What should you consider when deciding whether to buy crypto?

24 June 2022

Question by Freddie

What should you consider when deciding whether to buy crypto? e.g. is it the same as for investing (when do you need the money, how much are you willing to risk), or do different rules apply?


Answered by Boring Money

Hi Freddie,

Thanks for your question. As many people have discovered investing in crypto is not an easy way to make money but it is easy to lose money.

Certainly, the same basic principles apply; how long you are prepared to invest and how much you are willing to risk but given the nature of investing extra considerations need to be taken. Cryptocurrencies are too new and unproven to take big bets on; I would only consider them as a small part of a portfolio that is broadly invested in traditional investment (primarily global stock markets and bonds).

As investing in any single company's shares can lead to permanent and irrecoverable losses, the same is true with crypto. There is nothing to say that Bitcoin, Ethereum or any of the other currencies can become worthless. Investing in the stock markets as a whole, however, is more reliable. While they can fall significantly in value over any single year (or two years) none of the major global stock markets completely collapsed and become worthless to investors.

Investing is essential for long-term above-inflation returns but crypto investing should be seen as a speculative punt in which you only invest (gamble) what you are prepared to lose. There is an aphorism in investing which is along the lines of "don't invest in anything that you can make a killing in because it might also kill you." Crytpo fits into this.

I have written more on my views and experiences of Crypto here: https://neliganfinancial.co.uk/should-i-invest-in-cryptocurrency/ and here: https://neliganfinancial.co.uk/i-bit-with-bitcoin-this-is-what-i-learnt/.

I hope this helps.

Andrew

Answered by

Boring Money