Crypto: Don’t Bet Your Financial Future On “Maybe”
Just about every week someone asks me about investing in cryptocurrencies such as Bitcoin (BTC). I usually respond to the query with a series of questions to ascertain the person’s knowledge.
Some of the typical questions I ask are:
- What is your risk tolerance?
- If the value of your purchase declines by 50%, what will you do?
- What is your long-term plan for your investments?
- Do you have an exit plan?
- How do you determine a fair value of your investment?
Invariably, I find that the questioner hasn’t thought deeply about these things. They say things like “If you invested $1,000 in Bitcoin a decade ago you would be a millionaire?” They reason that “maybe” history will repeat itself and they can get rich quick.
Look, there’s a place in everyone’s portfolio for speculative investments. But those investments, by their very nature, have a high probability of ending up worthless. There have been many times over the past decade that Bitcoin values dropped sharply. In April of this year, Bitcoin reached $60,000. Now, it’s just over half that.
What does the future hold for cryptocurrencies? We don’t really know. Some of them may endure and continue to grow in value. Some will go by the wayside. But you should not bet your future that maybe one of the ones you chose will be one that endures.
Consider that many people have struck it rich in Las Vegas. If you bet all of your money on the right number on the roulette wheel, you can instantly turn a $1,000 bet into $36,000. And if you double down and do it twice, you would have $1.3 million.
Gamblers have had huge payouts at the roulette wheel. But the odds are against you. You are far more likely to lose your money, which is why I advise people to gamble only with money they don’t need.
I don’t view cryptocurrencies quite like gambling, but investing in cryptocurrencies isn’t like investing in the stock market. A consistent program of investing in the stock market is almost a guaranteed way to become a millionaire over time. The stock market has a track record of delivering returns to investors for over a century.
So, my advice to people wanting to put their investment dollars into cryptocurrencies is to first ensure that most of their investment dollars are going into the sure thing. Then, if you want to invest some of your speculative dollars in cryptocurrencies, at least you aren’t betting everything on maybe.
That gives you a sure way to get rich slowly, and a small chance of getting rich quickly. You just don’t want to put all your chips on getting rich quickly.
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