The best investors of all-time typically tend to understand risk very well. The average investor likes to think they do but often times gets too caught up in it. I was talking to my dad today and he had the mindset of taking profits after hitting a certain percentage in gains. While this may seem like a good strategy he could miss out on some of the largest gains. I call this the ‘loss effect’.
His whole argument was based on the thought that Ethereum could drop to nothing tomorrow and then it would all be gone. Keep in mind that he lived through 2000 and 2008 so his views are a bit different. Investors during those time periods experienced assets falling out of the sky. But it was skewed events that very rarely occur over long periods of time. Additionally, the markets were based on extreme leveraging and when the carpet got pulled it got pulled hard.
My Take on Investing
While I believe this type of price action can happen, I don’t believe that it stays for long. Additionally, it has no effect on long term valuation. Turbulence in markets does happen at times but usually it is quick and to the point.
Only 1 time in about every 10 years is more than just a correction or strong pullback in the S&P 500. So statistics are on your side when it comes to the buy and hold strategy. Now eventually you will obviously want to take profits when you feel is right but most people jump the gun to clinch it. Then they end up buying back in at a terrible price only to sell at another bad price.
The day to day oscillations in Ethereum can be up and down frequently. However, over time the valuation in the asset grows as it expands its base and worth. In Ethereum, the user base is growing significantly along with the technology.
The GDP Potential
In 2016, the world had a nominal GDP of roughly 76 trillion. In the year 2020, the IMF estimates come in at roughly 91 trillion. Now what does this mean?
You will care because this impacts the overall price of Ethereum and Bitcoin. The blockchain technology will most likely be worth something near 5% of GDP by then. Many experts have said this and it isn’t hard to believe. Think about our everyday transactions and the processes that involves.
The blockchain will solve the challenges to store value and send it quickly. Not only is the Enterprise Ethereum Alliance of companies investing in the technology but world banks are as well. Ok now to the numbers…
(Ethereum) $1,137,500,000,000 divided by 100,000,000 = $11,375 per coin
(Bitcoin) $1,137,500,000,000 divided by 18,375,000 = $61,900 per coin