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Bitcoin Investing - Brief Discussion of Risk, Diversification, and Trading Period for Beginners


What About Risk?
 

  • I don't want to be a Debbie Downer, but I feel that all these lists of best cryptocurrency for 2018 are missing discussion of risk.
  • Don't get me wrong, there are good lists, and there is a lot of upside in cryptos other than bitcoin, but that is because there is a lot more risk. 
  • For example, if you take $10,000 to play blackjack, you might triple up in a few hands, and that is faster than any cryptos. 
  • The point is, discussion of potential upside is not very informative without discussion of risk, especially if you are comparing an ICO (like a IPO but in crypto assets) to Bitcoin, the risk profile is very different. 
  • People are saying this and that crypto is better than bitcoin because they it has more potential for larger gains. But More potential gains is usually coupled with more potential risk of loss. 
  • Bitcoin has the biggest network and is like gold. Despite the wild volatility at times, it is relative much more stable than most cryptocurrencies. 
  • So let's be real. Bitcoin is still going to be the best in the space because it has the largest network and biggest brand. That builds some stability, which is just as important as potential upside especially if you are in this for the short-term.

Diversification:

  • You may or may not have heard the phrase "don't be caught holding the bag". 
  • I think the main warning here is to have an exit strategy. 
  • But we SHOULD hold a bag for diversification, which in turn draws down the portfolio variance. 
  • It is hard to say what number of cryptos a porfolio should have, but I personally will be passively investing in about 10 and actively managing about 

Short-term vs. Long-term:

  • Crypto is NOT a good short-term investment because of its volatility. 
  • But if you are in this for the long-term, and don't need that money right away, you can weather the storms that will surely come with growing pain in the crypto space. 

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