Cryptocurrency Investing: A Low-Risk Approach in 2021

Dogecoin is actually going to the moon and is all set to hit the $1 mark, and there’s a high chance that it is already well above $1 when you’re reading this. 

The cryptocurrency market seems to be the cool hotspot to be at, but we all know there are a ton of risks involved, and the volatility in the cryptocurrency market is real.

Not to mention all those cryptocurrency scams that have been able to fool even the best of us, like the current one where people are being scammed in the name of doubling their Dogecoins. 

Now, while in Kiana’s book cryptocurrency investing for dummies, she explained the exact steps you need to take to navigate the cryptocurrency market and bank on this revolutionizing industry, our guest today prefers an even lower risk approach. 

James McDonald is the founder and CEO of Hercules Investements LLC, and today, we’ll get his opinion on cryptocurrencies and why he prefers a conservative approach while investing in them. 

For those who don’t know, this is our second part with James, while in the first part, we discussed about the possibility of another market crash in 2021. 

Views on Cryptocurrency Market

As you might know, money always finds a new home. It keeps moving from one asset, one asset class, one industry to another. From S&P500 to Rusell to Dow and everywhere. So, where do you see the cryptocurrency market playing out? 

James says it’s a very fascinating topic because it triggers political and religious like emotions from people. After all, crypto is such an effusive and confusing market. 

In fact, James wrote a book on cryptocurrency investing back in 2017 when crypto wasn’t as powerful, and Bitcoin was around $7,000. He interviewed the top Bitcoin investors in that book.

After that, Bitcoin went to $20,000 and then came crashing down to $3,000. But we’re still here with Bitcoin hitting $60,000, and it has created so much wealth and so much intrigue among the common public that it is now not going anywhere. 

Also, the leader of the pack, Bitcoin, is garnering support from Elon Musk, Michael Saylor, Facebook, Paypal, and so many others. So it’s definitely here to stay, but still, we don’t know where it’s headed, so the risk is also substantial.  

For someone who hasn’t Invested in Crypto ever, James wants you to keep in mind that, like every other market, Crypto also has it’s own good, bad and ugly. You can’t lump all Crypto into one category. 

There are some wonderful digital assets and some completely illegal assets or schemes behind these assets. It is important to get expertise and segment what might be right for you and what might not.

In the case of Crypto especially, it’s important to understand that the whole asset class is volatile. So like in any investing approach, you wanna make sure you understand your risk tolerance first before entering. 

Low-Risk Cryptocurrency Investing 

In his 26 years of investing experience, James has encountered dozens of brilliant investing minds, but the one that stood out the most to him is a guy named Matt Hougan. 

Matt Hougan is the chief investment officer at bitwise, which is a cryptocurrency index fund. It’s the first index fund for crypto in the world, publicly traded as BITW.

James believes in and recommends BITW because of all the things he said about crypto. It’s fast-growing, it’s important, it’s powerful, but there are a lot of bad actors in the space that we, as individual investors, may not be able to detect.

BITW, and other similar index funds, de-risks the process for us investors, because just like stocks, there’s good, bad, and ugly in the crypto world. 

Stock picking is hard, being successful at stock picking is harder, and being successful at stock picking over a long period of time is the hardest. Most people can’t do it, and many mutual fund managers can’t do it as well.

For that reason, James’s cryptocurrency investing approach has always been an index approach rather than trying to pick the best one. Even in stocks, he prefers to invest in baskets, sectors, and indexes as a whole. 

With an index approach, if the winners change on a day-to-day basis, you don’t get caught and left behind. It allows you to eliminate a lot of guesswork that crypto investors have to do.

What BITW does is they take the top 10 largest coins and put them together in a basket. So it’s diversified and allows you to benefit from the overall crypto ecosystem rising.

Bitwise also manages its portfolio actively. So if anything goes wrong with one of the top 10 largest coins, they will replace it immediately with the next best.

How to Invest in Cryptocurrency

There are multiple ways you can invest in crypto, like directly buying them in your digital wallet or investing in an index fund as discussed above, and it is completely subjective which one you wanna go with.

If you invest in cryptocurrency just for positional trading, then an index fund would be the best way to go. But at the same time, the idea behind Bitcoin and cryptocurrency is to kind of hold onto your coins without having the banks or the government involved.

It also depends on whether you see crypto as a store of value like gold or as a potential medium of exchange capable of replacing fiat money.

In conclusion, there are different strategies suitable for different people. If you don’t have the skills or the time to research, then ETFs or index funds are better for you. But if you think you can do it yourself, go pick the assets that suit your risk tolerance and financial goals, and you’ll do well.