Everyone’s telling you to do it. That 2019 was the best year yet, but 2020’s going to be better. That it doesn’t take much money to get involved. That you don’t want to miss out.
While it’s true that the recent Bitcoin boom has increased its allure, it’s worth remembering that any investment comes with its own risks. Sometimes it’s easy to let enthusiasm turn into recklessness and it always pays to spend a while reading up about it beforehand.
Here are some things you should consider before ploughing your hard-earned cash into the cryptocurrency of the moment.
You don’t have the money
It’s a classic line: don’t bet what you can’t afford to lose.
Trouble is, so many of us don’t respect it, which probably explains why people lost so much money in the 2017 crypto boom and bust.
Given Bitcoin’s chaotic nature, it’s impossible to know what will happen next, there’s always a chance that you’ll lose everything tomorrow. With that in mind, it always makes sense to invest amounts that don’t jeopardise your financial position.
Furthermore, if you have any debt, particularly with high interest rates, it’s always better to pay this off than invest in Cryptocurrency, not the other way around.
You want to make a quick buck
We’ve all heard the Bitcoin millionaire stories. And it’s true, some people have won the crypto lottery where they jumped on board just before a boom.
But the chances of this happening are tiny.
With Bitcoin, it’s all about the long game. The most successful investors sit on their money for years and treat it as just part of their asset portfolio. Yes, the occasional boom is excellent news but the key statistic is the coin’s growth over five years, not days.
Whatever the coin has done in the past doesn’t serve as a barometer for future success, so don’t think you can study past markets and predict a quick hike in price.
If you’re serious about investing patiently, then this manifesto is a useful place to start. If not, then just play the lottery.
You don’t understand its consequences
Perhaps the toughest part of this whole Bitcoin thing is that all transactions are irreversible: there’s no way of claiming a refund if you change your mind.
It’s a key rule that not everybody knows when they part with their money, and the consequences can be upsetting. If you send your money to the wrong place by mistake, you’re not getting it back.
The next big danger is that, instead of learning from our mistake, we double down and invest more money. It’s human nature, right? We want that money back.
The problem is that, much like gambling, this can lead to a vicious spiral of chasing losses and it’s often what leads to some of the worst Bitcoin scare stories. The advice of ‘not chasing your losses’ is one of the most important tenets of any safe gambling guide, and it’s something that we should apply to investing, too.
You don’t need to be a rocket scientist to invest in Bitcoin, but its many complexities mean that having a basic understanding of the coin, such as its origin and uses, is essential.
Because you listened to a Bitcoin ‘know-it-all’
We all know this guy. He’s the friend of a friend who’s talking louder than everyone else at the party; telling us how Bitcoin is growing and is accepted everywhere now and that if you don’t jump on board now then you’re gonna lose out.
And if that wasn’t enough, the internet is awash with so-called ‘experts’ on YouTube and Buzzfeed claiming to have inside info on the next boom.
The truth is that nobody has a crystal ball. Bitcoin is like any other cryptocurrency, unpredictable and volatile, and predicting what’s going to happen next is extremely difficult.
If you’re seriously considering it, then consult well-informed articles, like this, from respected publications such as Forbes and FT, and arrive at your own conclusions.
Ignore the white noise!
FOMO (Fear of Missing Out)
We all experience this emotion. When it looks like everyone else is having a great time and you’re stuck on the outside, looking in.
The problem is, that if we let it influence us when dealing with Bitcoin, we will almost always make the wrong decision.
The coin experienced this phenomenon in December 2017, when its price was at an all-time high. Everybody wanted a slice of the cake; they didn’t want to be stuck on the sidelines while everyone else raked it in.
Unfortunately, as with all bubbles, the price burst, and investments fell by up to 80%.
FOMO makes us treat the currency like a get-rich scheme: we gamble on getting a return straight away. As we mentioned before, this is a surefire recipe for disaster.
To combat FOMO, strategies such as dollar cost averaging encourage us to be more disciplined in our investments: to put in small amounts of money over a long period of time rather than just going all-in on one specific price rise.
Take the emotion out of it - banish FOMO to the back of your mind and embrace the steady world of cold logic instead.
Despite all of the above, there are many reasons why investing in cryptocurrencies such as Bitcoin is a smart idea. The long-term view is that they will eventually take the place of traditional, or ‘fiat’, currencies: perhaps sooner than we think.
But that’s all the more reason why we should always stop and think before investing our money. The more we educate ourselves, the more we prepare ourselves for the future - and the less chance there is of losing money in the short-term.
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