The most important rule of investing in crypto

4 Min Read
797 words

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About two days ago, I met with a senior colleague and he was angry about different investments he had involved himself with.

He was bitter and sad.

He complained about treasury bills in Nigeria, how they crashed during the Covid period and how he thought the best and safest place to earn was from treasury bills.

He then decided to go to his bank and asked for their different packages.

He invested a thousand dollars in one of them and was been paid a 0.1% return on investment per month.

Then he decided to do binary options because he was tired of being conservative.

He blew his capital.

Then he met me and I told him my way of partitioning my portfolio

60% in stables
30% in moderate risk ventures
10% in high-risk investment.

I also told him about defi, hive and he asked about trading.

I personally wanted to start him on hive but he insisted on defi.

I went on to tell him about cub and told him to invest what he could lose and he agreed so he took 10% of his money and invested it in cub/busd so that's technically 5% of his money.

Then cub started dipping and he was all over the place.

I was shocked as to how jittery he was as he was meant to use his disposable income.

It made me really angry.

So this brings me to the point of this post and this is the first thing every investor should do.

Invest what you can afford to lose.

This is the first and most important rule of investment and a lot of people go against it.

A lot of people try to undermine this statement and really end up in a bad place.

The reason they end up in a bad place is that they only have one expectation and that is for it to moon in a very short period of time.

When they don't see this happen, they get all jittery.

A lot of them don't expect fluctuation and it's really shocking.

This brings me to another point

If you are going to invest in crypto, you have to know the difference between investing and speculating.

Investing can never be the same thing as speculation although people misunderstand it, they can never be the same.

The next thing you have to know is what type of investor/speculator you are.

Some people are high-risk investors, some are moderate risk investors and some are low-risk investors and some are ultra low-risk investors

I like to classify investors/speculators this way

  • A high-risk investor is one that can afford to lose as high as 50% of his capital or more for a gain of over 100% or more in a short period of time

  • A moderate investor is one that can afford to risk from 10-49% of his capital for a reward of 20-80% in a relatively long time compared to the high-risk investor.

  • A low-risk investor is one who can risk 3-9% of their capital for a reward of 6-20%. These people can take 20% APR and will - not mind.

An ultra low-risk investor is one that can't afford to lose more than 2% of their capital. These ones are the ones okay with 4-5% per year over a long period.

Which is the best?

I feel no one is the best. If you are totally ultralow you will be making money at a snail rate compared to the moderate and high-risk investor.

If you are a high-risk investor, you will be losing at a rate that will be shocking.

The best in my opinion is a mix of all of them.

Hence, the importance of partitioning your portfolio and diversifying.

When you put most of your money in stables for a return of 20% per year, you will have a back pool that is not subject to fluctuations. This is where peace of mind comes from.

The next thing is to pick top investments. These are investments that have a use case and have a good market cap and volume. BTC, ETH, HIVE, cub, and Travala are some of the few I believe in.

High risk is based on hype and instincts.

I guess I know what to tell my colleague.

I will tell him to change his stakes to only stables like USDT/BUSD pairs till he is comfortable.

I will also force him to read some whitepapers.

In summary, Investment is a two-edged sword capable of pushing one to financial freedom and also push one to financial doom.

Your choices are what determine your result.

Invest only what you can afford to lose and have your sleep.

Thank you for reading.

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