With Bitcoin reaching an all time high of $66k, this will catalyze a HUGE amount of news and social media coverage around Cryptocurrency. That “guy” on Twitter or Youtube will begin making statements like “Throw your retirement fund at X Crypto or Y Crypto - it’s going to the m00n!” Traditional financial news outlets will begin making statements that crypto is a “bubble” and is going to pop tomorrow. And then there’s you, stuck in the middle reading and listening to this frenzy unsure of what to do about this waterfall of information.
Let me start by saying this: I am not a financial advisor and nothing that I say here should be taken as gospel. I just want people to be prepared to invest wisely and with some level of understanding of what they’re getting into. I have been involved in the world of Cryptocurrency for around six years and would like to share some general insights with anyone who is less familiar with this topic. Let’s go through some main points you should keep in mind if you are just beginning to dip your toes into the world of Crypto.
Do your research and invest slowly
When I say “Do your research” I do not mean go find a youtube channel that tells you about the newest get rich crypto scheme and fall into the hole of throwing your life savings at the “newest 10 cent coin that will 10x in 5 days”. No - what I mean by “Do your research” is take your time to understand what you’re getting into. Start small and read about Bitcoin. It’s the first cryptocurrency created and is undoubtedly where you should begin when learning how the technology even works. Bitcoin has changed the world of technology in so many ways but the primary one is because it introduced us to Blockchain technology. Blockchain tech, in simplified terms, is a validated ledger system that is hack proof. It allows for the validation of data across computers in a way that is nearly impossible to intercept, and so far has been impossible to “falsify” transactions. The ledger system also allows for transfers of wealth at a P2P (peer-to-peer) level.
You can read more about the basics of blockchain here: https://www.investopedia.com/terms/b/blockchain.asp
No bank, no middle man, no government can realistically stop Bob from sending 0.2 BTC to his sister Sarah even when they are 1000 miles away from one another. Every BTC transaction is verified through math by every single computer connected to the BTC ecosystem. The way in which BTC is transferred has changed the way in which people transfer wealth forever because of its’ P2P functionality.
If you’re going to start investing in Cryptocurrency, I recommend you start with Bitcoin. Since it’s inception in the 2009/2010 era, Bitcoin has proven time and time again to be a worthy investment if you are willing to sit on it for more than a year or two. Make an account on somewhere like Coinbase, put a few bucks in, see how it all works, and if you feel confident in continuing to put money into the space, dollar cost average in from there.
Dollar Cost Averaging
This is the best way to invest slowly. Investopedia has a well-written definition that states:
“Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.
In effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices. Dollar-cost averaging is also known as the constant dollar plan.” (https://www.investopedia.com/terms/d/dollarcostaveraging.asp)
This is the best investment strategy you have at your disposal to begin dipping your toes into Crypto investments. If you only invest small amounts at regular intervals with the plan to hold those investments for years to come, you’ll never have to stress about timing the market. Your investment will (likely) go up over time because you are continually putting in some amount.
This strategy is in direct competition with a much less viable strategy called “FOMO”
FOMO - Fear of Missing out
FOMO investing is when you throw 10k at bitcoin at it’s all time high when you’ve never even heard of or used Bitcoin. It’s investing more than you should, given your relative purchase power, simply because something is plastered all over the headlines. This caught a huge amount of people off-guard when they invested their life savings in BTC at the 2018 all time high of 20k. Those investments got blown away when Bitcoin had a hard correction down to 3k in the following months. Many of first time BTC investors bought at a new all time high and then sold all the way at the bottom. In hindsight, they would have all been fine if they held onto it until now, since BTC is now sitting over 3x that $20k amount. Hindsight is 20/20 though, and the important thing to recognize here is that their FOMO strategy caused them to make an irrational purchase AND an irrational sale. Don’t do this. Don’t FOMO into crypto. Buy small amounts, get your feet wet, learn the fundamentals, and take it slowly. BTC will very likely be around for a long time and you’re not “missing” anything just because you didn’t invest 10 years ago. Be smart with your money and only invest what you aren’t afraid to lose. By taking this approach, you’ll never get overly emotional about price swings.
If you are interested in this subject, please comment below and check out our other Crypto write ups here on the Webroot Community! I’d love to hear your questions or hear about your crypto experiences in the comments below! Are you new? Are you a veteran? I want to hear from you!