Cryptocurrency minefield shows why it pays to resist FOMO in investing

After reading tons of articles and watching several explainer-type videos, I am still mystified by cryptocurrency and its underlying blockchain technology.

And I have been covering this emerging field for about a year as a business reporter.

But what confounds me more is how people are willing to put their hard-earned money into such a complex product, built on a technology in its infancy stages of development.

As part of a TODAY Big Read I did recently, I spoke to some of these investors who have seen their investments plummet after sharp declines in the prices of Bitcoin and other cryptocurrencies.

Most went in with some basic knowledge about cryptocurrency and blockchain.

But these are not easy to understand. Not only are they extremely complicated for the everyday investor and require a very high level of technical knowledge, they evolve and change so fast that it is almost impossible to keep track unless you are working in the industry.  

I started covering the property market more intensively just a few months ago and I can easily say that it is a sector I understand much more than cryptocurrencies.

A blockchain professor once told me that a solid foundation in both technology and finance is required to have a good-enough understanding of this field.

What he means is that this is not for retail investors or those looking to gamble.

So why then did some take the plunge?

As an investor who lost almost S$70,000 succinctly put it: “When we saw it (prices) went up to the peak, (my wife and I) were like really FOMO-ing (fear of missing out).”

It’s easy to judge them and laugh at them now that prices have dropped. But it is easy to forget that the fear of missing out was very real one year ago when prices were soaring every other day.

I myself also flirted with the idea that this may be THE get-rich-quick scheme and considered parting with my moolah.

I eventually only put in S$100 into Bitcoin and Ethereum but for the purposes of understanding how investing in crypto works as part of my job. I am now left with only S$18 in my Coinbase account.

Several investors told me that the main reason they went into it is their belief in the blockchain technology and the potential of the specific coins they have invested in.

So they weren’t the stereotypical clueless investors. They have technically “done their homework” by researching on those coins.

But I’m not even sure whether that age-old investment adage is relevant when it comes to cryptocurrencies.  

This is because there is just so much mis-information out there on cryptocurrencies.

Just do a simple Google search and you will see endless number of articles on the various digital tokens, both for and against it. How do you decide which one to believe?

Those in the industry acknowledge this is a problem.

The head of the cryptocurrency association told me there are some who will try to trick investors by artificially creating activity surrounding coins that have no utility.

Some may argue that investing in stocks, bonds, properties etc carry a similar risk of losses.

But the market forces affecting these asset classes are less opaque given that they are regulated.

The reasons behind changes in demand for properties, for example, are a lot better understood than that for cryptocurrencies.

None of the investors I spoke to have been financially ruined by their losses, mainly because they have deep pockets and diversified investment portfolios.

For them, the loss of tens of thousands of dollars, while painful, is something they were mentally prepared for.

I am pretty sure that there are others who were burned more badly by the crash in the value of cryptocurrencies. 

History also seems to show that there will always be people who would want to ride the wave of any investing fad.  

When working on my story, several people I talked to likened the cryptocurrency craze last year to the dot-com boom in the late 1990s, where investors just threw their money into any company that ended with a dot-com.

Their lesson came when the bubble burst in 2000.

Of course, there are those who have made loads of money investing in companies that survived and have grown to be tech giants, such as Amazon.

It is anyone’s guess whether we’ll see a repeat of that for the cryptocurrency/blockchain companies, much less which are the ones that will stand the test of time.  

Betting on which one might is like walking a cryptocurrency minefield.

Sure, there is always the chance that you come out of it much richer. But sink your foot into the wrong one and you might lose your legs.

Between these two, I will rather be safe than sorry. For me, it is okay to miss out.

ABOUT THE AUTHOR:

Janice Lim is a TODAY reporter covering business and local news.