I enjoy investing in different investment vehicles and try out new ways of investing. I have been investing in cryptocurrencies since 2018. Here are my lessons learned from investing in cryptocurrencies.
When the cryptocurrencies were all hyped up, back in December 2017, I decided it was a very bad investment. My partner disagreed and dove in head-first.
Surprisingly he lost most of his money and I am somehow invested in cryptocurrencies.
How did that happen?
When I was learning about cryptocurrencies, I became fascinated with them and wanted to know exactly how they work. I have learned about Bitcoin, Ethereum, and many more altcoins (smaller coins).
If you are here for a very high risk investment, cryptocurrencies may be for you.
I have around 2% of my net worth invested in cryptocurrencies. Why not more? Because I believe that you should never have more than 10% of your net worth invested in very high risk investments.
There are problems with cryptocurrencies that you should be aware of. An example would be the volatility and lack of regulation. It is a highly personal decision whether you want invest in highly volatile and risk investments.
How I Started With Cryptocurrency
In December 2017 my partner started investing in cryptocurrencies. It was hyped up back then and a couple of his friends made some good money off it. He investing a couple of thousand euros and saw his money disappear over the next month or so.
While swore to never invest in crypto again, I started to get interested. I mean, buy the dip right?
In April 2018 I moved into my new apartment and I got roommates. They were very interested in cryptocurrencies and heavily invested. They too started around December 2017 but they are certain that the cryptocurrency market would succeed eventually.
I read more and more about crypto, had a lot of discussions with them on the topic, and decided to invest. Despite knowing all the arguments against it, I decided to take the leap.
I invested an initial $800 in altcoins and Bitcoin, and haven’t looked back since.
There was a time where I was heavily involved with ICOs (initial coin offering) of a couple of companies, but that took too much of my time.
There have been very high highs and very low lows. I was in for a ride.
Lessons Learned From Investing In Cryptocurrencies
1. Understand What You’re Investing In
The first thing you need to do is understand the basics of cryptocurrencies.
It seems like an open door, buy many people investing have no idea what they’re doing. Someone sees value in it so they assume they know what they’re talking about and pump some money in it.
I saw my partner do this and I want you to be sure that you understand the market before diving in.
It is a fast-moving industry that is important to understand before your fully dive in and invest your money. Think about all the technical concepts and whether or not you fully understand them.
Just like in any other market – bonds, stocks, index funds, peer-to-peer lending – it is important that you understand the market and have a basic understanding of what you’re doing.
Even though many people this so, the cryptocurrency market is no different.
Know the market is extremely volatile and stick to the basics, this will help you in the long term.
2. Get Your Emotions Under Control
When you’re investing in cryptocurrencies you in for one hell of a ride.
In the beginning, I checked my portfolio all the time. I was in Telegram groups and I constantly checked in.
Within the same day, I am thinking “I am rich, I can retire within 5 years” to “I need to sell now, there is no hope, this will burn itself to the ground”. Good times, good times.
When I was starting investing in cryptocurrencies I had seen December 2017 and January 2018 and I knew that the volatility of the investment was extremely high.
I noticed that I was feeling all the emotions when it came to my investments, which I don’t like. I saw my portfolio balance itself most of the time, making for a lot of lost energy. Besides that, I wasn’t taking any action (buy or sell) so why bother?
That’s when I decided that I would not check on my cryptos ever again, only yearly for tax purposes.
If I was not going to invest any additional money in the market, who cares how high (or low) the currencies are valuated?
This is how I got control back over my emotions.
3. Beware Of Confirmation Bias
When I was getting interested in cryptocurrencies, I was taking in a lot of information and learning a lot.
I checked the aforementioned Telegram groups, read a lot of subreddits, and checked Twitter.
Mostly it would be only positive news. When someone would criticize or bad news would be published, it would be downvoted or I quickly scrolled past it.
This is one of the behavioral investment biases called confirmation bias. Confirmation bias is when people only search for information that confirms their current beliefs and current thinking. When there is information that is not aligned with that, they disregard it altogether.
In order to avoid this, ask people with other opinions on what they think. This can help a lot!
4. Never Invest More Than You Can Lose
This is the number one rule for investing your money. Never invest more than you can afford to lose.
While cryptocurrencies do have some value tied to them they can be purely to get some quick money, which is speculation.
When I started out with the cryptocurrencies I read a lot about the different coins and I only invested in projects I believed in.
Quickly I noticed that it became very hard to resist going into coins that are just popular. Really when you do that it’s more like gambling. While gambling is a terrible money habit you should avoid, it can be hard to recognize it when it’s dressed up as an investment in a market.
Point is, that you should never invest money you can not lose.
You will make bad investments, and you will lose money.
When you’re investing in very high risk investments like cryptocurrencies, losing money seems inevitable. The market is so volatile that it is no fun to be invested with money you absolutely need.
Prepare yourself for that and you will not make any decision based on a fear of losing money. Those are rarely the best decisions.
That’s why I try to not have more than 10% of my net worth invested in very high risk investments.
5. You Only Have Money If You Cash Out
If there is one lesson I learned from investing in cryptocurrencies, it’s that you only have money once you cash out.
The cryptocurrency market is extremely volatile. Just like the stock market, it will go up and down. The movements are just a little bigger.
One day you’re up 100% and the next day you’re down 60%.
It’s like an emotional rollercoaster.
One day you’re dreaming about how you can take invest that money and the next day you’re anxious and want to sell your entire portfolio.
I decided to take my distance from my money and see the money as lost.
By doing that, I took a distance from my negative emotions around money and the fear of losing it. It helped me a lot and I decided to take it even to the next step.
6. Don’t Check On Your Investments Too Often
Because the cryptocurrency market is constantly moving up and down, I was watching it closely multiple times per day.
I was not checking my portfolio to buy or sell anything. I was checking it just because.
If you’re not looking to buy or sell, there is no reason to check your portfolio as often as I did.
I took a distance from my investments and decided to not check on them since I was not planning to invest in them. Instead of looking multiple times a day, I haven’t looked at my portfolio in over a year.
I should do my taxes soon, which means I’m going to check on them. Otherwise, I don’t really care. The money is there, I don’t plan to invest in anything else, I’m just sitting around and waiting for the next bull market to come around.
7. Set Yourself A Goal
This brings me to my last step, set a goal for your cryptocurrency investments. If there is one lesson I learned from investing in cryptocurrencies, it’s that you should set yourself a goal.
When you just hold (hodl) your investments, it is hard to decide when you get out because of your emotions playing a role.
You should decide for yourself: if my portfolio or this specific coin surpasses $XXX.XX, I will start to sell off my investments.
If you don’t do that, you could be taking more risk by not balancing out your portfolio and keeping the amount to less than 5% of your net worth.
Bonus: Have Fun With It!
If you’re investing in cryptocurrencies, you should have fun with it.
You’re invested in the market and not having fun? Don’t do it. It won’t be worth it.
Investing in cryptocurrencies is a crazy ride. Be sure to follow a couple of rules:
- Don’t invest any money you can not lose
- Understand what you’re investing in
- The money is not yours until you cash out
- Set yourself a goal (an exit point)
If you follow these couple of rules, I believe you’ll be able to have fun with it!
Are you invested in cryptocurrencies? What do you think about it?