Bitcoin Rises From the Ashes
Bitcoin Rises From the Ashes
No matter what news outlet you tune in to, you can’t miss the ever-flowing stories about cryptocurrency.
Since bitcoin debuted in 2009, reports about blockchain technology and how cryptocurrency is going to change the world forever have been front and center.
Just as with any other global phenomenon, there are the skeptics and there are the die-hard fans.
Robert Kiyosaki, an entrepreneur, educator and successful investor, has his own “two bitcoins” to share on the matter.
And that’s not all…
Robert believes with all the hype around cryptocurrency it’s more important than ever to go over the investing fundamentals. He wants us to create a cash flow instead of a cash deficit as we tread open waters where you can’t always see the ocean floor…
If you want to be a wise investor in this day and age, you’ve come to the right place.
Today Robert is here to give his coveted opinion on bitcoin and remind us of the investing fundamentals that we all need to keep in mind to succeed in the market.
Let’s get started…
Dr. Patrick Gentempo
Bitcoin Rises From the Ashes
Robert Kiyosaki here! In 2018, when I started writing my newest book, FAKE: Fake Money, Fake Teachers, Fake Assets, a majority of people still did not understand the importance of Nixon’s 1971 message.
As my rich dad said, “The world is about to change,” and change it did.
In taking the U.S. dollar off the gold standard, President Nixon made one of the biggest changes in world history. Unfortunately, few people comprehend — even today — how much that change affects all of our lives, all over the world.
This includes what I call “people’s money,” or cryptocurrency.
Throughout history, “money” has been many different things. Money has taken the forms of seashells, colored beads, feathers, live animals and large stones.
In recent years, the U.S. government created money out of thin air through what is known as quantitative easing. This meant they bolstered the Fed’s balance sheet by buying U.S. Treasuries in order to keep interest rates low, hoping to spur the economy through these artificial means. It’s the equivalent of you or me printing money to pay off our credit card debt. And it has worked… for now.
As Bloomberg reports:
From 2008–2015, the nominal value of the global stock of investable assets has increased by about 40%, to over $500 trillion from over $350 trillion. Yet the real assets behind these numbers changed little, reflecting, in effect, the asset-inflationary nature of quantitative easing. The effects of asset inflation are as profound as those of the better-known consumer inflation.
The effects of quantitative easing have been to boost the balance sheet of those who were already rich while keeping salaries stagnant and creating a bubble in the stock market.
This means that when the stock market crashes and when consumer inflation does kick in from the stock market money moving into different places, savers will be the ultimate losers.
They will not have cashed in on the stock bubble and consumer inflation, which will have the potential of hyperinflation. It will eat away at their savings. Worse yet, it may happen at a point in time when it will be impossible to recover for retirement.
Get With Currency
Because money is no longer money but instead currency, it must always flow somewhere. Like an electrical current, financial currency must move or it will die. Saving is essentially letting your currency die.
The reason we see wild swings in places like the stock market, housing and even cryptocurrency is because money is moving. The rich understand this and they use their financial education to know where the money is moving to, early and often.
Following the old adage, they buy low and sell high. In addition to that, they use their earnings to purchase assets that produce cash flow and exponentially grow their wealth.
Playing With Cryptocurrency Fire
Bitcoin came on the scene in 2009, just as the banking system was on the verge of collapsing. One giant advantage of cryptocurrencies and blockchain technologies is trust and security outside the banking system. As cryptocurrencies evolve, the banking system will lose its grip on the financial freedom of the world.
According to Cointelegraph, 18% of bitcoin investors are using borrowed money to purchase their stakes, and 22% of those investors didn’t pay off their credit card debt after making their purchase.
With millions of people investing in cryptocurrencies, this means that a substantial number of people are putting high-interest debt into an asset that is wildly volatile, going up and down thousands of percentage points in weeks and sometimes days.
Over the past six months the volatility in bitcoin has made investors write off bitcoin. After all, the price of bitcoin — which got within spitting distance of $20,000 at the end of 2017 — limped into 2019 at less than $4,000.
Bitcoin has been staging a comeback.
So far this year, it has gained more than 50%, an indisputably juicy return. One executive at a blockchain and investment and advisory company tells the news service that more and more institutional investors are interested in digital currencies.
As the title of the Cointelegraph article states: “Not Recommended.” Essentially, these speculators could lose everything and still owe money month after month in interest on their credit cards. I use the word “speculators” on purpose. To be clear, these are not investors. They are gamblers, hoping to make a quick buck. And it’s a high-stakes game.
With all the hype around bitcoin recently, I want to take this opportunity to remind readers about essential investing fundamentals.
When an Asset Appears to Be in a Bubble, It’s Essential to Know Your Fundamentals
With massive fluctuations in value and short-term gains in the 1,000% range a little over a year ago, it’s very exciting and enticing stuff. And it’s also potentially dangerous stuff… if you don’t know what you’re doing.
Rich Dad Fundamental #1:
The Difference Between an Asset and a Liability
When I was a kid, my rich dad, my best friend’s 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, 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 of yourself as wealthy when you’re really “invested” in liabilities that take money out of your pocket.
Rich Dad Fundamental #2:
Invest for Cash Flow
The beauty of investing in assets is that they produce cash flow. So for instance, if you invest in a rental property (as opposed to a personal home), you can, through rent, realize a profit each month.
So regardless of whether the property goes up or down in value, you make money. Or if you build a thriving business, you will realize cash flow each month in the form of your business profits.
Rich dad taught me that the reason why most people fail financially is because they assume they are investors just because they put money into assets hoping they grow in value, things like stocks, bonds and mutual funds.
But the rich put their money into assets that produce immediate returns in the form of cash flow. They then can use that cash flow to invest in even more assets.
Everyone else simply sits on their money watching it (hopefully) grow in small amounts — unless the markets crash like they did in 2008. Then they lose everything. My fear is the same might happen for the uneducated folks jumping into the cryptocurrency markets.
Rich Dad Fundamental #3:
The Difference Between Good and Poor Debt
When I was young, I spent 90 days in a real estate course where we had to evaluate 100 investment properties. At the beginning of that class, there were a lot of students. At the end, there were only six of us. It was grueling work but one of the best educations I’d ever received.
When I finished the class, I found the property I was looking for. It was a one-bedroom condo in foreclosure on the beach in Maui. It was only $18,000 and required 10% down. I put that down payment on my credit card and financed the rest through the bank.
While this is not a strategy I would endorse for most people, it was fundamentally different that putting something like cryptocurrency on a credit card. Why? Because even with the bank loan and my credit card debt, my condo was cash-flowing. That made it an asset, and it also made my debt good.
One of the biggest secrets the rich know is the difference between good debt and poor debt.
Simply, good debt allows you to purchase assets that cash flow. Poor debt is used for liabilities like TVs and cars. Poor debt loses you money each month.
When you couple good debt with OPM (other people’s money), things get really powerful. Essentially OPM is like what I did with my credit card to purchase the Maui condo, only at a much lower interest rate and with flexible deal structures.
For instance, using venture capital money is a form of OPM that many entrepreneurs use. Personally, I raise equity for my real estate investments using OPM.
In the end, I can’t teach you how to be a wise investor, but I can give you the fundamentals required to get there. The rest will be going out and doing, learning from both failures and successes.
My hope is that by understanding the fundamentals, those failures won’t be nearly as big as they could be — and those successes will come much more often.