Influenced: The TikTok Effect and Cryptocurrency
For the amateur investor, platforms like TikTok, Instagram, and Reddit open the doors to “financial enlightenment”. Trends emerge and fads flourish, often at the cost of sound investment principles. Fear and greed are the greatest barrier to making intelligent investment decisions. Currently, normally sensible investors have been greed-lusting (I’m trying out this phrase) over everything from crypto to AI.
Déjà vu
To-date, cryptocurrencies have proven profitable for some, and a loss for others. The market is volatile and unpredictable. We saw a speculative bubble in high risk assets in 2021 when crypto popularity surged, and a lot of people were burned. I’m concerned we’re going to see the same thing in 2024.
Investment vs. Speculation
If you’ve already made up your mind and set your sights on buying crypto, keep one thing in mind. This is pure speculation, NOT investing. Benjamin Graham once wrote, “An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” Nothing about crypto meets these requirements and thus should be considered highly speculative. It is merely a gambling outlet. Only walk into a casino with money you expect to lose. Same goes with crypto.
A Helpful Analogy on Speculation
Jason Zweig provides an insightful analogy in The Intelligent Investor on the topic.
“To see why temporarily high returns don’t prove anything, imagine that two places are 130 miles apart. If I observe the 65-mph speed limit, I can drive that distance in two hours. But if I drive 130 mph, I can get there in one hour. If I try this and survive, am I ‘right’? Should you be tempted to try it, too, because you hear me bragging that it ‘worked’? Flashy gimmicks for beating the market are much the same: In short streaks, so long as your luck holds out, they work. Over time, they will get you killed.”
Scam Coins and Legitimate Coins
A common theme I hear from crypto “investors” is that some are scams and some are real. I’ve asked several people to explain the difference and I’ve yet to get an answer. Neither “scam” or “legitimate” have any intrinsic value. The only use cases other than speculation are illegitimate: extortion, money laundering, tax avoidance, and bypassing foreign exchange controls. Intelligent investors focus on price and value. With crypto, there’s only price.
Conclusion
The allure of cryptocurrency investment is undeniable- it’s one of the shiniest objects on social media today. The greatest cost of being a successful investor is to sit out fads and ignore the hype. The best opportunities are often ones few people are talking about. And that’s what we are focused on.
Austin Crites is the Chief Investment Officer of Aurora Asset Management, an Indianapolis-based subsidiary of Aurora Financial Strategies which is located in Kokomo, IN. He can be reached via email at austin@auroramgt.com. Investment Advisory Services are offered through BCGM Wealth Management, LLC, a SEC registered investment adviser. This blog does not constitute advice. This is not an offer to buy or sell securities. Advisor is not licensed in all states. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. BCGM Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Clients may own positions in the securities discussed. SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability.
