Golden Rules of Crypto Investing
From our experience of the previous crypto cycles, we believe that the following rules provide some guidance when considering how to invest in crypto.
Don’t invest more than you can afford to lose
Nothing on exchanges
Don’t use leverage
Assume everything is a scam
Money is made in bear markets
Take profits
Don’t invest more than you can afford to lose
Digital Assets and cryptocurrencies are extremely high risk. Some cryptocurrencies never recover to their previous all-time highs and some simply transpire to be scams or badly management projects.
ALT coins are riskier than Bitcoin and Ethereum and in the previous 2018 cycle, the total ALT coin market cap dropped by over 90%. In the current cycle, it is just over 70%. Does this mean there is significantly more downside to come?
It is therefore important that you never invest more than you can afford to lose. It could go to zero, be pretty much worthless or be tied up for three or four years whilst you wait for some sort of recovery.
2. Nothing on exchanges
In 2022 we have seen numerous companies including FTX, BlockFi, Voyager and Celsius all file for bankruptcy. The general trend was these companies would communicate that they are solvent and there is no problem with their business, to literally a few days later filing for bankruptcy.
In these scenarios, the companies usually burry in their Terms and Conditions, that any crypto deposited on their exchanges becomes part of their estate and no longer under your ownership.
In the US, funds deposited in a bank account are covered up to $250k by the Federal Deposit Insurance Corporation (FDIC). Likewise, in the UK the Financial Services Compensation Scheme (FSCS) covers bank deposits up to £85k per institution, per person. This type of insurance does not currently exist in crypto.
Is something like this needed in the future?
Funds and crypto should therefore only be deposited to exchanges when you need to buy and sell. Crypto should then be taken off the exchange and stored within a hardware wallet for example.
3. Don’t use leverage
Investing in crypto is already very high risk so you don’t need to elevate this risk further by using leverage.
Focusing on better projects and investing at the right time in the market can return significant gains, even with Bitcoin. There is then simply no need to take this additional risk and wreck yourself.
For example, if you bought Bitcoin around March 2017 and sold around December 2017 that would have been a 20X gain. Buying in January 2019 and selling in April 2021 would have been a 17X gain.
4. Assume everything is a scam
Digital Assets are still very new. The industry is evolving rapidly and is unregulated. Unfortunately, this provides opportunities for bad actors, scams, and poorly managed projects.
You should therefore be warry of everything and if it sounds too good to be true it probably is.
5. Money is made in bear markets
Money is made in the bear market when crypto is deemed boring. Its probably just ranging near a bottom and a long way away from all time highs. If you however look at the previous cycles, you then realize that this is the time when the real money is made.
This then leads on to the next point.
6. Take profits
Put quite simply, nobody went broke taking profits.
If you refer to previous cycles, you can see that the time to accumulate is in the bear market, and the time to sell or Dollar Cost Average (DCA) out is in the bull run. You should therefore have a strategy to achieve this and try and follow it as best you can (ignoring any FUD along the way).
HODLing and “diamond-hands” has proven not to work. This is evident from previous cycles where Bitcoin has dropped 80% plus and ALTS 90% plus.