Last year I gave my 2 cryptos worth on whether I thought cryptocurrencies were a good investment (you can read that article here). Since then I bit the bullet (or should that be Bitcoin) and decided to ‘invest’.
First things first, this article is not an endorsement of cryptocurrencies and it does not constitute advice. It is an opportunity to share my experiences as I have watched the value of my ‘investment’ rise and fall (a lot).
The truth is I’d seen the hype and wanted a piece of the action. Yup, I had succumbed to the classic investing emotion of coveting the rewards of others!
The other thing to point out is that I haven’t gone all Elon Musk on this; it was a play amount that I was prepared to lose if it went spectacularly wrong.
On 10th August I dipped my toe in when Bitcoin was worth $45,714 and Ethereum was worth $3,165.
I decided to spread my bet by buying both Bitcoin and Ethereum. They are the two most well known and established cryptocurrencies so I felt it was better to go with them rather than some of the more esoteric offerings. It’s a good thing I didn’t go with Litecoin which is down 75% on the year as I type!
Early on I enjoyed an initial few months of growth but since November, they have both fallen in value by around 33%. I’m not concerned about this, like I said, I’m having a punt with money I don’t mind losing. Plus, it’s a long-term play.
But, what I’ve found interesting is my behaviour and reaction to it.
With my pension and ISA, I invest in index-style funds which have exposure to small, value, momentum and other ‘factors’ that contribute to market returns. Because I’m investing for the long-term in the broad markets I don’t find myself inclined to keep looking to see how the portfolios are performing. I know they will do what they will do; potentially fall in the short term as they are doing now but left alone they will grow.
When I’m in a position to retire the accrued funds will be the bedrock of my retirement income. Until that time it’s more of a ‘fire and forget’ strategy.
With my crypto investments though…
…I can’t help but keep watching. I don’t know whether it is the inherent volatility within them, the nascent nature of the asset class or the speculative nature of the investment, but I find myself checking every day to see how they are performing. Or underperforming.
It’s like playing roulette; I’m not going to place my chips then walk away when the croupier places the ball in the wheel, I need to know the outcome.
I know the global stock markets will grow over time because that is what they do. Over a century, World wars, banking crises, terrorist attacks and global pandemics have not put them asunder. But with cryptocurrencies, there isn’t enough history or significant events for them to be stress-tested sufficiently. For all we know they could become worthless; individually or collectively.
Buying The Dips?
I’ve also found myself succumbing to another classic investing behavioural mistake. That of not knowing when to buy more.
We tell ourselves that when markets fall we will buy the dips to benefit from higher gains when markets recover. That’s easy to say but in practice it comes with nuance. When is a dip a dip? Is today’s low price the bottom or will it fall further? If the market is going to fall further I should wait to buy at even lower prices. But we never know the low point until after the event. So, we put it off and then find the market has recovered and we’ve missed the sales.
Or, you do what I ended up doing. When the value of my original coins fell back to the starting price I bought more of both Bitcoin and Ethereum only to see them fall further. So now I’ve doubled down on my losses.
So what’s the point of me sharing my Cryptocurrency experiences with you?
The point is whether you are buying crypto, direct shares or just trying to time the markets, you might tell yourself that you will exhibit the right behaviours and trade with ruthless efficiency but in reality when we speculate our basal emotions get the better of us all.
I’m not planning to sell my holdings anytime soon, I might even buy some more “when the time is right”. However, for my serious money, I’m doing the right thing just letting the markets do what they will do confident that it is the surest way to financial freedom.