Dear Happy Investor, as long-term investors we need to control our emotions and look at the facts. Every type of investment has advantages and disadvantages. For example, investing in crypto has the great advantage of high volatility. This can lead to unprecedented returns in the short term, as well as unprecedented losses. If you ask me, here are 5 reasons why not invest in crypto.
Do you have any questions and/or comments? Feel free to ask them in a comment at the bottom of this article. Learning together is more fun 😊.
Let’s get started!
Table of Contents:
- You don’t want to invest in crypto because you don’t want to speculate
- You don’t want to invest in crypto because you can’t stand the price fluctuations
- You don’t want to invest in crypto because you don’t want to take a lot of risks
- You don’t want to invest in crypto because there are many fake coins
- You don’t want to invest in crypto because there are safer alternatives that offer more reliable returns
Investing your own savings is a serious matter with real risks of losing money. Investing you do because you want to build wealth. And that requires returns. An intelligent investor, therefore, opts for investments that offer a high chance of positive returns.
It is and remains a probability calculation. For me, investing is about increasing that probability. You do that by acquiring knowledge and experience. The knowledge component, in particular, can be strongly influenced. There are ways to increase your chances of winning, simply by acquiring a lot of knowledge. Think not only of reading books and articles, but also by conducting research and analysis on shares, real estate (funds), et cetera.
The principle is very simple: the more certain you are that an investment will rise, the higher your chances of return.
Cryptocurrencies pose a big problem in this regard. You cannot actually estimate whether a cryptocurrency is going to rise or fall. There are no financial ratios available that allow for fundamental analysis. This is because virtually all crypto-currencies offer no economic value (fortunately there are exceptions).
When you can’t actually estimate something, we call it speculating. In speculating, you expect an upward or downward trend. Although you can be successful at this, for example thanks to technical analysis and/or trading software, it is definitely riskier than investing based on facts.
You don’t want to invest in crypto because you don’t want to speculate.
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Investing in crypto is spectacular to say the least. When I purchased my first crypto coins just before the peak of 2018, it was a true roller coaster. We experienced that same roller coaster during the recent peak in 2021. On some days, the returns increased by as much as +20% in one day! That’s a huge thrill…
Unfortunately, the reverse is also true. As soon as the bubble bursts, a panic wave ensues. Crypto investors sell their investments en masse. Before you know it, your portfolio is down -50%. This is one of the biggest dangers in crypto investing.
These are huge price fluctuations for which you need a strong stomach! Of course this also offers opportunities (buy low, sell high), but the reality is that most people can’t handle this. Especially when you start investing larger amounts, it can have a big impact on your emotional well-being.
And the question is whether at the end of the ride you get a higher return compared to more stable investments. After all, it’s all about the average annual return.
You don’t want to invest in crypto because you can’t stand the price fluctuations.
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The reason why many people invest in crypto is that the upside potential return is huge. You could just be the lucky one who buys a small, unknown coin that rises with +5000% returns. And not within five years, but within five weeks. In other words, investing in crypto can make you rich very quickly.
But a great upside potential often (but not always) means a great downside potential as well. There are now more than 10,400 crypto coins! When I was just starting out in 2017, there were only 2000. Today, you therefore have considerably less chance of a fluke. And the stronger the hype, the greater the chance of loss.
It works the same way with shares. There too, there are large peaks that result in large troughs. However, the essential difference is that shares are issued by real companies. Most companies make more profit in the long run, and therefore become larger. So in the long run, the stock price will show an upward trend justified by increasing profits. With cryptocurrencies, this “certainty” is not there, and therefore the risk is higher.
You don’t want to invest in crypto because you don’t want to take much risk.
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Dogecoin, PancakeSwap, SHIBA INU, and so on. Many crypto coins are fake. They are hot air. Some like Dogecoin come clean about that. Other cryptocurrencies pretend to be a “real” company. In reality, it’s a scam. They create a nice website, write “expensive” white papers and create beautiful visual images. Everything looks like it will make this coin the next breakthrough. And yes, who wants to miss that opportunity?
In reality, however, such a cryptocurrency can’t do anything at all. If you buy them, you have literally bought hot air.
You don’t want to invest in crypto because there are many fake coins.
5. You don’t want to invest in crypto because there are safer alternatives that offer more reliable returns
Getting rich quick, who doesn’t want that… Everyone dreams about it. And fair is fair, some of us have become rich very quickly thanks to crypto. However, this is only a very small population. The rest of us won’t get rich anytime soon. Instead, we will only run more risk. When prices rocket, our emotions take over. This is one of those biases in investing. It creates Fear of Missing Out, also known as FOMO. Consequently, you immediately step in with often more money than you would like to miss out on.
If you are lucky you are on time and can make nice returns. Now you just have to overcome the trap of greed 😉 .
If you’re unlucky you’ve gone in too high. The result is a bursting bubble and, *poof*, your money is gone.
Whether you’re going to invest in crypto or stocks, the principle works the same: those who get in early, before the masses, will be able to book high returns. The trick is to sell high when the masses (hype) have gotten in. Then you wait for the next big drop, and get back in when others are anxious.
With stocks, this works because profitable companies get bigger in the long run. With crypto, I don’t dare indicate that whether “buy the dip” works in the long run.
Why take the risk? After all, there are safer alternatives to crypto investing.
If you make -50% loss, you need +100% profit to break even again. That’s quite a return which can sometimes take years. It may be wiser to take less risk but make a positive return with more reliability. If you achieve an average annual return of +10% that is already excellent performance.
You don’t want to invest in crypto because there are safer alternatives that offer more reliable returns.