What I’ve Learned from Four Years of Crypto Investing

This time two years ago, the cryptocurrency markets were going crazy and I started crytpo investing. Bitcoin (the best known and most traded currency) was close to an all time peak of over $19,000 around the turn of 2017 into 2018. Ethereum (a similar currency) had also reached an astronomical peak from a mere $15 earlier in the 2017.

I was watching my personal net worth increase day after day after day. I’d bought in to crypto around 24 months earlier after reading an online article on how easy it was to invest. I’d taken the plunge and was raking it in (on paper at least).

But then the crash came.

And what a crash.

All the way to below $5000 a year ago. Other digital currencies such as Litecoin, Dash and Ripple (XRP) followed suit. There has been something of a recovery in 2019 but recent market dips and corrections have wiped out gains from 2019.

So why invest in crypto. And are there lessons to be learned from all of this?

What I learned from Four Years of Crypto Investing

Buying into crypto four years ago, I was hardly an early adopter. Bitcoin was on the go from 2009 onwards. But the digital currency market was starting to get hot and the entry points (the cost of ‘buying in’) was low so for me it was a good investment.

I have an ‘abundance mindset’ when it comes to investing. There is a lot of money to be made out there and a small gamble on something can pay off big.

Something which is quite risky (like crypto) shouldn’t take all your savings and cash. But there is hidden – but definable – risk in keeping your money in safe but low yield savings accounts or bonds. Instead I go for a balance of risk and safety (more on this later).

Here are three lessons I learned from crypto investing:

1. Lots of people want to take your money, not everyone wants you to make money.

At the end of 2017, there were a lot of shysters looking to take advantage of potential investors. Crypto was hitting the headlines and everyone and their dog was buying.

Enter scammers and shady individuals offering online courses on how to invest or how to make a million from Bitcoin. Most of these courses didn’t have much value and wouldn’t have made you an overnight millionaire as many promised.

There were also abundant ‘ICOs’ or Initial Coin Offerings where you could buy in early in a currency or token’s life with the hopes of it becoming the next Bitcoin. Some of these were legit and increased in value. Others are close to worthless.

Equally at this time, the market was peaking – experience was telling you that it couldn’t go up for ever. Eventually there would be a market correction. So buying all in at $18,000 wasn’t a smart idea.

Thankfully I steered clear from these opportunists and kept investing modest amounts at regular intervals, something which is called:

2. Cost Averageing into the Crypto Currency Markets

Cost averaging is where you buy a fixed amount of an asset at regular intervals. Most commonly this is done with stocks, exchange traded funds (ETFs) or index funds.

But it can equally be done with crypto currency. I’ve actually written a whole article on crypto cost averaging – read it here – so I’m not going to labour the point.

The attraction of crypto currency for an investor who cost averages is the volatility. In Economics, volatility is the rate at which the price of something increases or decreases.

Because of the big swings in prices, crypto is very volatile which means there is a greater potential for increased gains while cost averaging into the market.

3. Crypto Investing Across Different Assets

Diversification is the key to successful investing. In traditional assets, a spread of stocks, bonds, gold, commodities and real estate gives you the best chance of riding the ups and downs of the markets.

The problem with crypto is that often assets ride in tandem with one another. When Bitcoin is up, so are other tokens and coins. When it goes down, so do other assets. So it’s difficult to diversify in Crypto as an asset class. There are tools that show you what assets work in relation to others. Coinbase (one of the cyrpto exchnages) has this built in.

It’s worth saying at this point – it’s not a good idea having all of your wealth in crypto. You probably knew that but I feel like I have to say this (oh and none of this is financial advice. If you take financial advice from a blog written by a guy you’ve never met, you have bigger problems than you know).

However Crypto can form part of your asset portfolio – at the moment for me it’s around 2% although I’d probably tolerate around 5%. Of the crypto portfolio, I have this split into:

• Bitcoin
• Ethereum
• Litecoin
• Forks (where major assets like Bitcoin or Ethereum have ‘split’ into new currencies)
• Small Cap
• ‘Gamble’

The majority is in Bitcoin and the smallest percentage in ‘Gamble’. This is the grouping for all the long shots in my portfolio. Maybe they’ll work out. But if not, I’m not down by much – 2% of 2% isn’t very much ya know.

The Best Way to Start Crypto Investing

There are only two recommendations I’d make for someone looking to start investing in crypto:

• Start small
• Start slowly

Fools rush in and fortune doesn’t always favour the brave when it comes to investing. Buy some crypto. Forget about it. Buy some more. Forget about it. and repeat.

Neil.

P.S. I buy most of my crypto through the UK based Coinbase exchange. It’s secure, you can pay by bank or credit card and it’s easy to use. Oh and you’ll get $10 (about £7) in Bitcoin when you buy your first $100 worth. Check it out here.