What Two Volatile Years of Crypto Taught Me About Investing

You either love crypto, hate it, or haven’t climbed down the rabbit hole.

I dove into the crypto world in early 2021, buying my first chunk of Ethereum and Bitcoin, the two “blue chip” tokens if you will. Immediately, I became obsessed. Crypto markets moved so quickly that the portfolio tracker was like playing a game. The promise of getting rich with a single upward spike felt like it could happen any day.

I wonder what the price is now.

Am I rich yet?

How about now?

Oh, no. It’s down 10%.

Just kidding, it’s back up again.

As I reflect on my few years of being invested in the space, I don’t view it as being for nothing, although I did lose a small bit of money.

Lessons from Two Years of Buying Crypto

We’re not great at learning from history or from other people’s advice.  Most of us ignore others’ warnings, thinking “that will never happen to me” or “I’m smarter than that.”

When we invest in stocks, bonds, real estate, crypto, or whatever, we tend to think we know what’s best, ignoring the lessons from history about speculation, leverage, hyperactive trading, and so on. Unfortunately, it seems that the best way to learn how to invest is to experience being invested through good and through bad. Books, interviews, and other resources are helpful, but most people need to learn from experience and their own mistakes.

To me, crypto acted as an accelerated training program. The markets are hyper-volatile, moving up and down with a vigor that many equity investors aren’t familiar with. Or, that they only became familiar with after several decades and market cycles. 

Due to this hyper-volatility, crypto investors, who tend to be younger, are learning the brutal lessons of market cycles much earlier and much faster. With just a few years under your belt, you become an industry veteran. You’ve likely seen huge scams, bull runs, new tokens, and gone way up and down in value and emotion a large handful of times. After a few years in crypto, you’re no longer a “first-cycler,” as they call it.

I made it out of crypto without losing all my money, though I did lose a portion, and with several key lessons. Without those two years of crypto investing, it may have taken me a decade or more to learn what I’m about to share.

Falling in love with your investments is dangerous.

I’m sure it’s possible to invest in something you’re that passionate about without behaving like a total lunatic. But for me, that passion blinded me to the erratic, irresponsible financial behavior I fell into. I even turned my 401K contributions off briefly so I could buy more crypto. Big yikes.

Checking your portfolio too regularly is bad for your quality of life.

I will never forget the first time my crypto holdings dropped 20% in a few hours. Laying in bed, I watched as the tickers dropped lower and lower. There went a large chunk of my portfolio’s value. I checked Twitter and saw everyone saying that this was “the end.”

This sort of behavior is unhinged, really. I look back and think about how much more enjoyable my evening would have been had I played a game of Wordle, watched some TV before bed, read a book, and talked to my girlfriend about her day. Alas.

Actively, or hyper-actively, managing your portfolio tends to produce suboptimal results.

What’s worse than just making myself miserable? I didn’t just sit there and look at my phone. I thought I needed to act. Surely I knew how to fix this! What a dumbass.

“Just one second. I need to do something,” I told my girlfriend, racing to my computer to make some meaningless adjustments to my crypto portfolio. The hilarious part is that every time I did something like that, maybe 3 or 4 times, it was the wrong decision. Who-da-thunk? Making snap decisions with your investments tends to be a losing move. Shocking, I know.

Prices will not be this good or this bad forever.

Investing in something because the number goes up is a bad reason to invest.

One of the many rules of investing is that you should always know what you own and why you own it. For most people however, the reason that they own something is because the price went up and their friend told them about it or they saw it on the news. Now they want to buy it too, despite not understanding the underlying value.

That’s basically why I bought cryptocurrency, despite having a basic understanding and being able to repeat a few of the common mantras. The main problem with buying something because the price went up is that you’re likely to sell it when the price goes down. Without conviction to hold that investment, which comes from a deeper understanding of why it’s worth buying in the first place, you’re likely to just lock in losses (like I did).

Where I Landed on Crypto

Will crypto revolutionize the financial world? Maybe. Maybe not. 

There’s a lot of cleaning up to do, and most retail investors and participants are not cut out for that world. The onboarding experience can be tricky. Most people don’t understand what they’re buying or why. Regulators are still trying to make sense of it, often jumping in where it doesn’t make sense at the exclusion of missing catastrophic blowups like FTX.

If you want to buy and hold some crypto, go for it. But remember, you may lose everything, get scammed, or behave like a crazy person if you fall victim to the constant portfolio checking that I did. My advice, for whatever it’s worth, is to tread lightly.