Bitcoin and opportunity cost

FOMO (fear of missing) is one of the most mentioned words in the currency circle. Since the first block of Bitcoin has been dug out of the currency circle, the rocket-like price of Bitcoin itself has caused many people to miss out and miss the opportunity. In the constant FOMO process, people like to use the word "opportunity cost". Although this is a word that is defined in economics, its literal meaning is really well understood, and it has become the mantra of man. The practicality is better than the more important “sinking cost”.

And the term “the opportunity cost” is often mentioned as an immeasurable, metaphysical word, because how can you calculate what you missed and missed?

But in reality, the opportunity cost can be calculated, and in economics, there are still calculation formulas: opportunity cost = the highest return benefit of the project in the abandoned opportunity.

So when you invest in Bitcoin, you need to be clear about some points:

1. Bitcoin is a very risky investment, and it is very likely that your investment will have a very high sunk cost (floating loss) in the next minute.

2. The opportunity cost of investing in Bitcoin funds is computable. If you haven't counted it, I suggest you count it.

3. If you are finished, you will have a clear number, which is what kind of increase in Bitcoin in a year can smooth out your opportunity cost.

4. If you choose not to invest in Bitcoin and invest your money elsewhere, Bitcoin will become your opportunity cost.

(Insert: In fact, the benefits, risks, and opportunities are all quantifiable words. Many people in the currency circle refer to the risks and benefits of investment. They are all simple or “zero or thousands of times”. This is naturally very dangerous.)

The investment funds available to everyone are limited, so the most important point of investment is to calculate the opportunity cost, otherwise there will be a feeling of “missing many opportunities”.

This is also a problem that small white investors are prone to: everything is wanted, and nothing can be obtained at the end. So when you have a fund to invest, it is very important to calculate the opportunity cost.

If the above is a bit confusing, let me make a very simple assumption for everyone.

William has to make an investment, he has 100,000 funds. If he invests 100,000 yuan in bitcoin, he can buy bank wealth, buy stocks, and buy funds in addition to buying bitcoin.

For example, if you buy wealth management and buy funds, the annual income will be up to 10%, then his opportunity cost is 10,000, and the risk is extremely low. And if he buys stocks, his annual income may be -50%, so his opportunity cost may even be negative. (laugh

And if he didn't buy Bitcoin, and Bitcoin rose tenfold, his opportunity cost would be one million.

Therefore, after many calculations, William found that the risk of buying Bitcoin is affordable, and the opportunity cost that can be generated is also the highest, so he invested in Bitcoin.

And his friend Xiao Ming believes that Bitcoin is too risky, but the opportunity cost is high but the risk is unbearable, so he chose to put money on the bank. Even if Bitcoin really rises ten times, it is the opportunity cost he has calculated. Within, there is no harm.

When you have calculated the opportunity cost and the possible risks, you will be more calm in the face of the investment you missed, and this is the most critical in the investment.

Then someone has to say, I can't figure out the opportunity cost of my funds? Congratulations, the opportunity cost of your money is zero. Moreover, even if someone makes money on other investment products, you don't have to feel "going out of the air", because you have never thought about investing in this thing, there is no choice to miss.

But more often than not, many people didn't think about the opportunity cost before investing, but afterwards they only compared the "best investment" they had heard, and concluded that they had a lot of time.

This made a few taboos for investment, let me list it.

1. The opportunity cost is unlimited. When you don't know the cost of the computer, the best case is that your opportunity cost is 0, that is, you don't care about other investment situations at all, only look for what you invest in. But the worst case scenario is "the opportunity cost is infinite." The best return on investment you've heard has become your opportunity cost, which leads you to always complain that "if you voted for XX at the time."

2. Frequently have the idea of ​​changing investment targets. If your opportunity cost is infinite, then when another investment product keeps rising, you must always have the idea of ​​"Do I want to buy some?", and this is also an investment taboo.

3. Ignore the risks and only look at the benefits. When your opportunity cost is "infinite", you have completely ignored all possible risks, and not looking at the risks only depends on the income, which is a taboo for investment.

So in summary, I should make it clear why it is important to know the opportunity cost of my funds when investing. While the three major investment taboos mentioned above, many people know that this is wrong, but they can't help but still commit. For this situation, my suggestion is to buy bitcoin, and then let him play the rain. Because of other investments, the normal return on investment is 10% a year, your opportunity cost is not high, missed it and missed it; but if you don't invest in Bitcoin, your opportunity cost is very high, you will suffer.

You may ask, if Bitcoin is really as good as you said, why aren't there many people in the world investing? In other words, bitcoin can be exchanged for a huge return on investment with a small opportunity cost. What is the “price difference” in the middle?

It is risk and cognition.

Needless to say, the risk is that even the most staunch supporters of Bitcoin will not oppose "the bitcoin investment has a greater risk than traditional financial investment." But cognition can smooth out the risk, that is, the more you know about Bitcoin, the less risk you have for you.

That's why we say that we can't change the investment target frequently. Buffett is right (said that Buffett said Bitcoin's view is wrong), Buffett has been insisting on investing in a company for decades, from small to large. Always investing, with the company's growth and Buffett's in-depth understanding of this industry, will continue to increase investment.

And we are the same. As we learn more about Bitcoin, we are slowly increasing our investment. As Bitcoin grows together, it is the best way to invest in Bitcoin.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!


Was this article helpful?

93 out of 132 found this helpful

Discover more


Glassnode Data Research: A Review of the "Crazy Week" of Bitcoin Scripting Outbreak

Author | Glassnode Wu said authorized reprint note: The article was published on May 15th, with some data lagging. Or...


CZ Binance's Six-Year Anniversary Handwritten Letter Defending the Right Thing, Even if It Means Going to Court

Author | CZ in accordance with the Notice on Further Preventing and Dealing with the Risks of Virtual Currency Tradin...


Wu said Zhou's selection Hong Kong regulatory agency opens retail trading, Curve hacked, Binance US Department of Justice progress and news Top10 (0729-0805)

Author | Wu's Top 10 Blockchain News of the Week. The Hong Kong Securities and Futures Commission has approved the li...


Will the current chairman of the US SEC be replaced soon? Apparently, he has a close relationship with this woman.

There are rumors that Gary Gensler, the chairman of the US Securities and Exchange Commission, will soon be replaced.


Gary Gensler's Crypto Game: Stealing the Spotlight from Congress to Illuminate the SEC's Path

Fortune today released an article about the SEC Chairman's manipulation of the media in an attempt to cover up Congre...


Detailed Explanation of New Changes in US Cryptocurrency Accounting Rules What Impact Does It Have on MicroStrategy, Coinbase, and Others

Author | TaxDAO We believe that the new accounting rules for cryptocurrency assets will bring the following impacts f...