Cryptocurrency is a risky investment – Here’s why I’m still investing

I was the guy who opened a wallet on Coinbase in 2017 and never put a dime in (Bitcoins low was $755.76 that year). I didn’t know anything about it at the time and opened a wallet because someone said I should check it out. Doing the math now it hurts me to think of the returns I could have had or what I could have bought with the cash and then I come back to Earth reminding myself that this type of thinking isn’t helpful (to my finances or mental health). Instead, I tell myself I am not going to miss another opportunity like that again, but I need to do the same amount of due diligence I would for any other investment.

I started buying in 2020 when we started seeing more about cryptocurrency from larger media outlets. Right about the time the baby boomers started asking about what cryptocurrency was. It started to become more ‘mainstream,’ but there were still some massive risks. The price swings were unbearable for most people,($15,000 to $48,000 in a 12 month period for Bitcoin), it wasn’t (and still isn’t) regulated, and there were far too many opportunities for companies like FTX to hurt the retail investor.

Fast forward to today and the risks are still very much the same, but now I’ve experienced them first hand. Price fluctuations, watching the SEC attempt to control the industry with a case that will impact the entire industry (Ripple VS SEC), and the most recent FTX Scandal that sent shockwaves through the Crypto world. I was unfortunately impacted by the FTX scandal. I had approximately $7,300 worth of Ethereum and Bitcoin in the BlockFI Interest Account. On November 28th they filed Chapter 11 Bankruptcy (due to their exposure to FTX) which just means the company is allowed to reorganize, involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. Fortunately, Kroll (the noticing and claims agency for the Chapter11) have kept everyone up to date with the stated claims so there is hope to recover the $7,300.

It’s risky, but I’m still investing – here’s why

  1. The technology itself is being utilized in different ways and we’re still very early on. XRP (Ripple) is cryptocurrency token designed to migrate transactions from central databases controlled by financial institutions to a more open infrastructure while significantly cutting costs. We’ve already seen utilization by larger institutions. Ethereum is known for its ground-breaking combination of features like smart contracts, but it’s also seen use in DApps in finance, web browsing, gaming, advertising, identity management, and supply chain management. There is apparent utilization for a growing technology that’s in its early stages.
  2. Regulation isn’t here yet. Typically regulation helps the retail investor (stock market regulation around dark pools and high speed traders is a good example). Since some cryptocurrencies have been defined as commodities, securities, or none of the above the regulating body over crypto has not been defined. It is also very hard to set that type of regulating body when one foundation of cryptocurrency has been to remain decentralized and operate freely of a governing body. An exciting case to follow right now is the SEC vs Ripple case which will be a defining case for the industry and financial sector.
  3. High risk, high reward. While I feel we are past the massive gains for the most part, I strongly believe there is still opportunity to earn some returns far past what you can find anywhere else. As you can see with my experience you can also lose a good amount of money.

I’m currently holding XRP, Bitcoin, and Ethereum and will most likely stay with those three based on the reasons stated above. All 3 have utility that has been proven, regulation is still incoming, and I want to see some serious returns from my picks to place into more secure investments like Real Estate and the Market.

How do I mitigate some risk?

Firstly, I have to know to the best of my ability what I’m investing in. That’s not easy with cryptocurrency and I’d still say I’m a novice in overall knowledge. It’s a complicated technology and creating an application or putting it to work can be challenging. My goal is to understand how it is utilized, what is the adoption, and does it align with what cryptocurrency was originally designed to be like decentralized. Part of learning about what I’m investing in provided me with some better ways to mitigate risk which includes storing the majority of my crypto on a cold storage wallet.

Secondly, remember your keys, your crypto. Part of learning how cryptocurrency worked was understanding how (again to the best of my sales guy ability) blockchain worked and how having the ‘keys’ to your wallet and crypto actually made it your own. I have the majority of my Bitcoin, XRP, and Ethereum stored on my Trezor wallet.

Lastly,  I don’t allow the percentage to go above 10% of my Net Worth. ‘Experts’ say you shouldn’t have more than 5% to 10% of your Net Worth in cryptocurrency. That’s an easy number to keep track of and manage on your own. The real easy way to do it and an extra check I place on myself if I lost my entire crypto portfolio today how would I feel? If my answer suggests becoming homeless I need to reevaluate what I’m doing. If my answer is it would hurt but I’d live I’m probably right at the mark. If it wouldn’t even bother me, I’d keep going.

Remember this is still the early times for Cryptocurrency, but fortune does favor the bold.

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