Ripple’s Chief Technology Officer, David “JoelKatz” Schwartz, recently posted some of his ideas on Twitter around the topic of investing in an asset. To begin, he said that an item’s current worth and everything that is built into it are irrelevant when an investor buys it with the hope that it would increase in value. This holds true regardless of whether the asset in question is a security, a commodity, a collection, or anything else.
Investors get the whole value of their investment, but they are also responsible for paying the full value of their investment. Because of that constant, neither their earnings nor their losses will be affected in any way. According to JoelKatz, the only thing that counts is what can change.
The Ripple CTO went on to clarify that if the factors that determine its value alter, for example by growing by 10%, the investment would result in a 10% profit. If it falls by 10%, the investor will suffer a loss equal to 10% of their initial investment. This results in certain findings that go against common sense.
For instance, if investors believe that the adoption of bitcoin will skyrocket in the foreseeable future, they should be aware that they are paying for that belief since it is included into the price that they pay. If people did not believe that, the price would be far lower, and an investor could purchase a greater quantity of BTC with the same amount of money.
“What matters when you buy an asset for speculation is what will change over time. Will it get better or worse? Will its value grow or will it shrink? Poor present value is a plus, it means you pay less for the same amount of exepected future growth!”