Many crypto participants are gamblers and speculators and not investors. What’s the difference? A gambler is looking for quick profits regardless of how the money is made, often taking great risks and experiencing even bigger losses in the hope that one of their gambles makes big money. An investor by contrast, exercises good-judgement regarding their investments and how they manage their risks. While gamblers may become wealthy on rare occasions, 9-times-out-of-10 the investor will make more money in the long run.
One report cited that approximately 78% of crypto traders lose money. Why is this so? Because most crypto traders are in fact gamblers and speculators and not genuine crypto investors. The goal of this essay is the help new entrants into the crypto markets to become wise investors, and to help those who have experience to transform themselves from gamblers and speculators, into investors and entrepreneurs.
How can you become a crypto investor instead of a crypto gambler? Here are a few basic guidelines.
- Select good assets – The biggest mistake that new crypto investors make is to throw their money into flashy or seemingly popular tokens. Many of these tokens are outright scams, designed by the developers to survive long enough for them to sell their secret storage of tokens, and then the project is left to die. What constitutes a “good asset”? The best long-term money-making opportunities are generated by coins and tokens that have a clear and monetizable underlying value proposition, that “adds value” to the market. In other words, tokens that will experience the most price appreciation in the future, are those associated with firms and projects that provide a solution to a real-world problem.
- Learn how to HODL – many new investors want instant profits, and have an investment horizon of about 5 minutes. If the token or coin does not appreciate in price immediately, they sell. Again, this is the mentality of gamblers and not investors. An investor selects a good asset, does their research, and then HODLs – which means “hold on for dear life”. The crypto market is highly volatile, at the best of times, but long-term investors are not fooled by randomness. They hold until the firm that issued the token or coin develops and releases its product, which may take one to two years. None of the major coins that dominate the market became successes overnight, so learn patience and perseverance, and develop an investment horizon that is defined by many months and many years, instead of a few minutes or hours.
- Don’t Panic – Emotional control is the key to achieving crypto wealth. When I first entered crypto, I bought good assets, but would panic sell every time the price depreciated by 10-30%, only to see the market recover hours after I sold. I had experienced panic selling a dozen times before I learned to control my emotions. Again, I am only talking about quality tokens and assets. Junk tokens can crash at any moment and will often never recover, but the top tier tokens and coins almost always recover, precisely because they have the potential of adding real value to the market. Once you invest in good assets, one of the hardest lessons to learn is emotional control. However, if you can control your emotions and feelings of panic during a market contraction, you will be on your way to becoming a successful investor.
- Learn how to Manage Risks – Most investors have no idea how to systematically manage risk. Risk management implies that an investor will distribute their money among many quality assets, instead of putting all their eggs in one basket. Both academic research as well as real-world experience suggest that the best way to minimize risk is to distribute our capital among several high-quality assets, no matter how tempting it is to invest all our money into the current market favorite. Today’s market favorite could easily be replaced by another token or coin, once new information is revealed to the market.
- Learn how to take profits – Part of effective risk management is to take profits when a token or coin is experiencing a pronounced period of price appreciation. This is also hard to do, because investors are naturally greedy, and if they see 500% appreciation in the price of their token, they hope for 1,000% or 10,000% price appreciation, which almost never comes to pass. If you are wise enough to invest in a token or coin experiencing pronounced price appreciation, at least cash out your original investment, so everything you gain after that is excess profits. If you can learn do take profits, you will accumulate wealth at a higher rate than others who never learn this important lesson.
If you can master the 5 principles outlined above, you will be well on your way to becoming an experienced crypto investor, and you will avoid the calamities that await most crypto gamblers.