3 Cautious Lessons About Business You Can Learn From Cryptocurrency Hype

by Andrew McGuinness     Sep 04, 2019

December 2017 was a defining moment in the history of Bitcoin and cryptocurrency. It was during this time that some early investors became instant millionaires while some who gave into the hype too late lost hundreds, if not thousands of dollars. At one point, Bitcoin was worth almost $20,000 – a gigantic peak that no one thought was conceivable when the technology was first introduced in 2009.

There are many Trading 101 lessons to be learned from this as many got into the Bitcoin game too late, buying as much as they could while Bitcoin was worth $15,000 or more, expecting its value to double by January. Unfortunately, Bitcoin plummeted to barely $7,000 two months later and many investors lost a good deal of money from that.

Let’s break down 3 lessons in Trading 101 about staying cautious in the face of hype.

1) Always play for the long win

One of the most important lessons to learn from those who became millionaires from the Bitcoin boom were in it for the long-haul. They were early adopters of the technology and bought into it when Bitcoin was well below $1000 in valuation, some even going in as early as $30 per Bitcoin. Those were people who either decided to gamble a bit and just bought a safe amount of Bitcoin, or they were the type that researched the currency and its technology to understand its potential.

Most experienced investors will tell you be wary of Bitcoin and for good reason. Bitcoin’s volatile nature makes it a riskier investment than many other places or investments you could be putting your money in. Unless you have an opportunity to invest in something new at an early stage, you might just end up as one of the many who lost a large amount of money.

2) Understand how much you’re willing to lose

Investing is always a risk and something like Bitcoin is twice, or even more, that. You need to carefully think about how much are you willing to lose. When Bitcoin lost almost half its value in the span of two weeks, many investors wish they had jumped ship far earlier than they did which would have mitigated their losses; however, they were too optimistic that Bitcoin would bounce back.

With something like Bitcoin, it is recommended to take something of a day trader stance – draw clearly defined loss limits. In regular trading, as soon as a stock price tanks to a certain threshold, traders implement functions to automatically put those up for sale to ensure that their capital will not take a significant hit. The same thing can be advised for Bitcoin traders.

3) Never go all-in.

If you’re going to put all your eggs into one basket, you might be better off playing poker or blackjack because your chances of not getting wiped out entirely are actually higher as you’re playing with very well-defined variables and odds. With Bitcoin, you only have supply and demand to really consider. As soon as the hype died down, so did Bitcoin’s value.

People treated Bitcoin as the fastest and most obvious way to make a lot of money and it literally caused a lot of people to go bankrupt. You can easily find horror stories online of investors maxing out their credit cards to purchase Bitcoin, especially during the peak of its hype. A smart investor takes time to carefully assess the financial implications of investing in something. If you choose to make a cryptocurrency investment, you need to apply the previous two lessons – only dive in with a clearly defined loss limit and play for the long term as much as possible.

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