Diversity is Still King
Most people here invest only in crypto, because they are already extremely successful or on a similar path and crypto, being an appreciating and depreciating asset, is a means to diversify a portfolio between many different types of investments.
In the unlikely event that a reader is scrounging up their last few dollars to bet on the next speculative crypto big thing, then I would say your prospects are dim.
The unfair narrative of crypto loosely follows one of a fly-by-night operation in which someone can get rich in one day.
That is a complete fallacy.
And sure, I am not saying that getting rich in one day has never happened before, it certainly has, and it will time and time again.
But the odds of that happening are miniscule in cryptocurrency.
Even if someone who could be classified as middle class in the U.S. is now being advised to add crypto, the smart only put a small portion of their savings into it.
High net worth people often say they don’t need to get rich twice in their life.
Allocating small portions complements the diversity in one’s personal finance between crypto, precious metals, 401k or IRA, savings, stocks, and real estate.
This is the base case from which I analyze crypto prices and I am not assuming readers are putting 100% of their net wealth into some altcoin even if they are free to do so.
And when talked about through the prism of just another asset that is part of a bigger portfolio, then crypto and its existence is completely justified and important.
I mean honestly, it is surprising that it took until 2012 to create it, and it’s been a long time coming for the world to have something more advanced than the paper dollar.
I would argue that we are years late on this one and crypto should have been created in conjunction with the internet and computers.
To think it took this long to figure out a digital money that defies international borders and regulation makes me believe that innovation isn’t as fast as it needs to be in the digital ecosystem.
Much of the mainstream media appears to cater towards the delusional retail trader urging people who have $200, $1000, or even $10000 to buy crypto at any price.
Participating in stocks is still attractive to the average person, but the issue here as it relates to its value versus crypto, stocks are unattractive in a rising interest rate environment where the Fed has promised to curtail its balance sheet purchases.
Crypto is just another asset where the price is determined by supply and demand, it is not a magic bullet.
Even though fiscal policy isn’t accommodating in the short-term to crypto price appreciation, crypto will benefit long term as a hedge to inflation which the government has allowed to spiral out of control.
The priority right now for money is the safety of it and that won’t always be the case especially if the pace of rate hikes becomes orderly and manageable so much so that investors feel comfortable putting new money to work in high volatility assets.
So if crypto is the Hail Mary investment that will drag you out of a life of mediocrity then I would say you are poorly informed.
Investors need to treat it without emotion, a price that is set by supply, demand, and a series of evolving external factors.
This is the right way to go about it in order to absorb those massive 10% drawdowns when you’re sleeping at night.
You should be able to sleep at night with a 5% crypto allocation, maybe even up to 10%.
Diversification is for the investors who have accrued some modicum of partial success and want to keep their portfolios more stable.
Remember this is not a sprint, but a marathon.
At the beginning of your journey diversification is more of a problem than real help. Try to learn more about crypto and being an above-average crypto investor will be better than being an average investor in a few different types of investments.
