I found this article interesting on two points: 1) Stansberry Research is an investment newsletter I’ve been following for years. Their focus has been the traditional avenues: stocks, bond, mutual funds, real estate, that sort of things. They are now embracing the crytpo space. (ie- that herd of institutional money is coming, and this is just another indicator. 2) The people I know in this same investing space, finance, etc, have pooh-poohed cryptos and created reasons to not even embrace the idea of it. They are going to have a bit of an awakening one day. Or a huge sense of feeling like an ass. Oh well.
You don’t have to look far to find financial luminaries and talking heads declaring the death of bitcoin…
In just the past few months:
JPMorgan CEO Jamie Dimon declared bitcoin is “not a real thing, eventually it will be closed.”
“Wolf of Wall Street” Jordan Belfort called it a “fraud.”
Billionaire investor Howard Marks said cryptocurrencies “aren’t real.”
These folks all have one thing in common. They’re victims of the “default bias”…
Have you ever been overwhelmed by the choices on a restaurant’s wine menu and just decided on the house wine? Or, when you buy the latest mobile phone, do you just accept the factory default settings and not even bother changing the ringtone?
Most people are happy to stick with the standard options. Even when we have several choices, we go with the default choice because it’s easier and more comfortable.
For example, scientists have looked at people’s attitudes toward donating their organs when they die. In countries where you have to opt in to be a donor, only about 15% of people choose to donate their organs. But in countries where donating organs is the default option, more than 90% of people opt to donate.
If no default or standard option exists, we tend to use the past as our “default setting.” Most people like to stick with what they know and are anxious about taking on new risks, even if the change would be good for them.
Default bias is the offspring of two other biases: status-quo bias and loss aversion. Keeping things the same (status quo) is convenient… And we believe the pain of losing is greater than the joy that comes from winning (loss aversion).
Put these together, and our brains often tell us it’s just easier to keep things the same and avoid any potential pain that might come from changing things.
For investors, this default bias can stop us from making changes to our portfolio or strategy. We tend to cling to the way things are, even if it’s not the best thing for us.
This even happened with one of history’s most game-changing technologies…
In the early 1990s, the Internet was just starting to go mainstream. And many otherwise smart folks were convinced it was just a fad.
Here’s a quote from U.S. astronomer Clifford Stroll in 1995:
Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms. They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make government more democratic. Baloney.
Even the inventor of Ethernet, Robert Metcalfe, didn’t believe in the Internet. “I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse,” he said.
And telecommunications expert Waring Partridge had this to say: “Most things that succeed don’t require retraining 250 million people.”
These people fell for the default bias. They believed in what they knew and were anxious about making big changes.
Plenty of investors fell for it, too. And they missed out on big gains as the Nasdaq – which is home to many tech stocks – increased 400% from 1995 to 2000.
We’re seeing the exact same thing happen with bitcoin and cryptocurrencies today… It’s like a replay of the status-quo bias that led people to dismiss the Internet.
Anyone who claims bitcoin isn’t “real” or it will “close” (as Dimon did) doesn’t understand the cryptocurrency at all…
As my colleague Tama Churchouse has written before, bitcoin is money
. It can be moved around (far more easily than traditional currencies). It can buy goods and services. And it has scarcity… Only 21 million bitcoins will ever be mined. And more than 16.5 million have already been mined.
As for the concern that bitcoin is purely “digital,” it’s worth remembering that more than 90% of all money that exists today around the world is not physical (i.e., not notes or coins).
Lastly, bitcoin can’t be “closed.” It’s not an overleveraged credit derivative fund. It’s a highly secure distributed blockchain running on a global network of computers.
Bitcoin is just a cryptographically secure medium of exchanging value.
In short, every now and then something truly new and different comes along. And if you’re willing to go against your default bias, you could make a fortune.
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