The Misunderstanding of Investments
I decided to write a short article about the misunderstanding of investments because I see that a lot of LinkedIn posts or newsletter try to explain current situations with wrong details, which result in someone copying those details and the other one copies again etc etc. Interestingly this is exclusively done by retail investors, who primarily invest with intuitions instead of understanding the current market conditions depending on the global economic situation.
Understanding Trading
People often misunderstand trading charts. Working with charts doesn't predict anything. It's there for having indicators. These indicators help you to decide whether to go long or short. To buy or to sell. How indicators work and how to use them is a state of the art. But even for retail investors knowing fundamentals can be very helpful for decisions.
Understanding Price
Often it's handled very wrong to understand a price. Often people compare a token on Ethereum with a Dollar or similar. Imagine, it would be like comparing stocks with gold. No professional would do this. An asset is depending on its market and not on any other random asset having nothing to do with this.
Here is an example of how this really works:
A token on Ethereum (or any other smart contract-based platform) is coupled to Ethereum (better to say coupled to its platform where it's deployed). Ethereum is coupled to Bitcoin. Bitcoin is coupled to the Dollar (or Euro depending where you are - but even Euro is coupled to the Dollar).
Of course, you can do the math, but it is important to compare the correct pairs.
The #ethereummerge has nothing to do with whether it will become bullish or bearish. The merge will affect like if this will outperform or not, but not if the asset is going to become bullish itself. If it's bullish or bearish will be decided by the whole market's emotions (the market is not rational!). If Bitcoin or better to say, #Crypto is bearish, everything else will become bearish and vise-versa. The same with #stocks or #commodities .
What most people really mean is which asset performs out! This is a very important difference. For example, is Ethereum outperforming Bitcoin, because it became the better technology or not? Is a token out-performing Ethereum and so on and so forth.
People often try to search for reasons or excuses within the market, why an asset of a platform or a project is bearish and forget that the market generally is bearish. I see a lot of explanations out there, that the 'Ethereum merge' is the reason why it's bearish. No. This has nothing to do with this. Ethereum could do a flic-flac or a headstand or whatever. This won't change anything.
Understanding Markets
A market, in this case for example the crypto-#market , will become bullish, if purchasing power is left (this is the same with stocks, #bonds , etc - as you can see recently). Due to crises, political events (war, governance decisions), etc, when inflation impacts, the purchasing power is gone. Especially for retail investors. Why? Well, relatively easy:
People lost or probably will lose money or even have no money left and are less willing to invest. Simple like that (of course market dynamics are always more complicated, because of multiple factors affecting in combination).
A proper solution would be if a platform like #Ethereum or any other one could solve this problem and gain more purchasing power back or would be a more-risk-less investment. This would make a big difference. When retails would invest because it guarantees more safe #money . But even Ethereum and other crypto platforms are not solving this recently. And as long this isn't solved, people won't invest (that much), except purchasing power is left for speculation.
If no one can invest, then no one can invest! People can hope as much as they want. But just to keep in mind:
Hope or belief won't let you success. Knowledge and conscious decisions let you success.
If prices pump shortly, it's because many people at the same time believe and invest, which results in higher demand and affects price increment. (This is why I often say, the crypto market is recently more a gambling place than a financial solution). But then the real professional traders or investors, who have long-term positions will buy out and take money from others.
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Difference between Speculation and Utility Investments
Sure, many people would say speculations are a kind of #investments or even the same. Well ok, there is a reason why I point this out this way:
Speculating on something means you wait for price increment and buy out to take profits. I will explain the disadvantage in a second.
Investment means you will have the advantage to use it.
Speculation Disadvantages
If many people speculate on an asset, this will probably generate profits for instance. But there will always be a time people will buy out to take these profits. Now imagine: If more people buy out than buy in, the demand in relation to the supply is lower, which results in a price decrement! Speculating can go well for instance. But there will be always a time for a correction or even worse a crash.
Investments Advantages
When you invest in something, it means you have multiple options later:
Take profits or
Use it!
For example, you can invest in #green #technologies , because we will recover #climate . You can invest time in learning because you can use this knowledge. You can invest in #sustainability because this might save resources in the #future and supports efficiency. You can invest in building a house, so you can become old in it.
Most crypto tokens or #blockchains out there are just a success story where people behind have a reputation, which let you believe. But professional traders will buy out and the retail investors will lose money because of believing instead of knowing.
Stay safe and know what you do