What No One Tells You About Crypto Investing

Investing in crypto can sound so complex to anyone who has never done it. However, is it really that more complex (even technically) than just buying a regular stock or a bond? Since you’re mostly doing both of these things via an app (usually on the same app), the difference is not as big as some would want you to believe.

Well, if this is really the case, why is no one talking about it?

As it turns out, this is not the only thing you’ll never hear on the topic. Here are a few other things you should pay attention to.

You won’t find the next BTC

If you’re entering the world of crypto investments to buy a coin at $12 and sell it at $60k, it’s probably best to leave right away.

You see, avoiding BTC and ETH because they’re too big and their potential percentage gain is not as huge would be like trading in currencies and avoiding USD and EUR. It’s never a smart idea.

It’s even worse if you’re doing it because you want to put all your money into DOGE because you see it as the next big thing. Sure, some of the cryptocurrencies with high potential can return a fortune, but you’ll never know exactly which coins these are. So, even when investing in high-potential coins, make sure to diversify in order to keep your assets safe.

The No.1 reason for disappointment is your expectations, which are too high. In other words, even if you make $1 million through your investments in a year, you’ll feel disappointed if you expected to make $10 million. On the other hand, you can be satisfied even with $100 if you didn’t expect to make as much.

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So, your first objective (even before you start investing in crypto) is to do your research on what’s realistic in your particular scenario. By setting realistic goals and having measurable factors, you’ll be able to audit your position at any point in time and see exactly where you stand.

Pursuing unrealistic objectives is a waste of time, a waste of money, and it will always leave you disappointed.

Risk management is THE MOST IMPORTANT part of the process

Set your expectations realistically and avoid investing too much money into the riskiest of coins. Risk assessment and management are the most important things you need to learn.

The scenario that we’re talking about here is people that are outcome-driven. In their minds, the process goes like this: “If this worked, it would be really great.” The problem is that they don’t pause for a moment to ponder the possibility that it won’t work out. They also ignore the consequences of its failure. If things go wrong, how wrong will it be?

The way this equation works is really simple. Imagine someone telling you that you have a 1% chance of winning $20 if you invested $10. Would this sound like a good deal? Of course not! However, what if they told you that by investing $10, you had a 10% chance of winning $1,000? What if they told you that by investing $1,000, you had a 1% chance of winning $1 billion?

In other words, what you’re trying to figure out is whether the investment is worth it. What happens if everything goes your way? What happens if nothing goes your way? What’s your risk, and what’s your exposure?

It’s all relative. Those $10 sounds expensive in the first scenario, but in the second scenario, they’re really not that much.

In the last scenario, even $1,000 doesn’t sound like that much, even for people who can’t afford the given $1,000. Why? Well, because the reward is high enough that it clouds their mind.

This is why you need to become really good at risk management.

You’ll never have all the factors

There are two reasons why projections and predictions fail. The first one is the fact that you can never have all the factors. The second (and the less likely one) is that the process is wrong. So, why is the latter a less likely factor? You see, modern analytical tools like robo-advisors are so sophisticated that, given enough data, they’ll always reach the right conclusion.

There are two problems with this, however.

• They never have all the data
• The data can sometimes be corrupted

Not to mention that there are often some unexpected or unprecedented occurrences. For instance, for a coin to be listed on a major exchange, this almost always implies growth. However, this coin lost 14% of its value after being listed on Binance.

The key thing to understand is that no battle plan ever survives the first contact with the enemy or, as Mike Tyson said: “Everyone has a plan until they get punched in the mouth.” This doesn’t mean that you shouldn’t plan; it just means that you might want to take a bit more careful approach to this whole situation.

At the same time, this doesn’t mean that your chance of success is random by any means. You still need to look at factors like the market cap, the community, the team developing it, the liquidity, etc.

The most important thing to understand is that while you can never know all the factors, you should never use this as an excuse to skip the research. A data-based decision is still more reliable.

Human psychology is the same

The last thing you need to understand is that while this is a completely new asset and a new form of currency, human psychology hasn’t changed one bit. Psychological phenomena like FOMO are always present, and they affect the way you invest.

Now, everyone knows about FOMO but what about these other phenomena? By understanding what these phenomena are, you’ll have an easier job of figuring out when they’re influencing your decision-making.

One such concept is herd mentality. You see everyone else doing it, and you want to do it as well. Here, it’s not about the fear of being left out; it’s about feeling peer pressure to do what everyone else is doing.

Then, there’s the confirmation bias. This means that you already have an idea in mind and that you cherry-pick the information that confirms your original ideas. Is this kind of decision data-based? Yes, but the data is tainted by your own bias and carefully selected to support it. Just imagine testing a new medicine and only counting those who did not experience any side effects.

Loss aversion is a scenario where you fear losing $100 far more than you would rejoice to win $100. This can make you too timid as an investor and prevent you from ever making significant gains.

These are just some examples, and there are countless others, like the gambler’s fallacy, sunken cost fallacy, and even basic cognitive dissonance.

You have more to learn by studying investing than by studying crypto

While crypto sounds like a completely new thing, unless you’re a developer, from your perspective, it’s just an investment asset and nothing else. By understanding how to manage your expectations and investment risks, and how to follow your decision-making process, you’ll stand a far better chance at making it than by just examining traits of individual crypto. We’re not suggesting that this type of research is unimportant, we merely say that there’s more than that to it.