Youtube sensation JJ, a.k.a KSI, made news this week after extraordinary claims over crypto-sphere speculation. After providing a running commentary on video games for many years, he turned his hand to stand-up and then later boxing and most recently got into Bitcoin.
He admitted on Jamie Laing’s Private Parts podcast that he turned £2 million to £7 million in 2020, before losing it all. He got assistance and training in NFTs last Summer and was able to turn £1million into £10 million, or a 10x return in the digital art space. Undoubtedly, with great risk can come great reward. For individuals who have recently earned 10s of millions via boxing contracts, losing a couple million isn’t a death blow.
But for average people, crypto can ruin life savings or their plans to achieve greater financial freedom where the risks simply are never worth the possible rewards. NFTs, overlooking the value to society, are just another investment vehicle for unsavvy traders to lose money and the smarter, luckier, or earlier adopters to take it.
Phone apps have made investing more accessible than ever. Ten years ago the average investment client was in their mid-50s. Today, that stands in late-40s. Lockdowns with not much to do, and social media hype has driven a new wave of younger-investors. Having people more interested in their financial security is a positive, but the gamification “comparing returns to others” and new speculation vehicles like online-artwork to try and appeal to the short-attention spans and novel experience appeals to young people.
Yet, surveys of new investors by the FCA, the UK financial services regulator showed half of people asked didn’t see “losing some money” as a risk when it came to investing. But, two-thirds said a hefty loss would have a negative impact on their current lifestyle.
Risk is an essential part of investing. It is unavoidable. Investors are quick to talk about their successes but slow to cough up about their losers. In a rising market since March 2020, you’d have to try hard to lose money. And a rising tide lifts all boats (unless you’re betting the other way).
The danger is now when things turn against the crowd with everybody not adapting and still bundling in on the ‘next craze’. The past 2 years sheltered many novice investors from the noises of headlines and social media and gave unrealistic expectations to many that the good times are here to roll.
President JFK’s father was said to have sold his investments when the shoeshine boy would offer him stock tips. Our parents had taxi-drivers, and we have social-media influencers. This week, Kim Kardashian and Floyd Mayweather Jr are being sued for millions of dollars for their promotion of dodgy cryptocurrency schemes.
While fear of missing out is real, avoiding being drawn into investments at their tops is part of the learning curve. Investing should be as personal as our future aspirations. Following what others are doing may lead us to get caught up in a whirl and deviating from what matters most, our own plan.
The lessons for young, would-be investors is this: your capital is at risk. You can lose everything and sometimes more than you put in. Older, more seasoned investors have been burned in many schemes and investment propositions over the years and see cryptocurrencies and the metaverse as just another string to the fraudsters’ bow. But, if you are getting into the space, then make sure you don’t go jumping in with “both feet” as Warren Buffet’s message about the importance of diversification rings on deaf ears much of the time. People jumping into Tesla here, or NFTs now are not the “early adopters or pioneers” they are going to be buying short-term tops and won’t have the stomach or perseverance to last out 24-36 months waiting for the bear market cycle to recover. Nor, in fact, will many of these projects ever rematerialize – out of the thousands of crypto projects started in 2017, only a handful are still extant, let alone 2014 or before. As Mark Minervini warns in his book Think and Trade Like a Champion:
“Beware the 50/80 rule. When a secular leader makes a major top, there’s a 50% chance it will drop 80% and an 80% chance it will drop 50%. The average decline of a former leader is more than 70% peak to trough
Bitcoin appears to have made a top at 69,000$ and FAANG stock will eventually make this list too. That said, if you know what you are doing and have spare capital to invest or trade that won’t affect your lifestyle to lose, and you believe in the future of these projects that isn’t just wishful thinking – go right ahead.