Striking up a crypto conversation with a traditional investor is as risky today as bringing up politics at the family dinner table.
Strong opinions on why not to invest in crypto will quickly fill the room.
However, the perceived pitfalls of crypto have nothing to do with crypto. Instead, they represent the fears that would-be investors, the news media, and the general public have about this new way of investing.
And we get it. For many of us, ‘new’ equals ‘scary.’ It’s human nature to fear what we don’t understand. That’s why it’s high time investors gain insight into crypto from those of us who live and breathe this stuff every day.
First up—the many reasons why not to invest in crypto: what they are, why they exist, and why they’re all bullshit.
Debunking the Pitfalls of Crypto
Here are the six most common misconceptions of cryptocurrency keeping would-be investors on the sidelines.
1. They Think They've Missed the Crypto Boat
You may be surprised to know how many knowledgeable investors out there hesitate to make the move to cryptocurrency for fear that the crypto ship has sailed. Sure, the price of a Bitcoin isn’t $1k the way it was a handful of years ago - but isn’t that the point?
Not only have we seen Bitcoin rally as an investment opportunity over the last several years, but there’s also no indication that it will stop anytime soon. In fact, the market cap of crypto keeps growing and is far outpacing the cap of other comparable investments like gold or commodities.
While it seems like crypto has already risen to its high, the fact that institutional investors are just beginning to accept crypto as an investment shows us that we’re just getting started.
2. They Question Its Legitimacy
Bitcoin has been around since 2009. Yet, compared to traditional investments, government-backed fiat currencies like the US dollar, and commodities like gold and other precious metals, crypto is still the new kid on the block.
Its relative newbie status continues to invite skepticism and stir up distrust as it’s naturally compared to other investments and currencies with long track records and concrete returns.
This is where informed, legitimate crypto data and insight need to start coming to the forefront of the conversation. Right now, even the experienced investor is likely to be hit with—at best, confusing and, at worst, downright wrong—information about Bitcoin.
We can’t simply take a broad-brush approach and compare and scrutinize crypto using the same criteria as we would a traditional investment. At the end of the day, the market is doing a disservice to would-be crypto investors who would otherwise be reaping the benefits of Bitcoin.
A hurdle that crypto faces is that it can look illegitimate when viewed through a traditional investing lens, especially for a first-time or novice investor. But, if you look at it through the lens of a developer, it makes much more sense. Because there are no securities laws with crypto, a crypto hedge fund needs to analyze and assess a coin to determine its legitimacy.
3. They Fear Government Regulation
Fear that the US government will insert itself into the crypto space, making crypto an illegal currency and reducing its value stifles some would-be crypto investors from seizing an opportunity.
This fear is an easy one for us to calm.
Simply put, Bitcoin is a decentralized currency, meaning that it does not belong to any single entity. It cannot be directly regulated by any government body.
People fear that government regulation will kill crypto - but that can’t happen. The government has actually been working towards regulation that’s going to strengthen crypto and make it a more viable investment.
Overall, finding the right balance of regulation will help crypto mature and gain stability as both a currency and investment long-term.
4. They Perceive Crypto to Be Volatile
We often look to history when trying to make sense of today, and the California Gold Rush gives us a perfect parallel when looking at fears of crypto as a safe haven for scammers.
During the Gold Rush, ambitious men and women hungry for prosperity made their way to California in search of gold. Scammers also flocked to the west coast, waiting to cash in on the hopes and fortunes of others.
The lesson here, though, is that while scammers were and will always be one step behind opportunity, the Gold Rush did produce real golden nuggets. While the prices of gold were initially unstable, it’s since flourished into a sustainable market.
5. They Think It's a Bubble
Fears around crypto’s stability also circulate today. And yet many of us forget we saw this same hesitancy in the 1990s and 2000s as internet companies, like Microsoft, entered the stock market. The fear of another ‘tech bubble’ remains fresh in the minds of those who watched the bubble burst two decades ago. So, it’s understandable that those would-be crypto investors today are treading lightly and taking a ‘fool me twice’ approach when considering whether to jump in.
We have, in fact, experienced a crypto “bubble” before; at least five “bubbles,” in fact. And each time, crypto rebounded within a year or two.
What has history taught us? That even when the “bubble” bursts, it always bounces back. This is because what skeptics consistently call out as signs of a bubble are actually the growing pains of a brand new frontier in finance.
Taking the bubble argument one step further, we believe that the very fact that crypto is under such incredible scrutiny is actually protecting it from bubbling in the first place. The abundance of small retail investors in crypto isn’t a sign of risk or hype; it’s a sign that cryptocurrency is doing its job as a truly global viable investment. Crypto is supposed to be accessible to broad investors.
This broad accessibility is uncomfortable for many long-time investors used to traditional investing models. All we can say is that if they’re not comfortable, that’s ok, but they’re leaving a lot of opportunity on the table. As crypto continues to grow and further stabilize, more and more retail investors are jumping in and creating a new norm.
6. They View Crypto As a Currency Rather Than as an Investment
The final perceived crypto myth is not the fault of a fear-based narrative creating undo inventor hesitancy; it’s an issue of semantics.
Most people view crypto, first and foremost, as a form of currency. And this makes sense thanks to the coined term “cryptocurrency” we’re so used to hearing.
But this is where the crypto industry got it wrong. To be an effective investment tool, crypto must be looked at less as a currency and more as a stock. In practice and in principle, most cryptos are functionally no different than purchasing stock in a company.
Although currency was one of the early means of use for Bitcoin and other coins, it’s since expanded well beyond this to a utility with everyday functionality. Viewing Bitcoin and other crypto coins as primarily monetary currencies that allow you to buy and sell goods limits the true potential of its use as an investment tool.
Beyond Bitcoin, other crypto coins serve set purposes, as well. Ethereum (ETH), for example, is used to power programs and protocols. POWR is a coin that enables individuals to trade excess energy generated on their home solar and wind systems in a marketplace. Just as a company exists to solve a problem and generate a profit for its efforts, so does a crypto coin.
Avoiding Crypto’s Pitfalls Starts by Gaining Informed Insight from Crypto Experts
Gumbo is a cryptocurrency hedge fund dedicated to increasing investors’ Bitcoin holdings, paying dividends monthly, and only profiting when their investors do. All investments are managed 24/7 by crypto experts. To learn more about Gumbo and investing in Bitcoin, contact our team.