How Much of Your Net Worth Should You Invest In Bitcoin?
Can you feel it? In the last week, the entire mood of the Bitcoin market completely changed. The price soared from $19k up to $28k in only a week. But what’s so bullish about this is that the reason the price of Bitcoin is going up is the exact reason why it was created. The world is crumbling around it, inflation rates have exploded, governments have printed unprecedented amounts of money, and banks are beginning to collapse. Bank runs took place, and people began to learn that they don’t truly own the money that they deposit into the bank. You are actually loaning it to them with the hope that they will return it to you upon request.
While Bitcoin began 2023 at the lowest of lows in terms of mood and expectations for the year. All of that has changed. We have once again entered the FOMO portion of the market when people are predicting just how high they think prices could go. How this will cause the largest transfer of wealth the world has seen in recent memory. There have been predictions of Bitcoin reaching its previous all-time high, surpassing $100k, and $200k, and some people have been even wild enough to predict a price of $1 million per Bitcoin. The truth is that no one knows where prices will actually go. They could continue to go up, or Bitcoin could do the exact opposite of what everyone is expecting.
During these times of FOMO and greed, one of the most common questions I see people asking is, “How much of my net worth should I put into Bitcoin or crypto?”
There is no correct answer to this question, and it largely varies for each person's unique situation. Above all, there is one thing that you must always remember. Never, never, never invest more in Bitcoin than you can afford to lose. This market is incredibly young and volatile. You could wake up tomorrow and see that your portfolio went to zero. This does happen, with one of the most recent examples being Terra Luna and UST. Accepting that you could lose whatever you invest in this industry is the first step required when deciding how much you should invest in this market.\
Stress
The Bitcoin and crypto market is no cakewalk. It is actually one of the most emotionally draining investing experiences you can ever have. There will be days when you feel like an investing genius. Then only a few hours later you will feel like the scum of the earth. You’ll see periods of time when your portfolio does increases by 10x, but you’ll also see periods when your portfolio’s value drops by 90%. You need to be ready for that. If you are becoming heavily stressed by the ups and downs of the market. It likely means you have too much money invested in this market and show lower that percentage.
Debt
If you are currently heavily in debt with credit card bills, student loans, health bills, or something similar. You shouldn’t be investing large amounts into crypto. Instead, you should be focusing on paying off that debt. Being in debt is one of the largest weights on a person’s shoulders that can destroy lives. You won’t believe how life-changing finally escaping from debt can be. This is why you should be focusing on paying that off first instead of taking large risks with crypto investments.
Time
Another key factor when deciding how much of your net worth to invest in Bitcoin and crypto is time or age. If you are older and just about to retire, it probably wouldn’t be a good idea to have a huge percentage of your Net worth tied up in crypto. At that point, it would be devasting to see Bitcoin drop by 80–90%. Money that you are needing in the short term to be able to retire.
On the other hand, if you are younger that allows you to take much higher risks with your portfolio. In this case, time is your friend. If you’re in your young 2, it might not be the worst idea to try and hit a “home run” that could change your life forever. If it doesn’t turn out in your favor, you still would have plenty of time to recover from it financially.
Diversification
With Bitcoin being so risky, one of the best ways to limit your risk is by having diversification in your investment portfolio. Balancing out your high-risk crypto investments by investing in lower-risk options such as real estate, stocks, bonds, and the list goes on. It never is a good idea to put all of your eggs into one basket.
Goals
Another key factor that will help determine how much you should invest in crypto is what your goals are. If you are simply trying to save a little extra cash then you wouldn’t need a lot invested into crypto. If you are trying to make a nice nest egg to go towards your retirement, that would require more capital. If you are trying to become wealthy from crypto, that would require substantially more. You always need to be aware of what your goals are, and how you can make them a reality.
My Personal Strategy I personally take much more risk and have a more significant portion of my net worth in crypto than I would recommend to other people. At least 90%. The way that I reason this is that I’m still relatively young. I do have full conviction in Bitcoin, but if it doesn’t turn out I would have time to recover from this. I also balance this high-risk form of investment with my wife. I invest in high-risk assets, and she does much conservative investing. It has worked out very well for us so far.
There is no correct answer for how much of your net worth you should put into Bitcoin or crypto, but the advice above can help you to begin to narrow it down. At the end of the day, you should only be investing an amount that you feel comfortable with.
How about you? How much of your net worth do you invest in Bitcoin and crypto?
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