The Crypto-Craze and FOMO

I've been struggling lately with the impulse to purchase some cryptocurrency. Every day I see at least one post on the Financial Independence sub-Reddit about cryptocurrency or it's mentioned several times in a single thread. There's not a shortage of it in the news media, either, if you're financially minded. Basically, it's hard to escape the stories of how high it's valuation is or stories of people who've made a fortune already. These stories play on one's emotions, stimulating that fear of missing out or FOMO. It's certainly done a number on me. So far, I've resisted the temptation. Here's why...

While I've come close to putting money into crypto, I've managed to exercise restraint. I don't tend to jump on something based on a whim. Especially when it comes to parting with my money. So, when I felt myself getting anxious to pull the trigger, I began researching Bitcoin and Ethereum, two currencies I'd heard about. I discovered there were many more than just these two. The technology is open source, which explains why, but I had no idea what made these currencies so hot. So, I dug down deeper and learned about the underlying blockchain technology that allows the transactions of these "currencies" to remain anonymous and secure.

Long story short: I grew bored to tears reading about this stuff. I'm a software engineer with twenty years experience writing applications and this bored me to tears! Basically, the blockchain aspect that the "currencies" are built on is the only thing that I found useful. Aside from this, the "currencies" themselves might as well be gold or silver; commodities. On the other hand, gold and silver are tangible things while cryptocurrencies are not. They're simply bits and bytes of computer information.

I won't delve into the nitty gritty under cryptocurrency's hood to save you the ad nauseum boredom of its technology. It has its supporters and disciples. The hype has grown to ensnare so many people that, as I mentioned earlier, if you want to really poke around and learn for yourself what it is and how it works, there's no shortage of material. That's not what this post is about though.

Probably accurate

While this is one of the hottest "investment" crazes right now, it isn't as simple as, say, buying some shares of an index fund, watching the value increase, and then simply selling. In other words, it isn't traded on the exchange floor like stocks are. You have to open a digital wallet, transfer some of your legal tender money into it to buy "coins" based on the price that day (so, I assume you can buy partial coins?), and then hold them until the value of these virtual coins increase. Then, one would assume you sell and cash out your digital wallet unless, of course, you want to hold what you've got and gamble on the price going up and up. Kind of sounds like rolling the dice in Vegas, doesn't it?

This is speculation. The current valuation is based on nothing more than hype and fear. There are an abundance of stories of people who've gotten rich quick by selling "coins" they bought months or years ago when the coins were cheap and unloaded them to buyers hoping to cash in on this gold mine before it reaches its peak or, worse, before it crashes.

To me, this is another financial bubble, plain and simple. Growing ever and ever larger with people looking to make a fortune; valuation soaring to ridiculous levels until, eventually, it will come crashing down as people try to cash out their unrealized gains and a lot of people are left holding the bag. People who don't even understand what a cryptocurrency is are flocking to it with cash in hand and dollar signs in their eyes like moths to a bug zapper.

Look out! It's a trap

However, with all the stories circulating about the untold riches just waiting to be made with Bitcoin, Litecoin, or whatever-type-of-digital-coin, it can be difficult abstaining from throwing your own money into the ring. We've all heard stories about those who missed out. And who wants to be that guy?! The one who had reservations, showed up late, and ended up missing out on making a fortune.

Instead, I've decided to take solace in continuing to shovel money into my investment accounts, especially the Total US Stock Market fund (VTSAX), which, in turn, will buy me more shares of companies taking advantage of the technology behind cryptocurrencies (the blockchain, which improves the security of electronic transactions); the only part of this technology that I find remotely useful.

When the cryptocurrency craze finally comes crashing down and all those poor suckers are left holding the bag, I can rest assured that I invested my money wisely, not based on fears of missing out, because, ultimately, I will still have reaped the rewards of this new technology without buying into the hysteria.