Investing in Cryptocurrencies: Lessons Learned

Though I am not a Bitcoin OG, I do have three years experience in the space. Bitcoin has been good to me, but I have made a lot of mistakes.

With the next bull run coming soon—whether it be this year, next year, or the one after that—I feel I can provide useful insights to new investors. By learning from the mistakes I made during and after the last bubble, a newbie can hopefully avoid feeling some of the pain I felt.

To start, I personally feel strongly about the potential of Bitcoin. Some say it is irresponsible to invest in such a risky investment; I feel the opposite. I believe it is irresponsible to not own Bitcoin.

The first lesson I would like to teach: Buy Bitcoin (BTC), not altcoins. Altcoins are any cryptocurrencies that are not Bitcoin. The future is unclear and an altcoin could potentially usurp Bitcoin, but it is unlikely. As with any investment, do the proper research before risking your hard-earned money. If you do decide to purchase an altcoin because you believe it has a real use case, stick to one or two. It is easy to buy every coin that is pumping during a bull run. However, coins that go up quickly also fall quickly. (Full disclosure: My portfolio is 90% Bitcoin and 10% in three of the top altcoins; I used to have more exposure to more altcoins which was a mistake).

When you go to purchase your first Bitcoin, you will notice Bitcoin Cash (BCH) and Bitcoin Satoshi’s Vision (BSV). These are coins that forked off the Bitcoin blockchain. To be clear, they are not Bitcoin; they are now simply different cryptocurrencies with different qualities (i.e. larger block sizes). It could be tempting to purchases these Bitcoin alternatives because they are cheaper. However, Bitcoin (BTC) is the longest chain and the most likely to win in the end. If you want to hedge your bets and gain exposure to BCH and BSV, then do so carefully and, of course, do the proper research to understand how they are different from BTC.

After you purchase your cryptocurrency, pretend the money is gone forever. That’s right, mentally tell yourself you just lost $1,000 (or however much you decide to invest). This ensures that you don’t invest more than you can lose, and it psychologically prepares you for a volatile market. The prices will fluctuate; you need to be prepared. The price could fall 10% in a day; it is quite normal. Don’t pull out; just wait (or HODL as Bitcoiners like to say). In fact, when investing in cryptocurrencies, less is more (i.e. less trading, buying, and selling). Just buy some Bitcoin, and wait for the long run. If you believe in the potential of this new internet money, then buy some more later when the price dips again.

Once you have your Bitcoin, you need to learn how to protect it. Cryptocurrencies are unlike traditional money. If somebody steals your credit card, you can call your bank and have the any purchases reversed. If you lose your Bitcoin, you lose your Bitcoin. You need to be especially careful of hackers. As a beginner, the safest way to protect your Bitcoin is to buy a hardware wallet. Don’t wait on this; do it right away. It costs a little money, but it could save you a lot of money and heartache in the future. It will also allow you to sleep better at night knowing that your investment is safe. The two hardware wallets I suggest (and use myself) is the Ledger Nano S. and Trezor.

It depends on what country you reside, but you likely will have to pay taxes if you do eventually cash out some profits during the next bubble. Therefore, right from the beginning, keep an organized Excel sheet recording when and how much Bitcoin you bought. Be sure to record the price of Bitcoin at the time of purchase. Then, if you do sell someday, record how much you sell and the price you sell it at. If you do get caught up in speculating with many altcoins, this is even more important because it will be impossible to record all your trades right before taxes are due.

My most important suggestion is to simple HODL until the technology matures and it is adopted throughout the world. Then, continue to HODL and spend some. However, if there is another bubble like we saw in 2017, it might be wise to take some profits. Don’t sell it all; Bitcoin does have a great chance of really taking off in the future and you will want to be sure you have some, but cashing out when the market is overheated is not a bad idea. So, let’s say you invest $5,000 now during the bear market, and in three years your $5,000 turns into $20,000, you could cash out $10,000 and let the rest ride. With this scenario, you make some money and still have exposure to the asset. This is not easy to do, but I sure wish I did that in 2017.

At the time of writing this blog, the price of Bitcoin is around $5,000. Some are saying the bear market is over and the bull market has begun; others are saying we will go to sub $2,000. I don’t know; neither do they. Either way, if it starts pumping now, or crashes and pumps two years later, now is a good time to invest.

I believe Bitcoin has a great future. It makes sense because we live in a world that is becoming more and more digital every year. Additionally, Bitcoin is the soundest money civilization has ever had. Once more people realize this, they will want to own a few satoshis themselves.

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