Balancing Crypto FOMO & Financial Wisdom

There has been quite a lot of buzz around crypto, and headlines like?“FOMO as Bitcoin price surges past $100,000: Is it too late to invest in cryptocurrency?”?have left many feeling like they’ve “missed the boat.” I’ve had multiple clients reach out recently asking whether they should jump into crypto now, so I thought I would shed some light on this, not just as an investment but through the lens of behavioral finance (BeFi).

First of all, FOMO is real, and it’s powerful. It can push us into making emotional decisions instead of strategic ones. It’s totally normal to feel some regret when you look at Bitcoin’s past performance. But here’s some perspective, according to the Pew Research Center, only 17% of Americans have ever invested in or used crypto. So, most people haven’t jumped into this so-called boat yet; 46% of those investors reported outcomes that fell short of their expectations, hardly the wealth-building magic it might seem like on social media.

I don’t want to be all ‘bah-humbug’ during this holiday season about crypto, but as a behavioral financial advisor, I find that investing in crypto and its volatility doesn’t lend itself well to human tendencies or the principles of successful long-term investing.

Right now, with so much buzz, everyone wants to get in. But if you’re buying now, you could be jumping in at a market high, and buying high is a common mistake driven by emotions.

Second, time in the market beats timing the market. While Bitcoin has shown growth over the long term, its wild swings (remember when it dropped over 75% during the 2018 crash) along the way are tough for most investors to stomach, leading to selling low, another common investor mistake driven by emotions.

And although Bitcoin has demonstrated positive long-term growth, individual investor experiences often differ. Research shows that many people found crypto didn’t perform as well as they had expected.

So, should you invest in crypto? My answer? Invest in crypto as much as you would if you were going to Vegas. In other words, treat it like a high-risk, speculative play. ?

But why do people want to invest in crypto? People will say it’s for a desire for higher returns, portfolio diversification, or hedging against inflation as reasons, but these are often logical explanations for emotional reactions fueled by headlines, influences from peers, and fear of missing out. At the end of the day, what we are all seeking is the most efficient path to becoming financially independent. I’ve never heard anyone say they are looking for the most heart-pounding, adrenaline-fueled path to their financial independence! The problem with this is that along the way, we make decisions with the goal of creating stability and independence through decisions that can compromise this and take it away.

I am not saying there isn’t any room for crypto in one’s portfolio, but there should be a few foundational elements that should be in place before considering it:

1.??????? Do you have a solid financial plan? Crypto shouldn’t be your financial magic bullet. The use of any investment strategy or financial product should align with your overall financial goal and amplify your plan – not throw it off balance.

2.??????? Do you have healthy cash reserves for a rainy day? Before taking on speculative investments, please make sure you have the basics covered, like manageable debt, an emergency fund, and a cushion for unexpected expenses.

3.??????? Do you have time on your side? Crypto’s volatility could make it unsuitable for those nearing retirement or with significant short-term financial goals, like paying for college or buying a home.

If you’re really set on carving out a part of your portfolio for crypto, it should be a small percentage, small enough that if you lose it all, it doesn’t derail your long-term goals. And if it does well, then great—you’ll have benefited without taking on unnecessary risk.

Last but not least, I think the most important lesson is that regardless of the choice you make, it’s important to think about risk vs. regret. If you decide not to invest and crypto skyrockets, you have to remind yourself that the decision not to invest was made thoughtfully, not emotionally.

On the flip side, if you do invest and it does well, it’s important not to feel pride. Why? Because success in speculative markets often comes down to timing and luck, not just strategy. Real pride should come from sticking to your plan, tuning out distractions, and making solid decisions.

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