Investing in Bitcoin - How not to do it

Bitcoin Investment – How not to do it?

Is it possible to be a successful investor without knowing how to invest? Definitely possible. We look at a successful bitcoin investment and how not to do it.

Recently, a friend shared this article with me. The article is about a successful Bitcoin millionaire who lost it 5564 bitcoins to an investment scheme.

Investing in Bitcoin - Bitcoin to SGD

Using the latest valuation, 1 Bitcoin is worth S$8897.81. Which means the Bitcoin millionaire lost a total of S$ 49.5million.

What happened is that he made he was approached to invest in several stocks, a Macau casino and a new cryptocurrency called Dragon Coin that will allow him to use the cryptocurrency in the casino.

Needless to say, nothing materialized after he transferred his Bitcoin over to this group.


Lesson to learn

From this article, there are a few lessons to learn.

  • Being successful in 1 investment doesn’t makes you a great investor.

While credit has to be given when due, it is through excellent foresight that many early Bitcoin investors made their monies. Although there are also a fair share of speculator that made their fortune by luck. Nonetheless, they deserved credit for their fortune.

Making your fortune in one cryptocurrency doesn’t mean you will succeed in another. With the success of cryptocurrencies like Bitcoin and Ethereum and so on. Initial Coin Offerings (ICO) are sprouting out at speed faster than you can say cryptocurrency.

However, according to reports, 81% of ICOs are scams, 6% of ICOs did not managed to list, nothing came fruitful came of the next 5%.

Only 8% of ICOs managed to get themselves listed on an exchange. Among this 8%, only 1.9% is rated as successful.


  • Diversification

With the rate of success being so low, throwing S$49.5 million in it is a huge gamble. Although there is a chance that Dragon coin may succeed, it is imperative to always diversify your portfolio.

For something that is pretty much a gamble, with a success rate of only 1.9%, it is imperative to have portfolio in which all your eggs are diversified out into different investments which allows you take losses in high-risk investments like Dragon coin will not be fatal.

  • Investing in a promise

The investment scheme solicited the millionaire to invest in several Thai stocks and a Macau casino. Stocks are one of the most transparent and regulated forms of investments in the world, due to the amount of attention given to it by regulators and investors.

There will still be frauds, nonetheless, being a public-listed companies subjects companies to audits and regulatory requirements. This makes frauds a lot harder to occur, sometimes, companies even have to “inform” investors that they are defrauding them in their annual reports and filings. Just ask Muddy Water Research.

In this case, the millionaire is investing in a private company which means there are much lesser transparency in the dealings. The potential could be tremendous, however, eventually, it goes down to the promise of an individual.

Even so, to invest in Macau casinos, there are many public listed companies such as Sands China Limited, Galaxy Entertainment Group, Wynn Macau Ltd and the historical SJM Holdings Limited founded by Stanley Ho.

  • Having an actor is no guarantee

Thai actor, Jiratpisit Jaravijit was also arrested on charges that he was involved in the scam. Having the endorsement of a famous public figure is no guarantees that the scheme is genuine. Scammers like to portray a sense of exclusivity to investors by increasing the barrier of entry to the investment, so as to entice investors by giving them the feeling of inclusivity.

They also like to utilize the reputations of famous names to increase the legitimacy of their schemes. However, as indicated in Kenneth Fisher’s book, How to smell a rat: The Five Signs of Financial Fraud, these are potential signs of a fraud. Promise of exclusivity, bringing you along their crazy rich Asians hangouts and the “endorsements” of public names are things that doesn’t matter in investments.

  • Differentiate between Crytocurrency and Blockchain

One mistake that many new cryptocurrency investors make is their confusion between cryptocurrency and blockchain. Blockchain is the technology behind cryptocurrency. The functions of blockchain technology is hugely beyond that of cryptocurrency.

The masses generally like stable currencies, currencies such as USD and SGD. As this obviously makes life easier for everyone in our daily lives. Currencies whose value fluctuates greatly are historically frown upon, currencies like Zimbabwe dollar in 2007/2008 and Hungarian pengo in 1946.

To wish that cryptocurrencies fluctuate greatly in short periods of time sounds contrary to what it should initially function as, a currency.

Many investors are just jumping on the wagon without understanding what is bitcoin, cryptocurrency, blockchain and currency. They enter without a game plan and a system. This is akin to throwing money away, which is fine if you have too much money. However, if it is your retirement funds, perhaps it is wiser to provide it justice and utilize them more prudently and efficiently.

What we know is that eventually the Bitcoin millionaire

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