With Bitcoin again touching all-time highs and a pro-crypto government about to take over the helm in the USA, investor interest in crypto assets is likely to spike in 2025. Hence, the timing seems apt to highlight some key considerations before investing in them.
An important thing to understand is that the crypto space is not a "get rich quick scheme". The survivorship bias highlights just a tiny sliver of investors who have made huge profits. Therefore, every cycle had its share of new investors who FOMO in at the highs and panic sell at the lows. This is an extremely volatile asset class with exhilarating 'God Candles' but also doubly gut-wrenching drops.
My key message is that investors should invest as per their conviction, risk appetite and time horizon.
- Manage your exposure - New investors should consider how much they can afford to lose. An interesting formula that resonated with me was to invest double of what you would typically spend on a holiday. In a really bad scenario, with a 50% drop, you lose out on a holiday. But the upside could be multiple holidays.
- Avoid leverage - Avoid investing through debt. Also avoid margin trading and options. This is an incredibly volatile asset and might wipe you out in no time.
- Time Horizon - Buy and hold for the long term. For example, there is no 5-year period in the history of Bitcoin where investors have lost money. Normally volatile assets are seen to be perfect for short term trading but doing so with crypto is very hard. As the adage goes, the best investors are dead investors, and this could not be truer in the digital asset space.
- Avoid Trading - This is in continuation to the previous point. Unless you are really a pro trader, try to avoid it in crypto assets.
- Tax / Compliance - Please ensure that you are compliant with crypto tax and disclosure requirements.
- Registered Exchanges - Invest directly through registered exchanges that require KYC. There is absolutely no need to use third party funds or whatsapp groups.
- Self-custody - Cryptol assets are actually one of the very few assets that can be held in self-custody. Crypto assets can be transferred out of exchanges into any crypto wallet. Exchanges in India are not really regulated and hence, could be prone to cyberattacks (e.g. Wazir X).
- Portfolio makeup - Investors might be better off not buying into that latest dog coin that their local panwalla recommended. But if you have to satisfy that itch, do so with 5%-10% of your portfolio. Invest rest in 'blue chip' crypto assets
- Education - Lastly and most importantly, put in the effort to learn about this space. It has been the most intellectually stimulating journey of my life, and I feel I haven't even scratched the surface. Also, conviction would follow knowledge, and you need plenty of that to HODL during the downturn.
Disclaimer - These are my personal views and do not represent the views of my employer(s), present or past. Also, this is for information only and should not be considered as investment advice.
