Cryptocurrencies are a marvel of modern day technology. However, we as traders sometimes misinterpret what these digital coins were intended for. They were intended to replace our bank notes and fiat currencies. They were supposed to be the ultimate transaction option of the 21st century. Something that helped you do all of your banking, shopping and pretty much everything else much more rapidly.
But, and that’s a big but. Most of the people saw them as an investment. As a means of making more money, rather than utilizing them for what they meant to be utilized for. At this point it’s not too good of an idea, to have an account littered with Bitcoin for your shopping needs. This can be explained with simple Forex currency correlations. E.g. As you wait for a discount on that cool hoodie you saw on Amazon, the Bitcoin on your account gets less and less, which means that you would have benefited from just buying the piece of clothing without a discount. But with fiat currencies like USD and EUR, it’s quite impossible to get a completely different deal within that small timeframe. Why? It’s all about the volume.
But I’m getting ahead of myself. We’re here to discuss how cryptocurrencies as a technology managed to outpace our comprehension of them. Before we jump into it and discuss it. I’ll try to bring you an amazing example of when this sort of event happened in the past.
Lessons from the past
Follow me as we go into the fields of France, at the German border. The year is 1914 and the War to end all wars has just started. Most of the countries at this point have doubled their efforts at industrializing their economy and military. However, what they could never imagine was the devastation this industrialization would bring them.
You see, when the war began, there were not too many competent commanders who were well versed in the tactics of modern warfare. Most of them used outdated strategies like cavalry charges or infantry charges. This was why it boiled down to a stalemate for 4 years as people froze and died in the trenches, while the generals were trying to figure out why they were loosing.
World War 1 was one of the most devastating wars humanity has ever faced. And the sole reason to why it was so devastating, was the clash of the outdated mindset and the harsh reality. A large number of casualties were because the generals didn’t know what do to in face of artillery fire, and most of the soldiers had never experienced it as well. You see where I’m trying to get here right? A modern problem was approached with an outdated solution. A cavalry charge, in the face of machine gun fire. Basically a death wish.
A familiar scenario
But how does this correlate to Cryptocurrencies? Well, use the same argument, but with a bit of a twist. A modern solution was approached with an old mindset. Cryptocurrencies were seen as a means of making quick money and not using them for the value that they represented. Basically, people getting into cryptocurrencies didn’t quite know what they were doing.
The hype that we were able to direct to them, was enough to blind most of the investors when Bitcoin surged at nearly $20,000. Remember the articles you’d read in December, saying that BTC would reach $100,000. And only a few, who knew what cryptocurrencies were about, were able to predict the crash.
The main lesson from this crypto crash is not that Cryptocurrencies are untradeable or they shouldn’t be traded. It’s the complete opposite. We are in the midst of a bear, of course, it’s a perfect time to buy and trade. What I’m getting at is that we shouldn’t look at cryptocurrencies as a means of generating money. Buying them one day and then selling them off on the other. If cryptocurrencies are to really take off and give you the maximum amounts of profits, they need to be incorporated more into our economy. Take for example Venezuela. Which is a primary example of the value cryptocurrencies can bring.
One of the primary reasons for the crypto crash can actually be attributed to this false perception of the digital currencies. The more people don’t understand how the system works. The more susceptible they are to mistakes, which not only ruins investor sentiment but also destroys the market for those who actually know what they are doing.