“Should I invest in cryptocurrency and Bitcoin?” This is one of the most common questions I get from my followers and students. That, along with “what the heck is a cryptocurrency?” and “Can you actually invest in this stuff, or it’s just pure speculation?” In this educational piece, I aim to answer these questions as fast as possible. For more information on cryptocurrency investing, please get your free copy of my book, Cryptocurrency Investing For Dummies.
Should you invest in cryptocurrency?
Before answering “yes” or “no” to whether or not you should invest in cryptocurrency, let me first clear some other questions that will lead you to make a decision that is suitable for you.
What Is a Cryptocurrency?
A cryptocurrency is a form of decentralized digital currency that can be used in many places as legal tender to do things such as settle debts and buy goods and services. You can consider cryptocurrency as a cross between a conventional fiat currency, like the USD, and an asset, like Amazon’ stock.
There are over 2,000 different cryptocurrencies. But Bitcoin is the most famous of them all.
Can You Actually Invest In Cryptocurrency? Or Is It Pure Speculation?
You can invest in crypto. But there are some key differences between cryptocurrency investing and regular investments. Here are a few:
- Cryptocurrency is all digital, so there is no paper money.
- Cryptocurrency exchanges are not federally insured like banks are. If someone hacks your account or if your exchange shuts down the government will not reimburse you for the money you lose.
- Cryptocurrency is decentralized. That means it is not attached or guaranteed as currency by any particular country or government entity. This decentralization allows crypto owners to make transactions without oversight from governments. While some may consider it a benefit for various purposes, it can also make unauthorized transactions impossible to reverse.
- There’s not much history behind cryptocurrency price volatility. So traditional technical analysis may not work until the market matures a bit.
- If you consider crypto as an asset, you’re betting on the blockchain technology behind the crypto. However, fundamental analysis of cryptocurrencies is very different than that of traditional assets like equities.
Clearing Some Myths About Crypto Investing
Now you might be asking, is this something a regular investor wants to consider adding to his or her portfolio? Depending on who you ask, the answer varies. Here are some myths about investing in the cryptocurrency industry.
1- Warren Buffett Says Bitcoin Is A Scam So I Shouldn’t Invest In It
Warren Buffet has been a role model of mine ever since I started investing. So it’s unfortunate to see him being so narrow-minded about this new asset class. He recently compared Bitcoin to his button, saying that’s how much value it serves.
I want to ask Mr. Buffet, “what use does gold or a $100 bill provide other than being valuable just because people use them as a mean for making transactions? And yet you “invest” in gold, right?”
Then again, Warren Buffett is famous for investing only in things that he knows. He still uses a flip phone. So he probably doesn’t understand how you can serve the unbanked and underbanked around the world with crypto, which enables them to make transactions using only their smartphones without the need of a third party bank.
Keep in mind, executives like JP Morgan’s CEO, Jamie Dimon also bashed Bitcoin as a fraud that global governments would “crush” back in 2017, but now his company is creating its very own cryptocurrency. On the other hand, Mr. Buffett has also only been bashing Bitcoin, and I haven’t heard him saying anything about the other 2000 altcoins. So maybe it’s just Bitcoin he has a problem with, not the whole crypto industry.
I think cryptocurrency (not just Bitcoin) is the future. And yes, you should invest in it, but at the right time.
2- I Shouldn’t Invest In Cryptocurrency Because A Government Or A Central Bank Do Not Back It
This one cracks me up. Because this is the whole point of crypto.
Let me tell you a story. I’m a Persian Jew from Iran. My dad had one of the largest construction companies in Iran before the 1979 revolution, making all things from airports to helipads and high rise buildings.
After the revolution, the new regime took over ALL his assets and froze all his money in the bank. They were able to do that because that money was government-backed. Guess what, if he had at least some of his assets in crypto, I wouldn’t have grown up in poverty.
The citizens of the U.S. are lagging in crypto adoption compared to the rest of the world perhaps because they have some level of trust in the government. You’re not afraid that the government is going to freeze your assets tomorrow. That’s why you don’t appreciate what crypto has to offer.
Why You Should Invest In Cryptocurrency
Now that I’ve cleared out some of the main myths about cryptocurrency investing let’s get to some reasons you SHOULD invest in cryptocurrency.
1- Haters Are Turning Into Active Adopters
Executives such as JP Morgan’s CEO, Jamie Dimon bashed Bitcoin as a fraud that global governments would “crush” back in 2017. But now his company is creating its very own cryptocurrency.
Moreover, governments like the U.S. are beginning to realize that they can’t stay in the way of the global movement in crypto adoption and have been now actively seeking regulatory options in the industry.
2- Adoption Rate Is Escalating
Every day we hear stories of more vendors who are accepting cryptocurrencies such as Bitcoin. Here are some examples:
- Mastercard is creating a Bitcoin Debit card
- Fidelity is looking to offer crypto trading
- The U.S. is aiming to regulate the industry further
- More people are getting educated about cryptocurrencies through books like by Wiley.
- More women are getting involved in the industry. Women are half of the population who are also known for being big on shopping. As we get more women involved in the industry, we can see the acceptance of crypto skyrocket.
I think I have made my case.
How To Get Started With Cryptocurrency Investing
If you’re looking to start to invest in cryptocurrency, here are some things to keep in mind.
Know your risk tolerance
The first thing you need to do is to figure out how much you want to invest. Cryptocurrency can be a volatile investment. It is still a relatively new market and is known for large single day ups and downs. Depending on your risk tolerance, your ability and willingness to take a risk, your life-cycle phase, and your financial goals, this amount will be different. Personally, I’ve allocated 15% of my portfolio to crypto.
Regardless of your risk tolerance, knowing what you’re doing and being educated about the industry are the most important factors before you start investing. Pick up a book on your local store or start following key figures in the cryptocurrency industry. Make sure you’re not following marketers who are merely trying to sell you on a specific cryptocurrency.
Join a crypto exchange you can trust
Next, you will need to join a crypto exchange. The results of your research on that could vary depending on where you live. In the US I’ve used exchanges such as CoinBase, Binance, Bitfinex, and Kraken. I also recommend diversification when it comes to exchanges so that if one goes down, you don’t get crushed. Because, yes, crypto exchanges do have a history of getting hacked or their owners dying without giving the passwords to anyone and therefore locking all investors out of their assets. We’re hoping things will get better as crypto becomes more regulated and more mainstream.
Create a diversified portfolio
Then it’s time to pick the cryptocurrency you’d like to invest. While Bitcoin is one of the most well-known digital assets, there are 2,000 more cryptocurrencies, also known as Altcoins, that you can (and should) consider. This market is similar to that of the dot com bubble era. Some of these cryptocurrencies will succeed in the long run, while others may vanish. Therefore, diversification is critical. Of course, I give my 2 cents on my portfolio, and my top crypto picks every week on our Premium Investing Group, aka, the PIG.
What do you think about this whole crypto shenanigan? Are you a die-hard crypto fan or do you think it’s just a fad that will fade away? Most importantly, are you going to invest in cryptocurrency? After you subscribed, head over to the comment section, give me a shoutout and let me know.
Remember that as the 4th point of the IDDA technique, you must calculate your risk tolerance before deciding on the investment strategy that is suitable for your portfolio. Don’t forget to complete your risk management due-diligence before developing your investment strategy.