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How Warren Buffett Would Trade Cryptocurrency Panic

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Warren Buffett may not be a fan of cryptocurrencies.

In fact, he and Charlie Munger still believe Bitcoin is a mirage and a “scum ball activity.”  Buffett once went on to say it’s “probably rat poison squared.”

Munger said the thought of owning cryptocurrencies was just “dementia.”

However, we can still use the Buffett principles when it comes to panic in the market.

Rule No. 1 — Have Cash on Hand

“Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent,” Buffett says.

Rule No. 2 — Don’t Follow the Herd says Buffett

One of the key reasons that many investors under-perform in the market is because they move in and out of assets at the wrong time. Therefore, an investor sees everyone else making money from rising markets. This is when they tend to throw every spare dollar into their investments. Unfortunately, when that same investor sees a group of other investors selling, the investor sells, too.

According to Buffett, they get caught up in herd mentality.

The rationale is simple.

It’s unlikely that such a large group of people can be so wrong.

Rule No. 3 — Be in a Strong Position to Capitalize

Furthermore, with cash on hand, Buffett has the financial flexibility to take advantage of any opportunity that presents itself. As the billionaire often points out, keeping some cash on hand allows you to benefit from corrections without having to sell other investments.

Rule 4 – Stay Committed to Your Idea

Moreover, Buffett states that you should remember why you invested in cryptocurrencies in the first place.  Additionally, remember that others are just starting to enter the market.  Banks such as Goldman Sachs and Citigroup are in the process of offering cryptocurrency products.

The NASDAQ is about to hand institutional investors analytical tools for trading hundreds of crypto assets.  Furthermore, the Intercontinental Exchange (ICE) is launching a new platform, called Bakkt. Its intention is to create an “open and regulated, global ecosystem for digital assets.”

Allianz Chief Economic Advisor, Mohamed El-Erian is bullish on cryptocurrency, as well.

“Crypto isn’t dead, and, certainly, the underlying technology is not dead. We’re going to see more widespread adoption, by both the private and public sector, of the blockchain technology and related technologies,” he says, as quoted by Oracle Times.

Tim Draper is bullish, too.

He predicts the market cap of cryptocurrencies will increase 400 times over the next 15 years to $80 trillion.  “The internet started in the same way, it came in big waves and then it kind of came crashing down, and then the next wave comes concentrated but much bigger, and I suspect the same thing will go on here,” he says.

In short, the ultimate message from Warren Buffett is to stay calm, focused, and not to panic.


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