3 financial lessons that apply even to crypto

Cents and Sensibility

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Instead, we will be talking about what it takes to start investing in crypto.

Contrary to what you may be thinking, it’s not money; you don’t even need a lot of it. What I’m talking about is common sense and education. Crypto investing is investing and all investing requires participants to possess some degree of financial knowledge. Be sure to get yours from a credible source; not a 90-second Instagram Reel.

“It is tempting to follow what we see on social media because of the compelling graphics, good-looking influencers, and easy-to-digest information,” says Bobby Zagotta, Bitstamp’s Global Chief Commercial Officer, who’s a strong advocate for financial education. “But are these sources legitimate? Do you know for sure if they really bought $10 of Dogecoin every day for a whole year?”

That one could turn a quick profit by investing in crypto is one of most common reasons why people jump onto the bandwagon. And here’s where the evergreen investment adage still stands true: Time in the market is better than timing the market.

“When experts say that crypto is the best performing asset in a decade, they don’t mean its performance over a 24-hour window,” says Zagotta. “When you invest in any asset over a length of time, you are protecting yourself from price fluctuations while ensuring you continue to reap the benefits of its growth over time.”

In short, no smart investor would pour their life savings into a token and hope its value would jump 10 times overnight. Which brings us to the next point…

Speaking of Life Savings …

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If you’ve ever spoken with any financial adviser or even a friend who’s active in the stock market, they would never recommend you put everything into a single stock, or even a single asset class.

In fact, how much of your money should you invest? I’m not going to mince my words here: You should never invest money you cannot afford to lose. Which is why, on top of investing a portion of your income into a diversified portfolio of assets, most financial advisers will encourage you to set aside an emergency fund that covers six to nine months of living expenses. If you can afford it, you can consider starting an opportunity fund. This is money you can use to test things that are unfamiliar territory — crypto, whisky, NFTs, your cousin’s burger stand, etc.

High Returns Equals High Risk

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Even if you believe crypto gives you outsized returns on your investment, you should know that this will also come with proportionate risk. What is your risk appetite? Are you okay with losing as much as 60 percent of your capital? Besides understanding where you personally stand when it comes to risk and volatility, you have to DYOR (do your own research).

Would you buy Tesla stocks without knowing what the company sells? Would you invest in a startup without checking its numbers? Similarly, don’t buy a token simply because of the hype. You have to read up on the technology, understand its utility, ask yourself if you believe in its value proposition and the team behind it, before making the decision to invest.

Parting Shot

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The point of this article isn’t to convince you of crypto’s attractiveness as an investment asset. Rather, it is to emphasise the continuing need for a strong foundation in financial education. The more you understand something, the better and smarter your decisions will be.

Deborah Tan-Pink is Communications Director at Bitstamp and the co-host of the podcast “Good Girls Talk About Money”. You can find her podcast on Apple Podcasts and Spotify.