(Photo of a golden bitcoin by Shutterstock.com)

Lessons learned from the fall of bitcoin

by Property Soul

Last Friday, the cryptocurrency market suffered an irrational sell-off. An estimated $115 billion worth of different digital coins were wiped off in a single day.

What happened to bitcoin?

In less than 13 hours, the price of bitcoin plunged 15 percent to USD7,700, before bouncing back to the USD9,000 level on Saturday.

As I am writing this, the price of bitcoin continues dropping below the USD8,000 level.

Bad news keeps coming for bitcoin.

First, it was the regulatory crackdown by China, India and South Korea. This was followed by payment processor Stripe’s announcement that it is no longer accepting bitcoin as a payment method. Last week, Facebook banned all advertisements for cryptocurrency. Over the weekend, JP Morgan Chase and Bank of America just banned account holders from buying cryptocurrency using credit cards.

Is the worst over for bitcoin? Will bitcoin end up to be another financial bubble in history – started with good intentions, climbed up steadily, spiralled by greed, and crashed amid irrational fear?

Whether bitcoin is a gem or a fad; an opportunity or a novelty; a hotspot or a hot potato, time will tell.

From star to underdog in 45 days

In 2017, Bitcoin was the darling of the media and the Wall Street.

Last December, Time magazine published an article titled “Bitcoin Futures Are Wall Street’s New Big Thing”. Fortune magazine wrote about “Analyst Who Predicted Bitcoin’s Rise Says It Will Hit $400,000”.

Over the weekend, bitcoin headlines became “Bitcoin and Other Cryptocurrencies Plunged $100 Billion in One Day” in Time, and “Here Are the Signs the Bitcoin Bubble Is About to Burst” in Fortune.

Can you imagine all these happened in 1½ months?

Wait, what about our favourite bitcoin stories – the Winklevoss twins bitcoin billionairesthe man who travels the world with $25 million bitcoin profits; and the bitcoin boy who dropped out of high school and became a teen bitcoin millionaire at the age of 19?

Joining the craze in Singapore

A small coin priced under $0.01 in 2010 at launch suddenly values at close to $20,000.

For fear of missing out the big thing, people all over the world frantically rushed to stock it up.

On December 8, and exactly two days after bitcoin price reached its historic high, The Straits Times reported that the herd of Singapore buyers crashed two bitcoin ATM machines in Hong Lim Complex and Tiong Bahru Plaza.

When asked what drove them to snap up the cryptocurrency, one of the buyers replied,

“I’ve never bought bitcoin before, but it is the talk of the town now,” said Mr Wen, who was retrenched a month ago. “Buying bitcoin is like buying Toto. But Toto is so hard to hit, I might as well use the money to buy bitcoin, which is going higher every day.”

Since it peaked at USD$19,340 on December 6, the value of the virtual currency has fallen more than 50 percent – another investment designed to make the poor poorer.

Want to hear some advice straight from the “wolf’s mouth”?

Jordan Belfort, the con artist behind the based-on-true-story 2013 movie The Wolf of Wall Street, believed that bitcoin was built a “perfect storm for manipulation”. It was originally designed as a currency but is now being manipulated as an investment vehicle. Since the rise in prices is based on wild speculation, it will eventually crash.

Belfort knows it better than anyone. He himself has swindled $200 million in a penny-stock scam in the 1990s.

Your typical bitcoin buyer

There are three common types of investors who are likely to go after bitcoin:

1. The curious or the me-too

When something is all over the front page of Forbes, Time, Fortune, Reuters or CNBC, it is difficult to resist the temptation of laying your hands on it.

When everyone is talking about something, it is tempting to give it a try to join the conversation.

2. The speculators or the gamblers

Remember what the Singapore bitcoin buyer interviewed by The Straits Times said?

“Buying bitcoin is like buying Toto. But Toto is so hard to hit, I might as well use the money to buy bitcoin.”

People who invest in hype are often adventurous risk takers. They long for the thrill of winning in lotteries, casinos and high-risk high-return investment.

3. The vulnerable or the desperate

Remember the Singapore bitcoin buyer said he was retrenched a month ago?

People tend to make big mistakes when they are standing at crossroads or entering a new phase in life. It is easier to sell to buyers who are facing health, financial, relationship or career problems. The same applies to newly-weds, new parents or retirees.

In the movie Ilo Ilo, the mother who was struggling to avoid retrenchment invested in products marketed by a con artist. Her husband who lost his job also suffered heavy investment losses.

The more desperate you need money, the worse the investment decision you are going to make, the higher the loss you will suffer at the end.

By the way, the three typical types of bitcoin buyers also apply to some homebuyers or property investors, if you know what I mean.

If you want to find out how your personality type affects your investment style and risk profile, and how to overcome your weaknesses to be a better investor, there is a coming seminar on “Understand Your Risk Profile Before You Invest”.

The speaker Chang Siew Khang is ex-Managing Director of GIC, Singapore’s sovereign wealth fund. He specializes in talent selection, leadership development and succession planning. He is currently the advisor of Indigo Group, a tuition centre where he helps students to maximize their potential. At the seminar, he would share his rich experiences using 16PF to identify personality types, as well as traits of property agents and traders.

Ultra-high return investments? Not for me.

As a property blogger running my property club, with followers and members who are ready buyers and investors, I often receive ultra-high return investment proposals in person or from email.

Those proposals promise double-digit growth, or hundreds of thousands as commissions in return.

I am not interested to invest it any of them myself or convince others to touch it. Not because I don’t like money, but I do not crave for the thrill of speculation, the joy of hitting the jackpot, or the fear of missing out something big.

1. I am conservative about investment. High-risk high-return schemes are not for me.

2. I am a value investor, not am ambitious trader. I don’t look for opportunities to make big and quick money from flipping.

3. I don’t believe in high return investment that comes with low risk, requires no skill and little efforts.

When I bought my first portfolio of properties, I set a 15 percent safety margin and a 5 percent net rental return. When capital appreciation reached 80 to 120 percent, I was happy to let go of my properties.

The return might not be as exciting as bitcoin. But I know exactly what I am doing and I enjoy the peace of mind for my investment.

Similarly, Singapore dollar fixed deposit may sound boring. But the humble return gives you peace of mind with minimum effort and risk. It is far better than the emotional stress that comes with a complicated banking product, some tricky investment or an overpriced low-return property.

I might buy properties again when the time is right. But even if I can’t find another good opportunity to enter the market again, I won’t feel I miss anything. Have the privilege to continue learning is good enough for me.

Buying properties is not something I haven’t done before. And I did it five times in less than five years. I understand very well the pains of buying the wrong thing, the hassles of holding properties, and the troubles of managing tenants.

Lastly, allow me to quote Facebook COO Sheryl Sandberg’s definition of happiness in her book Option B: Facing Adversity, Building Resilience and Finding Joy:

“As we get older, we define happiness less in terms of excitement and more in terms of peacefulness … Peace is joy at rest, and joy is peace on its feet.”

Do you know how to apply this in your investment?

This post was first published at Propertysoul.com and reproduced with permission