While you should never put all your money in crypto, it may be a good idea to put some of it in.
Diversification is key.
Most people have an "all or nothing" attitude, which is why they think they will either go to the moon with their crypto investments or lose all their money.
While option 1 - going to the moon - is totally possible, the chances that this happens with the one asset that you put all your money in, are pretty slim.
It's much more important to protect yourself against option 2 - losing all your money - by having a balanced porfolio of different assets of different types and from different sectors. And of course: never put in more than you can afford to lose.
So let's look at five main advantages that crypto investments have over traditional assets.
Traditional investment accounts come with a huge amount of small print and costs.
There are account creation fees, annual maintenance fees, and of course commissions for your broker, if you have one. Those costs are eating deeply into your profits, and apply whether you are in profit or not.
This is one of the biggest mistakes new investores make: they do not consider the (potentially) enormous costs.
With crypto investments the costs are almost negligible.
You'll pay an order fee when you first buy through an exchange, and you will pay a small transaction fee when you send the funds to a secure wallet. That's it.
As long as you hold your money in that wallet, you will have zero costs. You only pay when you move the money. The next time you'll be charged small fees is when you sell parts of your portfolio, which could well be years later.
(The transaction fees are different per crypto asset. Some have zero fees, while Bitcoin's fees can sometimes get really high. However they still don't compare in any way to the amount your racking up annually in traditional funds.)
With traditional investments, you have to commit to a certain amount of time, during which you cannot access your money. Should you need it before that time is up, you will have to pay serious penalties (if it's at all possible) and lose a large part or all of the interest you generated til then.
With cryptocurrencies, you are in full control of your money. This is digital cash. It's just like cash in your pocket. You can use it or sell it any time you want.
You have a lot more freedom as a cryptocurrency investor.
3. Speed & Independence
If you want to make changes to traditional investment funds, you're probably gonna have to make an appointment with your broker or advisor. That costs time and money. You may have to ask for permission to make changes, too.
When it comes to crypto investments, you simply make the changes you want to make. Any time, any day.
Since it's just like cash, and since you're not using any third party service providers, you do not depend on opening hours of banks, stock exchanges, or your advisor's schedule.
Cryptocurrencies are global and borderless. You can move them around in the middle of the night, on a weekend, from anywhere in the world, without asking anyone for permission.
Yes, this is normally regarded as a risk.
It is a risk, but let's not forget the advantages that volatility can bring. If you're ready to take a calculated risk, high volatily can give you very high gains, very quickly.
Since you have speed and independence (point 3) on your side, you can e.g. sell 50% of an asset that just doubled in price, and by that get your initial investment back.
You have now reduced your costs - and your risk - to zero.
The rest of the money that's still invested, is pure profit. Should it ever lose all its value, you don't need to care - it's a bonus!
Volatility, in a way, can contribute to your protection.
And in the reverse case: if your $1,000 investment is suddenly worth only $500 there's an easy fix for that: Wait until it goes back up again!
Thanks to the volatility, it's highly likely this will happen very quickly. Sometimes it takes only a few days, but in bear market times it may take several months.***
"You only lose when you sell."
[Famous and very true statement.]
"Never put in more than you can afford to lose".
When you accept the risk of a highly volatile market, you need to protect yourself from one important thing: panic.
The best way to do that is to put yourself in a position where you "don't care" about the money you've put in. That means, choose an amount that you're not afraid to lose and that you can live without for 3-4 years.
So far, in crypto history, no matter when you invested, after 3 years you were always in profit. So make sure that you're in a position to be able to wait that long without panicking.
Don't be this guy:
[Famous graphic by unkown creator, shared a million times on the internet]
All of the above happens in both markets. However in crypto markets the volatility is much higher, which is why everything moves so much faster. It is not uncommon for prices to double or triple over night (and then drop again just as quickly).
5. The opportunity of a life time
- If you had invested $1,000 in Microsoft in 1986, you'd be a millionaire today.
- If you had invested $1,000 in Amazon in 1997, you'd be a millionaire today.
- If you had invested $1,000 in Tesla in 2010, you'd have around $17,000 by now (also not bad compared to 0.1% annually in the bank...)
Opportunities like this don't come around to often. Few things in the traditional stock market can compare with the revolution that is blockchain technology and decentralised money and governance models.
- If you had invested only $10 in Bitcoin in 2010, you'd be a millionaire today. (Click here if you want to make yourself cry.)
Apparently, one of the main regrets of investors is "that they didn't start earlier".
If you wish you had invested in any of those companies "way back when", then don't miss this opportunity now.
None of the Microsoft or Amazon investors knew that they would become millionaires with their investments one day. They were probably hoping for it, but they couldn't possibly have known for sure.
They were willing to take a risk, though.
Crypto is risky, just like any other investment, but risks can be managed.
***Smart investors put another $1,000 in a this point, because they didn't go "all in" with all their available budget in the first place. They kept some for this specific case, because now they get a 50% discount and will be in profit way before it reaches their original buy-in price again.
Anja Schuetz is a crypto explorer and mentor for absolute beginners, with specific focus on non-digital natives. She also consults as a Customer Communication & Operations Manager for blockchain start-ups.