Bitcoin volatility is brutal for new investors. Make sure to think through your strategy before buying.
The purpose of this post is to activate the strategy center in your brain and increase your likelihood of owning Bitcoin with success.
Bitcoin and cryptocurrencies are wonderful tools of freedom. They empower people all over the world. They also provide great investment opportunities for those who participate for the right reasons and with the right strategy.
Why Invest in Bitcoin?
Bitcoin is like programmable gold. The supply is finite (like gold) and no one can change the fundamental rules (of supply etc).
Digital Gold
For your convenience, here’s some rough math to gauge the potential of Bitcoin, if it gets to compete with gold as a store of value:
- Total value of gold in the world 7.300 billion dollars.
- Total current value of Bitcoin 100 billion dollars.
- $7300b divided by $100b is 73x in value.
- 73x in value is price of $450.000 per Bitcoin.
This is the price of Bitcoin, at gold market parity.
Programmable Money
Bitcoin is programmable and permissionless money. No one needs a license to build on Bitcoin. Everyone with the skills to build Bitcoin applications can do it. This provides for a lot of innovation and experiments. Besides from the gold-like store of value properties of Bitcoin mentioned above, the openness and programmability provides great optionality.
We don’t know what will be build on Bitcoin in the future. The possibilities are endless. By owning Bitcoin, you own a piece of the railways. You own fundamental infrastructure that businesses will use to transfer value around the internet.
Does this programmability justify a price higher than golds 7 trillion market cap? Who knows. Gold has been around for ages (Lindy Effect), but bitcoin beats gold in Optionality.
Needless to say, the potential upside is big.
Invest Only What You Can Afford to Lose
While this sounds boring as f**k, there’s two good reasons for it.
- First reason: Buying more than you can afford to lose will mess you up. If you invest more money than you’re comfortable with, it’s going to keep you up at night. Fear of losing money clouds your thinking. You’ll be more likely to make bad decisions. You’ll panic on bad news and price declines. Bottomline is, invest only what you’ll be emotionally comfortable with. This varies from person to person. A college student might be comfortable having all his money in Bitcoin. This is not *necessarily* a bad idea. If you have nothing to lose, being very aggressive makes sense. On the other hand, being 100% invested with your retirement funds, is something else.
- Second reason: Bitcoin might not survive. Who knows. I don’t think Bitcoin will go away. But even with the slightest chance of Bitcoin ruin, you should prepare for it. Hence, don’t invest more than you can survive if it all blows up.
How to Invest in Bitcoin (Strategy)
Have a plan before investing.
Should I Invest in Bitcoin for the Long Term or Day Trade?
Short term Bitcoin investing or trading is hard. If you don’t have any experience with markets, don’t do it (unless you like to burn money). It is a great way to lose money. Trading profitable is harder than it sounds. I know several people who burned themselves trying to “beat the market”. Meanwhile they could’ve had 1000-3000% returns, simply holding from the first time buying till now.
Long Term Bitcoin Investing
If you want to invest in Bitcoin, having a long term strategy is best for most people. My experience is that people getting into Bitcoin, often starts out with a great loss. Being down 50% is not uncommon. The volatility is wild.
If you’re investing in Bitcoin for the gold potential described above, do you really care where the price goes tomorrow? Here’s some ideas:
- Keep your focus on the long term potential and your original strategy to stay away from the temptations of trading.
- Invest only what you can afford to lose, while keeping focus on the long term potential. This will help you keep cool in times of turbulence.
- Here’s another thing that’ll help you keep cool: learn the basics of Bitcoin and cryptocurrencies on the resource page.
Where to Invest in Bitcoin?
Kraken is one of the best and most secure bitcoin exchanges and use it myself. They’ve been around since the inception of the crypto markets. Get an account here: Kraken FX
Update
Since publishing this, some of the worlds top investors have joined in with similar analysis. Here’s legendary Ray Dalio:
Next, find out: When to Invest in Bitcoin?
(This post contains affiliate links)
First posted Oct, 2018