Should I Buy Bitcoin or any Cryptocurrency? – Part 1 of 4

Part 1 – Ask Yourself Why?

This is part 1 of a 4 part series meant for new cryptocurrency investors to read before entering the space.  The goal of this series is to determine if it investing in crypto is the right move. Head to the cryptocurrency section for more information and links to the rest of the series.

For the sake of brevity when I refer to Bitcoin just assume I am referring to any other coin or token available as well (Ether, Ripple, etc.).  This series is not exclusive to Bitcoin but rather should help you understand what investing in cryptocurrency would mean for you.

This series will help you determine your motivations for wanting to invest in cryptocurrency, prepare you for the psychological games of a bubble, understand the risks involved in this new and volatile asset class, and help you determine if you have the right kind of money available to get the best result possible.

Part 1 – Ask Yourself Why?

Why are you interested in buying cryptocurrencies?

Start with this question and be honest with yourself.  There isn’t necessarily a correct answer but I can’t know what is best for you, only you can truly decide if its right for you to buy a cryptocurrency.  This series will help you come to the best decision for your personal financial situation.

When you ask yourself why is it because:

  • .. you heard about how much money other people are making and want to make more money yourself?
  • .. you know someone who told you they made money and you NEED to get in on this now before you miss out?
  • .. you have seen it in the press over the years, always wondered what it was about, and finally now are determined to take the plunge?
  • .. you are tired of seeing the price higher everytime you check it and just want a piece of the action?

Answering yes to any of the above points as to why you want to buy crypto does not mean you automatically shouldn’t.  Rather if you did answer yes I want you to be aware that this is a common psychological fallacy at play.  It is called the ‘fear of missing out’ or FOMO for short.  This does not mean if you buy today you will lose money but it does mean you need a reality check before investing.  I will discuss FOMO a bit later on in this series but for now just be aware that your motivations to begin cryptocurrency investing may be setting you up for failure right from the start.

This doesn’t mean you should not invest, just that you should finish reading this series and shift your expectations about what investing in cryptocurrency actually means.  Most people hear about cryptocurrency through someone they know, or from the news.  People only talk about it when prices are moving around a lot and people usually only tend to talk about it when the prices move in their favor.  So it is very common to come here with one of those initial motivations.  That is fine, I just want to offer you a healthy dose of reality before you put your money at risk.

 

A Better Motivation

Are you looking to invest in cryptocurrencies because:

  • .. you want to allocate a small percentage of your portfolio into a high-risk asset class?
  • .. you have researched the concept of blockchain or the particular coin you are looking to buy and are willing to invest in that coin’s technology for the long term?
  • .. you have some discretionary income that you don’t mind losing and would rather take a shot buying cryptocurrencies than buying a lottery ticket, gambling at the casino, or spending it on something else you get less utility/ enjoyment from?

Approaching cryptocurrency investing with the mindset above is more appropriate and will help you get the best possible outcome.  If you are able to be patient and see cryptocurrency for what it is, a high-risk asset class that can be a part of your total portfolio then you can approach crypto investing as a rational investor and increase your chances of coming out ahead when the dust settles.

 

Bottom Line

Please do not use more money than you can afford to lose, please do not expect the price to constantly go up, and please do not expect to be quitting your job anytime soon because you are rich off your crypto gains.  Cryptocurrency is a new and exciting asset class that is incredibly risky.  It can offer great returns but it carries tremendous risk to offset these returns.

My hope is that this article can shift your mindset to a more rational investor’s approach when it comes to cryptocurrency.  If you are chasing tips and using an amount of money that causes you to lose sleep, you will have a bad time and likely lose money.  However, with the proper mindset, you can take some calculated risk and put yourself in a position to potentially take advantage of the high risk-high reward nature of cryptocurrency.

 

This is part 1 of a 4 part series meant for new cryptocurrency investors to read before entering the space.  Head to the cryptocurrency section for more information and links to the rest of the series.

NEXT: Part 2 of 4 – Should I Buy Bitcoin? – How To Survive Cryptomania