This post 3 Rich Dad Lessons for Crypto Investors appeared first on Daily Reckoning.
It was around this time last year that we saw Bitcoin climb to an all-time high around $20,000 per coin and saw gains in the 1000% range.
The growth during this time sparked a crypto-rage that triggered consumer interest in both buying and trading. I did radio shows with experts, I wrote articles around this topic, and I even invested in cryptocurrency.
But as we all know, what goes up, must come down.
Last week, Bitcoin fell below $5,000 for the first time in 13 months.
If you are unfamiliar with Bitcoin or cryptocurrencies, it is predicted by experts to be the future of the world’s financial system.
Naysayers, on the other hand, believe that crypto is a trend and will eventually disappear. Some see it as an investment that you should buy and hold, and some see it as a currency that will eventually replace the dollar.
In an article written by FinTech, it explains that “the use for Bitcoin for commercial payments has dropped dramatically this year, even as the original coin starts to fulfill one of the basic features of any payment currency: stability.”
When an Asset Is in a Bubble — Know Your Fundamentals
Personally, I still prefer to invest in gold. I don’t know if cryptocurrencies will be around in 30 years, but I know that gold will.
But a lot of people in the Rich Dad community have asked about how to invest in cryptocurrencies.
To be clear, I’m not recommending investing in cryptocurrencies, and I’m not saying you shouldn’t either. I’ve simply believed and always taught that if you don’t understand something, you should study it before you invest in it.
Rich Dad Fundamental #1:
The Difference Between Asset and Liability
When I was a kid, my rich dad taught me a very simple lesson. An asset is anything that puts money in your pocket and a liability is anything that takes money out of your pocket.
In essence, cryptocurrency is not an asset because it does not put money in your pocket. In fact, whether you use debt or your own money, it takes money out of your pocket when you buy it.
Because it is exploding in value, many people feel rich, but they are not. Bitcoin and other cryptocurrencies are not useful for commerce yet, so the only way to realize value is to sell. Only then, if you make a profit, do they become an asset.
It’s this simple definition of an asset that also led me to teach decades ago that your house is not an asset. People howled in protest when I did so, but they shut up pretty quickly when the housing market crashed.
I’m not saying that cryptocurrencies will crash like the housing market did, but they might. What I am saying is that it’s financially dangerous to think you’re wealthy when you’re really “invested” in liabilities that aren’t giving you any cash flow.
Rich Dad Fundamental #2:
Invest for Cash Flow
The beauty of investing …read more
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