How To Invest In Crypto Assets (And Any Other Financial Asset)
Why it’s not easy
First of all let’s make it clear that what you’ll read in this article is not a secret sauce. There is no such a thing and whoever tries to tell you there is has other interests than your own good. Keep that in mind because it’s very important and will save you time and resources down the road.
You have probably already heard about the well known stats that say most investors / traders lose their investments. That is a very harsh truth for anyone trying to dip their toes in this world of prices, valuations, companies, assets, etc. In my opinion the reason why this happens is the nature of the human mind and character. Simply put, we do not want to deal with things that look bad and scary, our conservation instinct says “run away from that”. And we prefer the opposite. Sounds pretty accurate right?
So what does this have to do with investing? Read along in the next section.
Doing the opposite the crowd does
Yes, you read that right, you just cannot follow the crowd and win. Remember, the crowd (90%) is wrong. That leaves you with only one option and that’s to go against them. It’s your only chance. You’re probably already thinking “I can see where you’re going here, it’s all about buying low and selling high right? Nothing new here..” and that’s pretty much how it is yes, but of course that phrase alone won’t help you.
Here are the key rules that I personally learned and follow:
1. Never chase
That means you should never ever let that fear of missing out control you. That leads you to buying the highs and selling the lows. That’s not what we want to do. There will always be another opportunity, always. Unfortunately that’s not true for your capital.
2. Choose your assets wisely
This one might sound like common sense but it’s very valuable: ideally you should own more of the things that do well and less of the others. How do you measure what does well and what doesn’t? This is something specific to each asset class and looking at the price is just not enough. I might cover this topic in another post. Leave a comment at the end of this article if you want me to dive into that.
3. Be aggressive only when the time is right
And more defensive when conditions are not ideal. What does this mean? Well markets are influenced by various factors, too many. There are things that make assets prices to go up or down on a daily basis (shorter time frames) such as news and there are certain factors that have an influence on a larger time frame. An example from the last category is the cost of money (capital availability). In a short sentence, you should expect that when capital is easily accessible, markets do well, and the opposite happens when access to capital becomes more restricted. Interest rates going up or down is a way to control that.
If you’re wondering why I did not mention anything about crypto yet, here’s your answer: the same exact rules apply to any asset class. You should look at crypto as just another asset class in a basket where we already had stocks, bonds, commodities, currencies and derivatives.
A lot of people got interested in investing or trading through crypto and that’s pretty amazing. But that also meant they got themselves into a very tough game without any prior preparation. Following the rules I mentioned above is a good starting point.
I hope that you found this article useful and if you have any specific topics that you might want to read about leave a comment below. I will try to share as much knowledge as possible.
Also I am curious, what market interests you the most? Cryptos, stocks, currencies, fixed-income?
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