Why it doesn't matter if cryptocurrencies are in a bubble

There is a lot of talk about a cryptocurrency bubble. This post won't analyze the possibility of a bubble, but instead it will tell you about the likely effects of a bubble and why you don't need to care about it if you invest wisely.

Photo source: flickr.com - Urbanicsgroup

First off, what is an investment bubble? An investment bubble is when new money is invested into something too fast and too much, making the target of that investment wave become over valued (Hence creating a bubble). The more this bubble increases the more likely it is to burst, meaning that there will be a sudden loss of value in the investment target.

So lets imagine that this is true. What should you do now that you know it? Nothing else than what you should be doing anyway. Why is this? Firstly, you shouldn't be investing any money you cannot afford to loose. Secondly, you shouldn't be investing in cryptocurrencies which you do not believe will last a price loss. Thirdly, you can buy cheap cryptocurrencies if that happens!

Lets examine the second reason closer. What happens when a good cryptocurrency looses its value? It becomes cheaper. What happens when a bad cryptocurrency looses its value? It goes toward its real value. When investing in cryptocurrencies always invest in those you actually believe in. The price doesn't reflect its real value, it only reflects what other people are willing to pay for it currently. That does not mean anything at all! Especially in the cryptocurrency market where everything goes ten times faster than in the stock market, prices going down are inevitable, but if they are worth it, they will go up again. The best thing is, you might not need to wait for long.

Putting cryptocurrencies in perspective with the stock market will make things more clear. In the stock market a 5% daily increase in the price of coin is enormous! This only happens ones in every few years for any single stock on average. In the cryptocurrency market, 5% swings are a everyday thing for some currencies. In the stock market when a bubble bursts, the effects can last a decade. So reflecting on the previous sentence, the expectation is that a cryptocurrency bubble will take no more than a year to recover if everything happens 10x faster. That is nothing. The cryptocurrency world wants things to happen too fast, because they are so used to it.

If there is a bubble and it bursts, that is good for the community. It will weed out the weakest currencies and make the stronger currencies stronger. On top of that, those who truly believe in a cryptocurrency will have the chance of buying that currency for cheaper. This is something everyone should hope for.

I myself am an advocate for keeping your head cool in situations of high uncertainty when it comes to investments. The way you make a lot of money in investing, is doing things that other people are not doing. The good thing of course is, that by investing into cryptocurrencies now, you are already doing something that the majority isn't. The trick, is to stand your ground when the bad news arrives.

Always invest in what you believe in! The only way to earn in the long term is to invest in carefully considered things!