What kinds of opportunities in crypto are waiting for the right kind of investor? There are multiple ways to benefit from a growing industry of any kind, but the wild west of cryptocurrency makes some of the opportunities look a bit like the old west’s gold rush–what happens for the rest of us once the speculators and prospectors have moved in and set up camp?
At press time there are still plenty of ways to consider moving in on the crypto craze while being mindful of the basic risks that wait for the unsuspecting investor.
Some Basic Advice
And we mean “basic” in the slang sense–every crypto blog out there talks about “buying the dip” which is basically what happens when an investor commits to purchasing Bitcoin or any other virtual currency when that currency is in a state of declining value. Buying the dip is a mantra among some Bitcoin loyalists, who can start to sound a bit over-dedicated to Bitcoin specifically.
And that is some better-than-basic advice about crypto opportunities–do NOT be a loyalist to any coin or virtual currency.
If the currency starts performing in ways you don’t like, follow your exit strategy and never mind about people who cling tenaciously to a single investment as though they had joined a cult. You got into investing to earn money, not throw it away in the digital equivalent of a racetrack bet.
And we’ll end our basic advice here–ALWAYS invest with an exit strategy whether it’s crypto, stocks, bonds, etc. For less risky investments your exit strategy just might be waiting out the bond’s maturity date, or simply choosing to buy and hold a stock until it improves. That sort of thing does not work for all investment types—a big, stable stock? Yes. A volatile investment like Bitcoin?
No. Do not buy and hold digital currency on an indefinite basis. Some crypto advice columns recommend you try buying and holding crypto as a new-to-Bitcoin investor until you learn the ropes–and that is not bad advice. But as you learn how to invest in digital currency you won’t want to keep on with buy-and-hold.
Opportunities To Invest In Crypto Without Buying Crypto
One way to get in on the Bitcoin craze is to invest money in companies that are investing in cryptocurrency. You’re buying stock in a publicly traded platform or exchange instead of buying crypto itself.
One good example: On July 28, 2021, the cryptocurrency exchange Robinhood had an Initial Public Offering (IPO) selling stock for just under $40 per share. Robinhood debuted on the New York Stock Exchange raising some two billion dollars according to Investopedia. More than 50 million shares of Robinhood stock have been sold and Robinhood itself has been valued at well over $30 billion.
Buying stock in such a company is a safer investment than buying virtual currencies themselves, but the risks seem obvious to anyone with a few moments of investment training–if cryptocurrencies that Robinhood is vested in wind up tanking, the company’s shares will likely lose value along the way.
But it may be easier for some new investors to set stop-loss measures and implement exit strategies than if they were dealing with the coins themselves. And that’s a powerful motivation for some to invest in companies that invest in crypto rather than the currencies themselves.
Some don’t want to play the market. They would rather become cryptocurrency miners and use software and hardware to “mine” their currencies. This requires startup funds as the hardware used to process the calculations you must solve to earn coins can require some cash. Does it sound too expensive for you?
Some people have taken to creating mining “pools” where individual investors come together to share the costs of the mining equipment, software, energy costs, etc.
Mining pools reduce your upfront costs, but the size of your pool may determine whether or not you can offset those costs once the profits have been divided over the entire team.
When Crypto Isn’t Really Crypto
One of the big complaints about Bitcoin, Binance, Ethereum, etc. is that these highly speculative opportunities don’t have any real-world value and therefore are subject to the whims of the market more than traditional stocks and bonds.
But what if you invested in something that is traded like Bitcoin, but DOES have backing by fiat currency, AKA real money? These are sometimes referred to generically as “altcoins” but among Bitcoin loyalists, that term usually refers to any virtual currency that is NOT Bitcoin.
“Stablecoin” is a more accurate term and the price variations for them are more limited than Bitcoin since stablecoins are backed by either real-world commodities, cash or anything else that has actual value and is not simply shored up by investor enthusiasm.
Some, especially Bitcoin maximalists, scoff at altcoins and stablecoins. But to more serious investors such brand loyalty sounds a bit culty and not sound investment strategy. Those who seek stablecoins as a less-risky alternative do so (ideally) with pragmatic thinking and not the adrenaline rush of excitement that can come when watching a volatile investment climbing in value.
Some investors view trading virtual currency like a day at the racetrack–you can bet on your favorite horse, but if you go to the track and can’t afford to lose, it’s better to watch and not to invest.
What Not To Do With Crypto Opportunities
No matter which options you choose for your investment dollars, there are three things you should never do–this applies to both crypto and investing in general.
Never Give In to Emotion
FOMO, or Fear Of Missing Out, is a common issue among crypto traders. This emotional state is used to manipulate vulnerable investors into making decisions that could hurt them later on–sometimes it’s used as part of a scam, other times as part of bad investment advice that simply isn’t sustainable over the long term. You’ve heard of “HODL”, the crypto slang that is basically a misspelling of the word “hold”.
Hodl is a practice encouraged by Bitcoin loyalists–some of whom interpret “HODL” as “hold on for dear life”. And that is NOT a sound investment strategy for commodities or virtual currencies.
Now your interpretation of buy and hold might be different than some others–you may find some choosing to hold crypto for six months to a year before divesting. But regardless of your time frame, having an exit strategy (as mentioned above) is key to surviving the volatility of crypto.
Never Allow Someone Else To Talk You Into Investing
Crypto is not an easy landscape to navigate–there are pump-and-dump schemes, scammers who want you to think you’re investing in a legit opportunity that is really vapor, and other pitfalls along the way.
The common factor in any shady business dealings? Eventually, it comes down to an appeal to greed, panic, and the “time is running out” factor. Don’t give in to anyone pressuring you to invest your money–smart investors know that time is needed to learn the ropes and should not press you to make quick and uninformed decisions based on a so-called sure thing.
Never Invest Money You Cannot Afford To Lose
And that means two basic things–if you cannot afford to lose any portion of your investment funds, you DO NOT want to invest in cryptocurrency. You want to invest in safe-haven things like Treasuries, stable stocks, etc. If you have some leeway to experiment with your investment funds and can afford a loss, crypto is a better place but not ideal.
Those who have a decent amount of money to invest in crypto that is set aside assuming a loss will likely fare better than those who have literally more to lose than just the funds themselves. Remember, it’s possible to get into even higher-risk investment situations with crypto such as margin trading where borrowing more money could mean you don’t just lose the initial investment but also the money that you borrowed to keep on trading.
Being “in the hole” with an exchange over a margin call can be a serious thing indeed. If you need this concept explained to you when reading it here you are likely not yet a good candidate to invest in crypto. If you know the dangers of margin trading–and respect them–you could be ready to start investing funds.
Joe Wallace has covered real estate and financial topics, including crypto and NFTs since 1995. His work has appeared on Veteran.com, The Pentagon Channel, ABC and many print and online publications. Joe is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.