3 Cautious Lessons About Business You Can Learn From Cryptocurrency Hype

von Andrew McGuinness     Sep. 04, 2019

December 2017 was a defining moment in the history of Bitcoin and cryptocurrency – for some early investors, this month made them millionaires and for others, this month took it all away from them. At one point bitcoin was worth almost $20,000 – a gigantic peak that no one had thought it would ever reach when the technology was first introduced some years ago.

However, there are many Trading 101 lessons to be learned here 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 dropped down to barely $7000 two months later – and many investors lost a good deal of money from that.

Let’s break down 3 lessons in Trading 101: 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 of research 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 you could be putting your money. Unless you have an opportunity to invest in something new at an early stage, you might just end up as one of many to lose money.

2) Understand how much you’re willing to lose.

Investing is always a risk and something like Bitcoin is twice that. It’s a hard question to ask oneself and requires one to strip away all ego and pride: 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 or their capital might 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– 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. This literally bankrupted some people. You can easily find horror stories online of some investors taking out several credit cards only to max them out on bitcoin purchases. As a smart investor, you need to take the time to assess. If you dive head in, you need to apply the previous two lessons – only dive in with a clearly defined loss limit and play for the long term if you can.

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