Crypto Investing: Intrinsic Risks
So far in this series we have discussed what a cryptocurrency is, and the concept of the changing world order along with my first core investment principle: giving yourself options.
In part 4, I want to go over the risks and benefits of crypto, and some crucial points on investment strategy.
Beginning to invest into any asset with no goal or purpose is a shipwreck from set sail.
As Stephen R. Covey said “If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster”.
Below I will outline some of the major Intrinsic Risks you may experience while investing in crypto. when I say Intrinsic, I mean that they are risks caused by your own mind and habits.
I will discuss Extrinsic Risks starting next week.
Your Inherited Investment Thesis
Each one of us is an amalgam of our past experiences. If you have spent any decent amount of time in therapy you will know this first hand. Changing our initial feelings and reactions to events in our life is not easy work.
This shows up in our personal lives and relationships, but it is not as often talked about in relation to our investments. I think this is crucial to understand before you begin a journey into risk assets (whether it be stocks, crypto, real estate, etc.).
This is what I refer to as your Inherited Investment Thesis. The way that you choose to spend or invest your money is as much a product of your environment and life experiences as the person you choose to date, marry, have kids with, and so on.
This is its own topic, and is in fact the subject of my future series that does a deep dive into psychology and a few key beliefs that will aid you in your investment and business life. If you are not subscribed yet, please hit the subscribe button so you do not miss anything.
To quickly summarize in the context of this series:
Some of us tend to gamble our money, some of us tend to be extremely risk averse. These are byproducts of our human nature and our lived experiences. Understanding how you view money will show you many intrinsic risks that you may face. There are two primary beginner trader types I have identified:
The Gamblers among us will look at crypto in a haphazard way. They tend to throw their money into crypto to make massive gains in short periods of time, but they do not pay any attention to risk analysis, and therefor tend to get themselves into a fair bit of trouble (or lose their money rapidly). They also tend to avoid selling assets because “it could always go higher”, and end up “holding the bag” until they have lost their gains… and their initial investment.
The Risk averse will avoid crypto altogether, or suffer from the inability to make a decision when prices are moving unexpectedly. they tend to take a micro-managed approach to their portfolio, buying and selling frequently in an attempt to avoid losing money. Just like gamblers, they have no real strategy or goal in their investing, they are operating on fear. And their attempts to avoid risks without any real education in risk analysis leads them to suffering a death by a thousand paper cuts as they trade their account into oblivion.
The important thing to remember here is that both Gamblers and the Risk Averse are operating the same exact way: Emotionally. They both lack the education and discipline to make informed trades, so they use a mix of the news headlines and whatever feels the best. neither of which are good methods of picking investments.