And what about the crypto 'store of wealth' idea ?
So... how's that working out for you ?
What are you telling the people that bought at $18,000 about their 'long term wealth storage', as they watch their investment dwindle to nothing ?
The concept of 'wealth storage' is to put your money in a safe haven, like gold. And as soon as your wealth storage medium starts to tank, you take it out and put it in something else that will protect and increase your wealth. You don't sit an watch it decrease to less than half its value and pray that some time in the next 30 years you can break even.
Money management seems like a difficult concept for a lot of people to understand, but it's just common sense. Only invest in things that make you money, and drop things that lose you money. Is it really that difficult a concept ?
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I'm a full time financial trader, mostly in Forex and Commodities. I write for fun and try to help beginner traders get started, avoiding all the mistakes that I made. I'm always happy to chat or discuss ideas so please just give me a shout in the comments !
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