7 Lessons I Learned From Investing In Cryptocurrencies

Lessons learned from investing in cryptocurrencies

I am one of the crazy cryptocurrency investors. I am definitely not a day trader, and I have only invested in three cryptocurrencies.

I have advised everyone I know against investing in cryptocurrencies, but somehow I ended up doing it myself.

I still do not recommend that people invest in cryptocurrencies. However, I have learned a lot from investing in cryptocurrencies such as Bitcoin, Ether (Ethereum) and NEO, so I thought it might benefit other stupid people like myself that want a very high risk, high return investment.

Normally, I invest in stocks, peer-to-peer lending, my home and cryptocurrencies.

I think that you should never have more than 5-10% of your net worth placed in very high risk investments, but you should have some very high risk investments.

I consider home equity as somewhat risky, stocks as high risk, peer-to-peer lending and cryptocurrencies as very high risk.

What is my cryptocurrency history?

In August 2017, I couldn’t resist the temptation of investing in cryptocurrencies anymore.

I read about Bitcoin all over the news and I had a tech savvy friend that had invested in Ether (Ethereum) when it was in its early days and already at that point had made millions on it.

I asked him whether I should invest, and he convinced me because he let all his earned millions remain invested.

Knowing all the rational arguments against it, and without further research (stupid, I know), I decided to dedicate roughly $1,200 to Ether.

A month later, I invested additionally $1,500 in Bitcoin and NEO.

Afer this, I promised myself not to invest a cent more in digital money tokens.

Since then, I have made a return of 279%, which I consider pure luck, but nonetheless a very good investment.

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My cryptocurrency portfolio development from August 2017 to February 2018

I have lost more than 60% of my investment in a day, but I have also gained more than 100% in a day.

What have I learned from investing in cryptocurrencies?

This cryptocurrency rollercoaster investment has taught me seven valuable investment learnings.

1. Don’t let fear take over

In the beginning I checked my crypto portfolio all the time.

My emotions ranged from “I’m buying a Lamborghini tomorrow” to “I better sell this shit now before it all crashes” several times per day.

Every time my portfolio takes a sharp dip, I am certain that it will never be able to recover, so I have many times been surprisingly close to pulling out my money and walking away.

However, every time the portfolio has balanced itself again and taken another rise.

This has taught me not to let fear, uncertainty and doubt drive my decisions when it comes to investing.

In fact, selling cryptocurrencies during a low is how most of my friends have lost money investing in cryptocurrencies.

I am not saying that you should always hold on to a bad investment, but you owe it more time and consideration than a single drop (although big) in price.

2. Don’t let overconfidence play a role

When I check my cryptocurrency portfolio and the market is increasing, I feel like the Wolf of Wall Street.

I tell myself that it was the only possible outcome, and I of course had seen that from the beginning.

When I lose money, it’s of course never myself who have done anything stupid (like investing in valueless digital money tokens), but somehow it’s always someone else’s fault (China, South Korea, John McAfee or someone similar).

Back on Planet Earth, we all know that getting a good return has little to do with me and my decisions.

Yet somehow, despite my awareness of this, I can feel my overconfidence taking over in good times.

I have been so close to investing at horrible times (in hindsight) simply because I had a few good days of growth in a row and were afraid of missing the bus towards eternal wealth.

I now know that I have to beware of overconfidence when investing and evaluating investments.

3. Don’t fall for confirmation bias

I noticed that I started reading more and more about cryptocurrencies after investing.

I joined several crypto Facebook groups to follow discussions and checked Twitter crypto-hashtags daily.

However, I also noticed an increasing tendency to only look for the good news about cryptocurrencies.

I somehow wanted to avoid reading bad news and I quickly scrolled past comments by people who criticized Bitcoin or Ethereum.

This is a well-known behavioral investment bias called “confirmation bias”.

You basically start looking for information that is aligned with your own thinking, beliefs or hopes (perhaps mostly the latter in my case), because it makes you feel better.

Obviously, this should be avoided, but it is easier said than done.

4. Never believe you have money before cashing out

In cryptocurrencies (but also in stocks), the markets go up and down. That is a given.

Some days you win a lot of money, some days you lose a lot of money.

At the highest point, my portfolio was worth $40,000.

At the lowest point, my portfolio was worth $2,000.

Now, I’m somewhere in between. The difference between those two amounts is massive.

When the portfolio had grown to a large size, it was very easy to dream about all the things I could invest in or buy for that amount.

Needless to say, it felt much harder losing that money once I had already counted them as mine.

The $40,000 weren’t mine and will never be until I cash out.

This is important to realize to decrease the negative emotions that follow from “losing” something. Also, to avoid the bad decisions that can follow based on fear, uncertainty and doubt.

5. Never invest more than you are willing to lose

In line with the previous point, it is important not to invest more than you are willing to lose.

This is important because you will make bad investments sometimes.

You will lose money sometimes.

Especially if you do very high risk investments.

Therefore, you should never invest more than you are willing to lose.

My threshold is 5-10% of my net worth.

This makes me comfortable with my investments and avoids decision based on fear knowing that I’ll be fine regardless of what happens.

6. Don’t monitor daily progress and set a goal

When I started investing in cryptocurrencies I would follow my portfolio religiously several times per day.

I would check the app Blockfolio more often than I would like to admit.

All of this monitoring wasted time and precious brainpower thinking about what to do next and whether to quit or not.

If you are not a day trader, as I’m not, you should not check your portfolio daily. If you invest in the long term (which you should if you don’t day trade).

Daily volatility should never drive any of your investment decisions anyway.

Instead, it is better to check in on your investments less often.

To be honest, I still check Blockfolio several times a week, but I believe that checking your portfolio once a month is more than fine.

You could, however, set a goal for your investments.

I have a general financial independence number, which is my goal.

I also have a goal for my cryptocurrencies.

If they ever surpass $50,000 again, I’ll start converting $10,000 to fiat to invest in stock indexes. This number I’ll double every time the portfolio value doubles – if that ever happens again.

Why do I do that? Because otherwise cryptocurrencies would be too large a part of my net worth meaning more risk than I like.

7. Have fun with your investments

The last learning is quite simple.

Investing should be fun. If you spend too much time worrying about having very high risk investments, it is not worth it.

I have learned to enjoy the ride, but it was certainly too time-consuming and nerve-wracking to begin with.

Investing in cryptocurrencies is a crazy rollercoaster ride of emotions, but with the right precautions it can be fun.

Would I recommend you to invest in cryptocurrencies? Hell no!

… unless you have 5-10% of your net worth that you want to gamble with. Then cryptocurrency can be a fine rollercoaster to ride.

Just remember that you might become nauseous in the rollercoaster and that it might crash hard in the end.

Your turn: Have you invested in cryptocurrencies or any other very high risk assets? How did it go?

4 comments

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4 comments

Paul July 1, 2018 - 13:55

Hi Carl,

You are spot on with your assessments of investing in cryptocurrencies. I felt the same way when I got started. Right now I’m investing 7% of my income in 25 different cryptos. I figure that in 3-5 years (as this is a long term investment) at least one of these will grow a lot and make it worth my investment. I’m not really looking at this on a daily basis because I would go insane to see how much Bitcoin (and other altcoins) grows and then drops. Even if I lose all this money, I’m ok with it. I think this could be something more people could do if they kept with percentages they can afford losing. What is your opinion, Carl?

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Carl July 5, 2018 - 18:07

I highly agree with you. I always believe you should have part of your investments in something ultra high risk, but never more than you are willing to lose. For me, that is around 5-10%. I have halted my investments in cryptocurrencies for now as I believe it makes up too large a part of my net worth at the moment.

Reply
Mohammed February 16, 2018 - 04:24

Personally, My current portfolio is property and trading currencies and some commodities.

Property has been pretty stable and pretty reliable.

Trading takes more mental strength, like you say volatility is involved and losses are part of the trade so to speak.

I haven’t invested in crypto’s yet, I don’t know where I sit on it. Is it a gamble or does it have a future?

Good savvy blog by the way! I like the info provided here, especially when it comes to the percentage breakdown per investment.

Reply
Carl @ MoneyMow February 16, 2018 - 05:33

Thanks for the kind words, Mohammed! I’m happy you like the percentage breakdown. I’ll continue doing that.

Sounds like property, currencies and commodities is a good mix. How often do you trade currencies and what do you base your investments on?

I’m not sure about cryptocurrencies either. I believe a lot in blockchain as technology, but I don’t believe that it necessarily justifies cryptocurrencies.

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