Do investors need to understand what they invest in?
This may seem like a stupid question to some, but it’s one that I think about a lot.
As someone who spends most of their day trawling through ASX updates, I often find myself having to familiarise myself with new and old stocks alike. Depending on the sector, it isn’t always easy.
Biotech companies, for example, are some of the worst offenders when it comes to investor accessibility — at least in my view.
Their business breakdowns are often so full of jargon or technical know-how that it will make your head spin. You have to have the patience to take the time necessary to fully unpack what it is they do, how they do it, and why it gives the biotech a competitive edge.
For most retail investors, I imagine they just don’t have the time to do the proper due diligence on a company like this. The time and effort required probably isn’t worth it compared to just sticking to blue chips or easier-to-understand stocks.
That is, until you see the fear of missing out (FOMO) kick in…
Whether it’s biotechs, mining explorers, or whatever else — the complex sectors are often the most speculative. These are the investments that can deliver triple-digit percentage returns in days, not years.
That’s what makes them hard to ignore.
Because even if you can’t understand the company, you can’t ignore the incredible gains.
People still don’t get it
This brings us to the heart of today’s topic: Bitcoin [BTC].
Because when it comes to investment assets, cryptocurrency is certainly one of the more confusing. The cryptographic nature of the blockchain is not an easy concept to wrap one’s head around.
I know it took me a couple of weeks to truly comprehend how blockchain works and the value it provides when I first delved into it. However, that was back in a time when information was far more limited, and a lot of explanations were flat-out wrong.
Today, the amount of free knowledge and resources to learn about blockchains and crypto is far more widespread. Better yet, they also do a far better job of simplifying the explanation to give people a better chance of actually understanding it.
For these reasons, the level of global understanding within crypto has grown a lot.
Every year, more and more people learn how these novel digital currencies and tokens work.
This is likely because crypto’s — and specifically bitcoin’s — prominence has also grown dramatically. According to a recent survey of 10,500 people, 57% of respondents are aware of cryptocurrencies.
That means that crypto is now the second most well-known investment instrument after stocks!
However, while plenty of people know of crypto’s existence, few actually know how it works.
60% of the surveyed people said they do not understand cryptocurrencies. In other words, there is a huge divide between awareness and understanding that crypto has yet to bridge. It’s something that crypto needs to do a better job of.
And I’d argue that that is exactly what many crypto projects are doing. The focus for many cryptos has turned from hype to proper utility. Teams are now looking for genuine ways to bring this technology to the wider public as the speculative frenzy of 2020 and 2021 has died off.
The fascinating part, though, is that interest in crypto investing hasn’t slowed down…
Gaining momentum
In the US, further surveying shows that crypto interest is still building.
As the following data showcases, the crypto winter hasn’t scared away retail investors:
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| Source: Finbold |
The big takeaway here, aside from the strong interest, is just how few people have dipped their toes into crypto investing. Despite all the media attention and coverage, it’s still very much early days for a proper crypto boom.
Indeed, there is evidence that suggests ‘whales’ (investors with 1,000 bitcoins or more) are doing a lot of the selling at the moment. That is leaving retail investors to provide much of the buying and accumulation recently.
Of course, that may seem like these people are being suckered into being bag holders — the investors who are last to sell and often at a loss.
But I don’t think that’s the case at all.
What I think we’re seeing is the start of a big hoarding event for bitcoin. My colleague, Ryan Dinse, called this the ‘bitcoin lock-up’ — a phase where getting your hands on some bitcoin could eventually become extremely rare.
And you know what, I think he’s right.
Because as more people begin to learn about and understand crypto, investment will grow. After all, the data suggests a lot of people already know crypto exists — they just don’t know why they should buy into it yet.
Once the price starts moving up again, you can guarantee that people are going to want to know. After all, Ryan Dinse is predicting that bitcoin could reach US$1 million by the end of the decade!
If that pans out, crypto is going to be far too big to ignore. To learn more about his prediction and how it could unfold, check out Ryan’s full explainer here.
If he’s right, then you certainly don’t want to be one of the last few to truly grasp crypto.
Otherwise, you’ll feel just like the ignorant investor who missed out because they didn’t take the time to understand the potential of this incredible investment…
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
