Dangerous Advice Given by A YouTuber
2020 was a year that drastically changed our lives. What people expected to be the beginning of a new decade, turned into a year of lockdowns and quarantines. It was also an unusual year for the stock market, as the market dropped, recovered, and eventually recorded new all-time highs, all within a few months. With people having more time on their hands, and with the media mentioning the stock market, cryptocurrency, and other assets like never before, more people decided to participate in this wealth making machine.
With the rise of interest in the stock market, also came with increasing popularity of people talking about investing (or speculating/trading). It is not uncommon that YouTuber’s in this space have witnessed more views and attention than ever before. In this century, if people who want to learn about a new topic will go on the internet, instead of the old-fashioned way of reading books or going to the library. Watching a video on topic that you are interested in learning about, isn’t just a popular way of learning, but also people are more likely to enjoy learning. People prefer the fancy videos instead of the boring texts written in hundreds of pages. If you don’t believe me, then just look at how big the entertainment industry is, and the reason for its success is literally entertaining people. Before we head further, I would like to make the distinction between Investing and Speculating. Investing is when someone buys an asset with the expectation for the asset to provide cash flow in the future. In simple words: allocating money where it generates more money. Speculating is different, as it is the process of buying something with the hope of someone else buying at a higher price, even if the fundamentals do not change. There is a solid line between investing and speculating, but people and even experts, such as the Wall Street Journal tend to blur them.
YouTubers who provide financial education to their audience have a unique role to play, not only they have to educate their audience but also entertain. Trust me, that is not an easy task. One of the YouTuber’s is Andrei Jikh, who has a channel under the same name. Mr. Jikh began his channel more than 3 years ago, and his video topics ranged from investing, stocks, cryptocurrency, etc. He is a strong believe in the power of bitcoin, and how bitcoin will become more mainstream than it is today. When people go down the path of giving financial education, they need to realize that many people will make decisions based on just watching their videos. The “Not Financial Advice” banner does not really help much, it just shields creators from legal obligation.
In his recent video, he talks about the future of bitcoin and why he believes the price of bitcoin will go up. I am not saying he is wrong or should not make such a conclusion, but I will walk you down the path where he describes his reasoning. He first mentions that the fastest path to becoming a millionaire is buying bitcoin. While that is not unconventional advice from today’s standard, it does however reflect the biases presented in it. The catchy phrase of fastest way to become a millionaire is not new for many people. Just remember the dot-com bubble.
He mentions how the Bitcoin convention in Miami convinced him to believe the fast adoption of Bitcoin. Sure enough, the Bitcoin convention was a huge success with many influential people talking about the development in the adoption of Bitcoin. Also, don’t forget the time when someone was yelling “Dogecoin to the moon” during the Bitcoin convention.
He also quotes Shark Tank’s Mr. Wonderful prediction of Bitcoin outperforming the S&P 500 by more than 4%. According to Mr. Jikh, 4% is a conservative number as he believes that “Bitcoin will reach $500,000 per coin by the end of this decade,” an annualized return of 33.5%. Now we compare how long will it take on average to become a millionaire by investing an equivalent sum of 2 bitcoin right now into each asset. This comparison is totally wrong and misleading. First, comparing the S&P 500 with another asset will always create a different perception of the investment. He fails to notice the difference, which is that both belong to a different asset class. The stock market is comprised of companies making profits and providing value to shareholders. Bitcoin doesn’t really produce anything. I know some people will argue with me that we compare the return of Gold to the stock market, and I am not a big fan of that either. Just ask yourself this question, have you ever compared the value of your local convenience store to gold?
El Salvador is a country that recently agreed to adopt Bitcoin as a form of currency for the country besides the US dollar. The IMF and World Bank did not like this decision and issued warnings for this decision. Mr. Jikh thinks that this is great news for Bitcoin, as adoption by a country will force other countries to adopt Bitcoin as form of currency as well. El Salvador has a population of 7 million people, which represents less than 0.09% of the world population. Unless a major country like India or China adopts Bitcoin as official form of currency, it is hard to say that price of Bitcoin will go up. Plus, the supply of Bitcoin is limited to 21 million. I know many people did not like the government just printing money, as it might cause the value of the dollar to decline. However, the same money printing machine is what allowed millions of Americans to receive benefits and stimulus during the pandemic, when economic activity was completely stopped. So, as long as it used without reckless behaviours, printing money is not always bad.
He also refers to the times when people did not believe Bitcoin to be used by major corporation and makes a point about Tesla now accepting Bitcoin as payment for a brief period, and also holding on to Bitcoin on their Balance Sheets. While it is true that Bitcoin is getting popular even among major corporation, I think we can find enough examples of major companies acquiring dot-com company amid the bubble in the 90s. Back then, even big companies and investment funds got sucked into the hype of internet companies and made ridiculous purchases. Yahoo was infamous for playing a role in destroying shareholder value.
I don’t see any additional value added when big companies or hedge funds enter the space. His belief that once hedge funds start trading Bitcoin, then the price will go up. Remember the difference I pointed out between investing and speculating. Well, if Andrei is using the prediction of institutional funds entering the space as a reason for holding on to Bitcoin, then he is speculating not investing. But, in his videos he is referring himself as an investor, which is wrong. Also, I don’t understand why he needs the help of investment funds to materialize his prediction. His theory that investment funds are not buying Bitcoin because of safe ESG investing. This is completely wrong notion to believe in, because if that is true, then no fund would own any company that is harming the environment. Yes, there is more awareness with how investments impact the environment, but hedge funds have increasingly taken an active role in reducing the harm, rather than avoid the asset class entirely. I will always consider this as mere speculative opinion, rather than any professional investing advice.
The investing ‘opinions’ he provides in his video are misleading. I know many people will argue that he probably does not have all the information or knowledge, so it is not his fault. I understand that point, but when you are uploading content as a financial youtuber, and you know there’s millions of people watching you, the “I do not know” excuse does not apply. Yes, we are all humans with biases, but at least we should try to be realistic than ignorant. Because if things do not work according to his prediction, instead of recognizing their mistake, the ‘suits’ will be blamed for short selling and hurting retail investors.
Instead of relying on hype and media, I would suggest people to do the boring stuff and research on your own. It might take more effort and time, but at least you will understand the reality of the situation, rather being misled by hype and biases.