How I Invest (Speculate)
Hopefully, that background provides context for my strategy: buy and hold for the long term. Many in the community refer to this as HODL (Hold On for Dear Life) because of the past rollercoaster-like price movements.
Investing in cryptocurrency has the added benefit of diversifying my overall financial portfolio. I have observed that cryptocurrencies often perform like contra-assets, increasing in value when stock prices decline and investors look for other places to park their cash. However, I haven’t invested my money with the expectation of guaranteed returns. In the words of Mark Cuban:
“If you’re a true adventurer and you really want to throw the Hail Mary, you might take 10% [of your savings] and put it in bitcoin or ethereum. But, if you do that, you’ve got to pretend you’ve already lost your money.”
I originally invested just a few hundred dollars in 2017 when the price of Bitcoin hovered around $2,500. Since then I have invested more, including a few hundred dollars in 2020. My portfolio consists of the following currencies: 50% Bitcoin (BTC), 40% Ethereum (ETH), 7% Litecoin (LTC), and 3% Ripple (XRP).
It has worked out well for me; that is due to a combination of research, patience, and good luck. Cryptocurrency is a highly risky investment, but there are ways to mitigate the risk.
First, listen to Mark Cuban and invest only a small amount of your overall net worth; it simply isn’t worth taking a bigger risk at this stage.
Second, diversify your holdings. Just like you would do with a stock portfolio, you should spread out your risk by holding multiple cryptocurrencies. However, don’t overthink things. Visit major trading platforms like Coinbase and see which currencies have the largest market caps; do some research, and pick a group of 3–6 currencies that look ripe for growth.
Third, pay attention to trends. Cryptocurrencies are mainly speculative assets, which means that their value is largely driven by market sentiment. It is a simple case of supply and demand. For example, the limited supply of tokens is one of the strongest arguments in favor of Bitcoin. This logic mirrors the economic formula of land ownership: limited quantity + growing demand = rising prices.
Fourth, understand what you don’t know: the underlying technology is complicated, the regulations are unclear, and the demand is constantly in flux. Stay away from smaller cryptocurrencies and ICOs (initial coin offerings). The importance of caution should go without saying.
Remember: this is NOT investing, this is speculating. Unlike buying stocks, which give you an equity share of revenue-producing companies, or buying property, which has a stable market and a well-established history of price appreciation, there is extreme uncertainty with cryptocurrency. Understand that you could lose it all. However, if you play your cards right, you could stand to gain even more.