If you’ve tried investing in crypto and all you got were stress, buying and selling at the wrong times, and sleepless nights, then I have the crypto investing strategy for you that takes all of the negative away and still allows you to reap the gains. Let’s go!
Today we’re going to talk a bit about the speculative asset class of cryptocurrencies and where it can fit in your dollar-cost averaging investment plan.
And legally, I have to tell you that what I share here is not official investment or financial advice. I’m merely giving you examples of what I personally do, and not telling you to do the same. Because crypto is very speculative, you should only invest what you’re willing to lose.
Also, what do I mean by speculative? Speculative investments are those that are much riskier due to its lack of history of returns because it is newer, its volatility, and of course its potential to go to zero.
But speculative investments are right up my alley. I build, grow, and sell businesses, so a riskier asset class that can reap bigger rewards is perfect for someone like me.
If you’re similar to me and enjoy a bit of risk, then keep reading.
However, it took a lot of stress, heartache, and rollercoasters of emotion to finally understand where speculative investments should play in my investment portfolio.
I also don’t go running into speculative investments. I did very deep due diligence on it and what blockchain technology stands for matches who I am at the core as a person.
Dollar-cost averaging for cryptocurrencies
So where does crypto fit into your dollar-cost averaging portfolio?
In another video I posted, I shared what dollar-cost averaging is and how you can set it up for index funds and equities.
Here’s a quick primer…
Dollar-cost average, or DCA for short, is quite simply investing your hard-earned cash into a portfolio of specific assets of your choosing on a set schedule.
The most common example is taking a portion of your paycheck every time you’re paid, let’s say $500, and distributing it between diversified assets.
It’s a passive investing strategy that allows you to build up your investments over time so that you can ultimately reach your financial and retirement goals.
One of the main advantages of DCA is that it is more automated. You’re taking out the guesswork of investing.
By doing DCA, you’re not trying to figure out the market’s highs and lows. You’re “robotically” adding money into your investment portfolio on a timed schedule.
This makes your investing strategy way less stressful because you’re not trying to time the market. You’re simply allowing your funds to work its magic in the long-term horizon.
For volatile assets like cryptocurrencies, DCA helps a lot with your mental health.
How Bitcoin and Ethereum fits in your investments
So where does crypto fit in your investment portfolio?
Let’s say you have the following:
- 45% US stocks
- 15% international
- 10% emerging markets
- 15% dividend stocks
- 10% bonds
Now you can fill that remaining 5% with a riskier investment like crypto. It’s a small percentage of your portfolio, so if it goes to zero, you’re still good on the other 95%.
But if it pops off, then the gains will be tremendous.
All of this depends on your own risk tolerance. If you’re super risk-averse, don’t do it.
For me, I can share my own experience in the crypto industry, and perhaps you can learn from me so it can save you from heartaches and sleepless nights.
When I first entered crypto trading, not to be confused with investing, in 2017, I went in during the boom. So all my trades were going great and I thought I was the king of trading.
Not literally, but I felt great. However, lo and behold, EVERYBODY WAS MAKING MONEY because the whole market was booming.
So then it all came crashing down early 2018. 20% losses became 30%, 40%, and then 50% losses.
I remember wondering to myself, “Is there anything that will help this freefall?!”
However, I was still under the fallacy that it would increase again because it was just a temporary setback.
I was also drinking the Bitcoin kool-aid a bit.
“Is there more? Can I get more of that Bitcoin juice?”
Then the losses continued…60%…70%…
I held onto 50+ alt coins for over 1.5 years, hoping that they would come back.
I eventually came to terms with all the mistakes I made and sold all the alt coins, or in reality, they’re actually called sh*tcoins, for an 85% loss of my total portfolio.
CRUSHING, right? Stupid? Yeah yeah whatever you’re thinking, trust me, I’ve told myself that.
At this point, you’re probably wondering why should I even continue reading this article? This guy clearly sucks at investing.
Hear me out. I learned a ton from these mistakes and that’s why I’m better at it today than I was then.
Building your financial foundations sometimes requires making huge mistakes so that you can be more educated and experienced in the long run and grand scheme of things.
Growing your financial wealth is not a short-term game. You have to be in it long-term to win. And I’m still here right?
What I learned investing in cryptocurrencies
These painful financial mistakes are how I’ve personally grown more in my own financial education and knowledge.
I also want to share my financial mistakes with you so that maybe you can save yourself the misery that came with learning those lessons.
One of the biggest lessons I learned is that there’s a big difference between trading and investing.
Trading is very short-term. It’s more strategic with indicators, technical analysis, market sentiment, and more.
Investing is long-term and just requires setting up a system that works to fit your risk appetite to grow over time.
I did GREAT as an investor in the stocks and equities market. But I got CRUSHED as a trader in the crypto market.
In this article, I want to concentrate on a dollar-cost averaging strategy in crypto for the “safer” coins.
I traded a lot of alt coins. At one point I had over 50 coins in my portfolio because I was hoping for a huge rocket take-off to the moon within the crypto industry.
So, I simply wanted to have a diversified mix of coins to catch huge gains.
What. A. Mistake.
It was impossible to track. Because crypto is such a small market compared to stocks, essentially every company, or “projects” is what they’re called in the blockchain space, were all essentially small- or micro-cap stocks.
This means that each coin had its own news, channels, roadmaps, whitepapers etc. It was insanity to keep up with.
Imagine trying to keep up with 50 startups? There’s simply no way.
And clearly these projects didn’t have any fundamentals to go with them. There was no history to bank on. Just whitepapers and hype.
On top of that, many of the smaller projects didn’t have great liquidity on crypto exchanges. Because of that, it wasn’t always easy to sell your positions fast enough when you wanted to exit.
And of course, you also had to deal with projects going under, coins getting delisted, or exchanges shutting down.
WHAT A MESS!
Honestly, it’s no wonder why the masses still haven’t gotten into crypto investing. It’s just too much EXTRA work and worries for investing, especially when most people just want to be able to automate it and not think about it.
So I eventually sold those 50 altcoins all into Bitcoin and Ethereum.
Bitcoin is the OG.
BTC dominates the market share and is the primary crypto on any mainstream news. So, it isn’t going to disappear anytime soon.
Ethereum has a bunch of amazing projects built on it, including decentralized finance or DeFi apps. Additionally, enterprises are also building on it so that’s quite encouraging.
To me, both are excellent investments in the crypto space, especially in the long-term. That’s not to say it won’t have its volatile ups and downs, but they’re worth putting some money into as a “speculative investment” if you have the risk appetite for it.
Again, not financial advice and simply my own opinion.
So how would dollar-cost averaging work with a crypto portfolio?
Well, you can keep it super simple and whatever money you’re willing to risk and diversify into crypto, you can put a certain percentage into both Bitcoin and Ethereum, perhaps 50/50.
A different perspective on how to invest in Bitcoin and Ethereum
Actually, I see Bitcoin and Ethereum almost like index funds.
This is not a perfect example, but it’ll give you a general sense of what I mean.
Bitcoin is what you would consider a total US stock market index fund. If that US stock market fund is up or down, stocks are doing the same but likely at a higher percentage. That’s the same here for Bitcoin.
In the case of crypto, Bitcoin is the leading indicator for the market trend of which direction the crypto market is going.
As for Ethereum? I see it as a diversified fund of alt coins. Don’t know or want to research alt coins? Then invest in Ethereum.
If you want to expand out of just Bitcoin and Ethereum, then here’s my suggestion based on my own financial losses: when you research which coins to invest in, find the ones that actually operate as a business.
This means that they actually have a business model on how to sustain their funding, technology, cost of workers, and have a real ability to generate revenue now or in the near future.
At the beginning of crypto, far too many companies got away with a simple whitepaper that almost promised unicorn levels of return on investments, but ended up delivering total duds and ultimately disappearing.
One of the most important things you need to do as an investor is to preserve your capital. So that’s why you don’t go all-out on a speculative investment like crypto.
So in the interest of exercising as much capital preservation as you can on a speculative asset class, you should only use funds you’re willing to lose.
I know that may not make much sense to combine preservation with speculation, but if you’re risk-tolerant, then these assets can pay off handsomely.
From there, if you want to diversify beyond Bitcoin and Ethereum, do your research into companies in the market that actually make money, or at least have a path towards it.
When you dollar-cost average and you’re planning for the long-term, then you won’t have to worry about the short-term volatility of crypto, just like with stocks.
And because crypto will just play a smaller part of your investment portfolio anyways, it should be less stressful.
A question you may be wondering is: will Bitcoin hit $20k this year? Or next? $50,000? $100,000? Or even $1 million+ as some “experts” have predicted?
I have no idea.
And honestly, I don’t think they do either. Anyone who owns Bitcoin hopes it does, but that’s because they own it. They want it to happen. It’s life-changing money that creates legacies.
My advice would be to drown out the noise of the hype. Just DCA into BTC and ETH, sleep soundly at night and see what happens.
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So there we have it. I’m signing off here and once again here’s to you and your Freedom of Choice lifestyle, I’ll see you soon.