Don't invest recklessly

https://www.reddit.com/r/Bitcoin/comments/7gi55s/dont_invest_recklessly/

created by theymos on 30/11/2017 at 00:25 UTC

13887 upvotes, 167 top-level comments (showing 25)

I posted about this just a few months ago[1], but I feel that it's necessary to repeat. The Bitcoin price is on an unbelievably ridiculous upswing which is rather likely to be a bubble. If you're trying to get rich quick by dumping your retirement funds into BTC at $10k, then your "investment strategy" is not much better than someone betting everything on a game of roulette. High-risk-high-reward investing is not *necessarily* bad, but you have to seriously look at your thought process to make sure that you're not:

1: https://www.reddit.com/r/Bitcoin/comments/6jrl5o/unrealistic_volatility_expectations/

Being blinded by dreams of getting rich quickly, similarly to people who dump money on very-negative-EV lottery tickets.
Getting wrapped up in "HODL" memes, reddit comments, and other groupthink, which is sometimes fun, **but absolutely the last appropriate source of investment advice**.
Acting based on panic thinking like, "OMG the price is going to $1 million and I will *miss my chance forever* if I don't buy *right now*" or "OMG the price is going to $0.01 and I will *miss my chance forever* to retain some value if I don't sell *right now*".
Investing more than you can afford to lose. **Bitcoin is HIGHLY, HIGHLY speculative**. No investment advisor would tell you to put all of your life savings into MSFT or whatever, and MSFT has a market cap 4x larger than Bitcoin. Although I *believe* that it is very unlikely, there are several ways in which the value could drop precipitously, even to zero. For example, there is *no mathematical proof* that the cryptographic algorithms used in Bitcoin are actually secure -- they are merely *believed* to be secure because nobody has been able to break them after many years of intense scrutiny. (I'm not here recommending "diversifying" into altcoins -- altcoins are almost all complete trash, and price-wise they follow BTC but with even more volatility, so they're not really useful for diversification.)

It is entirely possible that the massive price increase of the last year is based on lasting fundamentals. In addition to things like the fairly recent subsidy halving, the defeat of B2X, etc., the world fiat-based economy is in many ways on very shaky ground, and getting worse all the time. There are many good reasons why BTC should have a larger market cap than every fiat currency combined. It's even possible that the price will increase quite a bit more from now. But for goodness sake, don't think that Bitcoin is the first-ever infinite-money generator that will continue to rise exponentially forever (in real terms). I can nearly guarantee that **there will be a large and long-lasting crash/downturn at some point**. Maybe it will be $10k to $5k, maybe it will be $50k to $30k, who knows. But if you're thinking for example that the current $5k+ price range is *absolutely secure* after only existing for a few months, then you're traveling blind through very dangerous territory.

Some points to consider:

Buying near the ATH is very risky, and while it *can* be correct/profitable, it puts you on the wrong footing. You need to buy *low* and sell *high* to make money.
On 2013-11-29 (exactly 4 years ago) the peak ATH hit $1163, and then fell to $152 by 2015-01-13. That's a drop of 86.9%. Imagine this happens again: The price drops sharply to $2000 or something and then just continuously decreases down to a low of $1,432 (an 86.9% reduction from today's ATH) over the course of a *whole year*. I'm not saying that this *will* happen, but it's happened once and it *can* happen again. **Could you survive this?**
Bitcoin is experimental, and it is probably imprudent for someone who is not a true believer in the *soul* of Bitcoin to invest a lot into it. For example, I personally wouldn't invest more than a few percent of my total assets into ETH even if I felt very confident that it would rise in price because I simply don't believe in its philosophy or long-term value.
To reduce risk, it is frequently recommended to allocate assets by percentage, and rebalance upon large price movements. Eg. If you previously decided that you want to allocate 50% of your wealth in BTC (because you are a super big true believer), but BTC is now 90% of your wealth because the price increased so much, it may generally be advisable to start selling to rebalance your BTC allocation back down to 50%. I'm not saying that it is always absolutely wrong to have 90% of your assets in BTC or whatever, but it should be because you are intentionally *choosing* to do so, not because the price got away from you and you never really considered that you now have 90% of your wealth riding on one thing.
Avoid panic buys and panic sells. Dollar-cost-averaging over a long period of time is often a good strategy.
Nothing rises in real value to infinity. That's impossible. It is possible that 1 BTC could someday be worth infinite *dollars*, but that just means that dollars are worthless in that hypothetical scenario. BTC probably does have plenty of room to grow in real value before it completely takes over the world, but keep in mind that there *is* a ceiling.
If BTC were to reach values like $100k-$250k, that'd probably cause/imply that the prevailing economic regime has completely fallen apart. At some point in that price area, people around the world would probably lose substantial faith in fiat currencies. A good result, but ask yourself: do you expect the prevailing economic regime to *go down easily*?

I'm not telling you to buy or sell, and I'm not giving financial advice here. I'm just urging everyone to think rationally, not emotionally or recklessly.

Comments

Comment by Mateo113 at 30/11/2017 at 01:07 UTC

4453 upvotes, 4 direct replies

This is the type of stuff about bitcoin that I want to read. Smart guy, great post.

Comment by [deleted] at 30/11/2017 at 00:39 UTC

426 upvotes, 3 direct replies

Invest only what you can lose. It's as speculative as it is spectacular and not for the faint of heart.

Comment by mynt at 30/11/2017 at 01:52 UTC

860 upvotes, 7 direct replies

All good advice and very carefully framed. My one nitpick is that I think that $100k-$250k would not imply that fiat is becoming worthless or the prevailing economic regime has completely fallen apart. That's only a ~2 Trillion Market Cap still far less than gold and the rise of gold certainly hasn't made fiat worthless. I think you would be talking a price of well over $1M before you are really seeing any real loss of trust in fiat having an impact of the exchange rate.

Comment by banana_clipz at 30/11/2017 at 04:00 UTC

146 upvotes, 0 direct replies

This is what I want to see on here- well written, intelligent ideas. Memes can be fun, but it gets old and annoying when I thought this sub was going to be a place to come for information and conversation. Keep it up please! We need newcomers to see conversations like this so it doesn't turn them away

Comment by nimmajjishaaTa at 30/11/2017 at 03:29 UTC

146 upvotes, 3 direct replies

Avoid panic buys and panic sells. Dollar-cost-averaging over a long period of time is often a good strategy.

This shit is extremely underrated.

Comment by [deleted] at 30/11/2017 at 01:21 UTC

241 upvotes, 6 direct replies

[deleted]

Comment by SpartanVFL at 30/11/2017 at 05:35 UTC

80 upvotes, 5 direct replies

It's easy to invest in bitcoin without risk if you balance your spending elsewhere. I've cut back on spending for new games, eating out, etc and instead use that money to buy bitcoin. Even if it tanked to $0 I wouldn't be screwed, just missed out on some nicer things for a few years

Comment by [deleted] at 30/11/2017 at 02:06 UTC

154 upvotes, 5 direct replies

But McAfee said a million by 2020!

Comment by rayuki at 30/11/2017 at 01:57 UTC

451 upvotes, 7 direct replies

I'm of the mind of not 'getting rich quickly' more 'be in the 1% with the new global currency in 5-10 years time' or go back to living a boring meaningless existence of 9-5. At the point of my life I don't care if it drops to 0, but if it goes to some crazy number I'll be in the stratosphere with it.

Comment by [deleted] at 30/11/2017 at 03:18 UTC*

562 upvotes, 4 direct replies

[deleted]

Comment by [deleted] at 30/11/2017 at 01:57 UTC*

88 upvotes, 1 direct replies

[deleted]

Comment by BashCo at 30/11/2017 at 19:34 UTC*

1 upvotes, 4 direct replies

The /r/Bitcoin FAQ thread has been temporarily relocated to the sidebar in order to sticky this post regarding financial prudence. The FAQ thread is a very good resource for Bitcoin newcomers, and can be found here:

###/r/Bitcoin FAQ - Newcomers please read

edit: This thread is now linked in the sidebar and the Newcomer FAQ sticky has been restored.

Comment by [deleted] at 30/11/2017 at 04:08 UTC

39 upvotes, 1 direct replies

tl;dr: Bitcoin got to an all time high once. THEN IT CRASHED.

Comment by nullc at 30/11/2017 at 12:18 UTC*

76 upvotes, 1 direct replies

A key point I like to make is that if you over extend yourself you will be a bad investor.

A good investor is calculated and unemotional. A good investor has a plan and executes on it, revises it with reliable new information, but otherwise stays the course.

A bad investor is irrational and emotional. They get worked up and constantly second guess themselves; they get worked up by crowds. They freak out at rapid increases and buy high, they freak out at rapid decreases and sell low.

Accidentally leaving my brokerage keyfob at home has resulted in some of the better trading "decisions" that I've made.

For most people, if they over-extend themselves, they will behave more like a bad investor even if they know better... if you've made an investment you can't afford to lose, you're much more likely to lose part of it in a panic effort to prevent losing all of it.

It can be easy and fun to visualize the million dollar Bitcoin and the private space elevator you're going to finance with your new found wealth... but you should be equally mentally and emotionally prepared for movement in the other direction. If you aren't, you're going to do something different than what your own dispassionate analysis would tell you to do.

Probably the hardest thing about this is that the fears that drive bad trades are not completely ill-founded. It's *possible* that if the market is now at price $x that this will be the last opportunity to trade (in either the buy or sell direction) at that price in your lifetime. But given the volatility of Bitcoin, "seldom again prices" are pretty rare, and happen in both directions-- so while it's possible to miss out, but you shouldn't let that drive your decision making. People tend to think only about the option they're considering and forget that for every trade someone else is taking the opposite position.

Another thing to keep in mind is that trading itself involves fees, which are incrementally small but add up. You can make every decision correctly but still lose a lot of funds if you trade frequently. It's not enough for a trade to be right, it has to be right enough to overcome its overheads (e.g. spread and fees). You can improve your odds both of not wasting funds in fees and of making poorly considered emotional decisions by behaving more passively.

Comment by [deleted] at 30/11/2017 at 07:21 UTC

31 upvotes, 2 direct replies

It is better to have loved and lost, than to never have loved at all.

Similarly, it is better to have invested WHAT YOU CAN AFFORD TO LOSE and lost, than to never have invested at all.

The prevailing introspective question on anybody's death bed is always - What if? WHAT IF? What if I had bought at $1000. What if I had bought at 10,000? WHAT IF!?

Don't let this be you. If it is within your means, JUST DO IT.

Comment by PizzaHuttDelivery at 30/11/2017 at 07:08 UTC

62 upvotes, 2 direct replies

Don’t use the word **investment** when you are essentially talking about **speculation**. Buying Bitcoin is not a investment.

Comment by nonsensebearer at 30/11/2017 at 00:46 UTC

27 upvotes, 2 direct replies

The percentage rebalancing point is an interesting and wise one that isn't mentioned here very often.

We all talk about dollar cost averaging to mitigate risk and reduce stress but being conservative with enormous gains seems to me equally prudent.

Comment by [deleted] at 30/11/2017 at 04:55 UTC

28 upvotes, 1 direct replies

If BTC were to reach values like $100k-$250k, that'd probably cause/imply that the prevailing economic regime has completely fallen apart.

Or it could simply mean a lot more people have bought.

Comment by user_127 at 30/11/2017 at 07:10 UTC

26 upvotes, 1 direct replies

this is sage advice (reverse mortgages house to invest more in bitcoin)

Comment by deadwavelength at 30/11/2017 at 00:30 UTC

101 upvotes, 0 direct replies

Great advice.

Comment by joebobagginses at 06/12/2017 at 22:54 UTC

21 upvotes, 1 direct replies

The blind optimism of this sub is very entertaining.

Comment by mugen_is_here at 30/11/2017 at 07:38 UTC*

19 upvotes, 3 direct replies

Bitcoins have been increasing like crazy year over year. There is nothing specific in this post as to why not to invest. As long as you're investing for the long term you're good.

This post just compels you to worry over it. It's like saying "invest.. but wait you should not invest because it's not safe.. but invest.. but wait it's not safe". Worrying over your investment isn't going to make it better. In fact it's more likely to get you to make worse decisions. If you invest some money in it then do it for the long term. Put the money into it and then don't worry about the weekly fluctuations. And just like you invest in the stock market you should invest a little amount. Don't invest everything you got into this. Just like any other investment that involves risks.

Comment by [deleted] at 07/12/2017 at 05:22 UTC

16 upvotes, 2 direct replies

[deleted]

Comment by charleybinet at 30/11/2017 at 00:44 UTC

157 upvotes, 5 direct replies

I just sold my last pair of boxer for btc. All my assets are in BTC and I plan living in my car untill it reaches 500k.. To the moon $$$

Comment by quittingislegitimate at 30/11/2017 at 02:22 UTC

48 upvotes, 2 direct replies

I like the 50% rule. I sold some bitcoin at 10k to reduce my bitcoin dominant portfolio and doing cartwheels with what I have gained. This should indicate how poor I am, but I felt like I won a small lottery or the price is right.

I'm as optimistic as anyone here, but greed is all consuming and will cloud your judgment. If you see the opportunity to cash out with major gains, take it and don't look back or count the money lost, only the money gained that you really didn't earn.

Also quick side note: which alts are you in on?