[Updated] Paul Mampilly’s Advice on Bitcoin and the Cryptocurrency Bubble

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Paul Mampilly, an American investor and financial guru, has his own unique insight about the cryptocurrency bubble and its imminent crash. According to former hedge fund manager Paul Mampilly, the cryptocurrency bubble is about to burst. Although the prior winner of the prestigious Templeton Foundation investment competition is not able to predict exactly when the cryptocurrency crash is going to occur, Mampilly emphatically states that it is only a matter of time before people lose their money.

In 1999, every investor believed that wealth was the only outcome of an impressive stock market rally. Paul Mampilly remembers that his friend Tess owned technology stock shares that were up more than 1,000 percent. Paul recalls taking a deep breath and telling his friend that her gain was amazing. However, 1999 was the year of a great bubble that was about to explode leaving many investors without any investments.

Major Stocks Were About to Decompose

Paul Mampilly stock market
Paul Mampilly explains that the current cryptocurrency bubble is similar to the 1999 internet explosion

The bubble was composed of major companies with solid reputations. Qualcomm Inc. (Nasdaq: QCOM) was up 2,619 percent. At least a dozen other technology stocks were up 1,000 percent. Another seven stocks were up at least 900 percent. Paul Mampilly reminds investors that these stocks did not represent obscure companies. Instead, the stocks represented major businesses listed in the Nasdaq Composite Index.

Consequently, the fact that Qualcomm and similar stocks rose to such tremendous heights was an obvious indication that the stock market was literally going insane. A huge bubble kept drawing new investors into the market. Little did the newbies realize that they were about to lose their shirts. Mampilly explains that the current cryptocurrency bubble is similar to the 1999 explosion.

Paul Mampilly stated that he sold every stock in 1999 before the bubble exploded. He continued to monitor the stock market as stock prices kept going higher. Some of the stocks went up 20, 30 and 50 percent. The incessant stock market greed was becoming part of normal life. At first, Mampilly felt as though he had made a mistake when he sold all his stocks.

Nevertheless, he felt good about his decision when all the stocks tumbled to incredible lows in 2000 and 2001. He was relieved that he did not lose any of his money. Paul Mampilly had warned Tess over and over again that she should sell her shares. She did not listen to his warnings. She kept her shares and bought more shares as the price continued to tumble. Instead of cashing in on her incredible 1,000 percent gain, Tess ended up with a zero balance in her investment account.

Cryptocurrency Represents a Huge Bubble

Paul Mampilly discusses the cryptocurrency bubble
Paul Mampilly’s provides advice for anyone looking to invest in Cryptocurrencies such as Bitcoin, Litecoin and Ethereum

Everyone who invested in a major cryptocurrency earlier this year has become rich within a few months. Some investors who bought bitcoin earlier this year are now millionaires. Bitcoin is currently valued at more than $19,000. Mampilly believes that bitcoin, Ethereum and similar cryptocurrencies are going to crash.

A cryptocurrency is a digital form of currency or payment that, rather than being controlled by any sort of centralized authoritative organization like a government or bank, exists solely online and is created and managed using complex rules and cryptographic patterns. Bitcoin was the first major cryptocurrency and remains its most popular, created in 2008 by a mysterious figure known as Satoshi Nakamoto. It was initially designed as a peer-to-peer electronic payment and exchange system, before being adopted by a few big names in tech and investment and subsequently experiencing a rapid growth.

Spurred on by this growth, other forms of cryptocurrency emerged. These included Ethereum, litecoin, ripple and more. As interest in bitcoin grew, its recognition as a legitimate currency and payment source grew with it. It began to be accepted by a few organizations even as individuals were using it for peer-to-peer payments on a smaller scale. With pop culture appearances in popular television shows to follow, bitcoin was set to explode. By 2017, Japan had passed legislation to force organizations to accept bitcoin as legal currency while Russia has begun making its way in this direction as well.

Two of the most popular bitcoin competitors are Ethereum and litecoin. Ethereum was launched in 2013 by a man named Vitalik Buterin, a Russian-Canadian programmer who hoped for a fully open-source and crowdsourced cryptocurrency that could take on its own life separate from bitcoins massive presence. After the collapse of one of Buterin’s main projects, Ethereum became split into Ethereum and Ethereum classic. While its initial value was small, Ethereum grew an astonishing 13,000% over the course of the year 2017. While this might seem thrilling to investors, particularly those who got in early, it’s just another representation of high-octane interest in an asset of unknowable value eventually leading to a steep cliff.

The story of litecoin does not inspire much more optimism, either. Like bitcoin, litecoin has no central authority figure to manage it. In fact, it is nearly identical to bitcoin in just about every way, from its inception to the technical details of how it operates. Introduced in 2011 by a former employee of Google named Charlie Lee, bitcoin experience a doubling of growth in just 24 hours in late 2013. Sound familiar?

All along the way, Bitcoin continued to grow, reaching the above-mentioned figure of $19,000 by early 2018. Now firmly in the mainstream, commentators came from all angles to either idolize or criticize this mysterious currency. Excitable tech-centric individuals praised it as the currency of the future, while those with financial backgrounds and understandings of the global market foresaw something more troubling in the future.

Then bitcoin took an initial plunge, falling back as low as $8,000 before temporarily stabilizing around this area. But financial experts, including Paul Mampilly, warn that the worst is yet to come. Bitcoin and other cryptocurrencies represent all of the hallmark signs of an impending bubble, and investors stand to lose a great deal of money if they don’t reign in their excitement about this still-young alternative currency.

According to the official chart at Coindesk, people who bought bitcoin cryptocurrency early in 2017 paid less than $1,000 per bitcoin. A $10,000 investment is now worth $100,000. The statistics are difficult to believe and hard to avoid, especially for those who did not invest in bitcoin when opportunity knocked at their investment portfolios. There are all kinds of stories floating through the internet about individuals who had bitcoin and then sold it or missed out on the opportunity to invest when prices were incredibly low. But the impending bitcoin bubble burst may leave them feeling a bit less ashamed of their decisions down the road.

But what exactly is a financial bubble, and how do bitcoin and other cryptocurrencies show the signs of a bubble set to burst?

Essentially, an economic bubble occurs when any specific asset of any kind begins to be traded, bought and sold at a price that far outweighs its actual, functional value. Basically, a bubble occurs when a large number of investors begin to invest heavily in an assets future success that may or may not ever occur.

While bubbles can rarely be definitively identified before they occur, there are several warning signs that can lead wary investors and experts to begin withdrawing to protect themselves. According to Mampilly, the greatest warning sign occurs when there is an enormous public and popular culture interest in an asset, driving it nearly into a frenzy and driving prices sharply up. This kind of sudden, intense growth is often unsustainable, and that’s particularly true when dealing with an asset of such undefinable true value as a cryptocurrency. And currencies like bitcoin have certainly been experiencing that sort of sharp, frenzy-like public interest, leading experts like Mampilly to conclude that a bubble is growing, and the burst is imminent.

Paul Mampilly has stated that numerous investors have written him emails informing him that his negative emotions regarding bitcoin are due to the fact that he did not buy any cryptocurrencies when he had the chance. According to Paul Mampilly, nothing is further from the truth. Like all seasoned investors, Mampilly chooses his investments carefully, usually after a great deal of research and careful understanding of their nature. And cryptocurrency, by its very nature and in fact its very name, is nearly impossible to accurately value. It is a unique case in that it’s value is entirely based on what the public at large determines it to be. And if public interest wanes or doubt begins to creep in, we’ve seen how that somewhat arbitrary value can drop almost overnight. Mampilly’s friends expressed the same sentiments about “missing out” to him in 1999 when he said they were going to lose their money. At that time, Tess began to ignore him. She refused to speak with Paul for several months. But ultimately, Mampilly was proven to have astutely predicted the burst and unfortunately had to watch many of his friends and fellow investors lose thousands, sometimes millions of dollars of their own money when the crash came along.

The problem with an investment bubble is that investors become emotionally attached to their stock shares or cryptocurrencies. This often occurs as a direct result of that public excitement that is easy to be caught up in. People frequently miss the chance to sell their investments when the prices peak, and then they begin to feel desperate not to take any losses. They continue to look back at the former high prices and wait until the prices go up a second time. Unfortunately, a huge bubble does not wait for anyone. The bubble bursts unexpectedly. By the time the price goes down and stays there, investors have lost their fortunes and there’s no recovering for quite some time.

Obviously, Paul Mampilly’s former warning to avoid purchasing bitcoin was premature. It proved to outpace even the most optimistic initial expectations, something no one could have possibly predicted. Even as he acknowledges this is the case, he fervently believes that the cryptocurrency bubble is going to crash sometime in the near future. Mampilly points out that the price of bitcoin continues to rise simply because news reports state that bitcoin is rising, feeding into the frenzied rush of buyers—many of whom are not experienced investors and simply don’t want to miss out on this thrilling new investment all of their friends are making. Once everyone owns part of the huge bubble, the bubble can no longer contain itself and bursts into tiny fragments. Unhappy investors are then forced to accept the fact that their former impressive gains no longer exist.

Paul Mampilly admits that his investments had been through several bubbles during the past 25 years. But that is the nature of investing—years and even decades on the market help savvy investors like Mampilly begin to develop an instinct for when market events like bubbles are occurring. For more than two decades, Mampilly has been an account manager managing millions of dollars for clients. He is firmly convinced that the cryptocurrency bubble is going to blow up leaving many investors without any funds.

In addition, Mampilly has managed investment accounts for the Royal Bank of Scotland. He also managed the large Kinetics International hedge fund. Paul Mampilly invested his own money in a company that was in the process of developing a medication for treating muscular dystrophy. He sold his Sarepta Therapeutics shares at an impressive 2,000 percent gain within a year.

Many readers and investors may be wondering what to do with this information. How should they handle their bitcoin investments, and is there any way for them to salvage some sort of a win after the bubble begins to crash?

Mampilly says there are some smart ways that investors can find a way to profit after the impending crash. In fact, Mampilly states that despite his negative outlook on bitcoin and other current cryptocurrencies, he believes that their underlying structure and the technology that operates them is extremely promising. That technology is known as blockchain. Blockchain can be complex and exhaustive to understand, but at its essence it is an ongoing and expanding list of records or information, known as blocks, each of which is linked together and secured using codes or other cryptographic principles. This approach makes blockchains inherently secure and helps them to have a high tolerance for influence and other potential issues.

So how can investors use this information to their benefit? Mampilly uses the example of the dot-com bubble of 1999-2000. In that time, companies like Amazon and other online-only businesses were bought at a frenzied pace, only to crater a year later. But as Amazon has shown, the fundamental principles underlying some of these companies had potential. The time just wasn’t right yet.

Mampilly and other experts believe that cryptocurrency is similar. While its in the throes of a dangerous bubble now, Mampilly believes that blockchain holds tremendous promise for the future, including opportunities like making real estate transactions much easier and simplifying the process of lending and borrowing across the world.

Mampilly also believes that cryptocurrency might indirectly lead to a decrease in the ridiculous fees that come along with companies selling shares to investors. Because Wall Street has such a tight grip on the market, they can demand outrageous fees such as the $176 million they charged Facebook when they began selling shares to the public at large.

While huge companies like Facebook won’t be particularly put out by fees like these, the flexibility of cryptocurrency and its independence from Wall Street may allow smaller and medium-sized companies to skip massive fees like these in order to make an ICO (initial coin offering.) Mampilly believes that eventually coins will be seen on the trading exchanges alongside popular stocks.

Finally, Mampilly believes that cryptocurrencies will come to adopt the same roles that have long been occupied by precious metals and rare gems including gold and silver, as well as diamonds and other high-value items. As millennials move further and further from an interest in physical ownership of materials like these, the idea of owning shares of cryptocurrencies will grow to reflect the coming generations’ focus on fast-moving digital transactions. This bodes well for the long-term future of cryptocurrencies, even as their short-term future outlook is bleak.

Paul Mampilly has been a frequent guest on CNBC, Bloomberg TV and a variety of networks. As the founder of the newsletter Profits Unlimited, Paul Mampilly provides guidance to investors who want to learn about potentially profitable stocks, when to buy stock shares and when to sell their investments. Paul Mampilly is currently the senior editor at Banyan Hill Publishing where he specializes in helping average investors learn how to invest. His Profits Unlimited newsletter helps investors learn helpful investment tips.

While Mampilly firmly believes that some of the underlying technologies and ideas fueling the excitement surrounding bitcoin and other currencies are worth being optimistic about, he cannot deny that a bubble is imminent. While it might be tempting to hang on and hope for another massive leap like those that have come before, investors who do so run the risk of waking up one morning to find that all of their money is gone and their investment has added up to less than the mysterious currency on which they based it.

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