Stop Investing in Crypto (from someone heavily invested)
Note: I am not a financial advisor and this is not to be considered financial advice, it is merely my opinion and any investment should not be be taken without speaking to a qualified professional first.
Background
Given this is my first Medium story, I figure a brief intro is appropriate. I was first introduced to Bitcoin by my seemingly crazy brother in 2011. I was aware of its existence but never thought twice about its potential or my involvement. Fast forward a few years — I’m studying finance in college and Bitcoin seems to be gaining more traction. Initially, like most people entering the space, I was drawn in by the price appreciation and the chance to make some money.
I was beginning to invest at the time and one of the first things I learned, to paraphrase Warren Buffett, was to never invest in something you don’t understand. To heed his warning, I took it upon myself to learn as much as I could about Bitcoin. Starting with Satoshi’s famous white paper (everyone getting involved should read) I began scouring the web and following all the bright minds in the space. Eventually things pieced together and I recognized the true potential of a censorship resistant, decentralized monetary system…. (see Andreas Antonopoulos sum it up as articulately as anyone in the industry)
And then began the deep descent down the rabbit hole…
Why you should (probably) stop investing in crypto
Back to the original point of the article. So you’ve started putting money into cryptos and you’ve likely made high percentage returns. Maybe you did your research and have a strong grasp of Bitcoin, maybe you get that Ethereum is a smart contract enabled platform and maybe your drawn to Monero and the strong privacy it has to offer. You keep making money so you decide to keep buying more and more coins….. STOP!!
The fact of the matter is you could quite literally pick the different names of coins out of a hat on Poloniex or Binance and you will probably make money in this current environment. Hopefully you’re not naive enough to think that this can or will continue indefinitely. One of the names I highly respect, Naval Ravikant, provides great insight on this:
If you think you will be successful putting money into a wide array of altcoins and continually making money you are wrong. It is not a matter of if, but when you will get burned. I’m not one to call when crypto is at the peak of the bubble and when it will pop, but I know how easy it is to get drawn in when your investments are seeing triple digit plus percentage returns. I also know that with large returns come large inflows of money seeking the same returns. This leads to stupid money being put places it shouldn’t be until eventually these returns slow down. The smart money will start taking their profits and then the stupid money leaves in a mass exodus causing substantial price drops. (Update: This was drafted a week ago and the current price downswings are an example of this, granted there were several factors at play)
To shed some light on the current prices, to crack the top 30 coins you need to have a market cap of $1 billion. While market cap isn’t the perfect measure in valuing coins, this puts some perspective on the current state of crypto.
This is just a random collection of comparable sized coins and companies to think about. It is up to you to determine if you believe these valuations are warranted.
That being said…
There is still a lot of potential in many coins out there. If you do substantial research and truly believe in what the coin has to offer, then by all means invest. I believe a well-balanced, diversified portfolio with occasional re-balancing is the best way to approach this market from a financial perspective.
I also believe digital currencies offer so much more than a good investment to make you high returns and that they have the potential to truly change the world and positively impact the lives of billions of people…
…but that’s an article for for another day. Despite the article title I am still very long term bullish on the industry as a whole.
My point here is that the irrational exuberance in the market is rampant and most of the thousands of coins out there will fail. The days of your first-time entrant into the market hodling to the moon will come to an end once this nascent industry becomes more established and rational.
To beat the dead horse, do your own research. No, seriously. Do not put your money anywhere you haven’t spent significant time looking into. Otherwise you’ll find yourself playing Russian roulette with your finances until you lose big.
Resources
This article wouldn’t be all that helpful if I didn’t at least give you some tips on how to go about doing your own research.
- Follow some of the smartest people in the space on twitter to read articles they share, get some good technical and fundamental analysis on various coins, or to hear their opinions on hot topics
- Start reading white papers and digging deep into the website of various coins and projects. Good general guide to analysis is the SpacesuitX framework
- I highly suggest reading Andreas Antonopoulos Mastering Bitcoin and Chris Burniske Cryptoassets for more in detail dives.
If you liked what you read, please feel free to “clap”, it helps me get exposure! I also love hearing feedback so comments are always appreciated.
