So you’ve heard from friends, family, and the media about this Bitcoin thing. You’ve listened to podcasts and decided you want to take the plunge and buy some. How much did you buy? Is now the right time? What if the price goes down? What if you panic sell into a drawdown? Today, let’s talk about how you can approach Bitcoin investing, managing risk, and managing the day-to-day price swings. Stick around to the end of the article, while I will share my approach to blocking out the hype around the Bitcoin price to focus on the ultimate goal of creating generational wealth. I’m Corey and I help you decode the technology and innovation around us to grow wealth on the journey to financial independence.
Bitcoin Is Internet Money
Bitcoin is the first permissionless digital currency with a limited supply of 21 million tokens. For my summary of what Bitcoin is and a comparison to a theorem, I’ll put a link at the end of the article. I’ve also included articles below in the show notes that I’ve previously written and we’ll provide additional resources if you really wanna go down the rabbit hole. I missed the boat because Bitcoin is too expensive.” Or, “I don’t have enough cash to buy a whole Bitcoin.” Let me explain a better way to think about Bitcoin and why I think we’re all still super early. In Bitcoin, Satoshi is the smallest unit of accounting. We don’t know, is it him, her, or a group, however, one whole Bitcoin equals 100 million satoshis, which are also called SATS for short. So you will hear people in the community talk about stacking SATS. The token and unit of account are analogous to the concept of 100 pennies equal to $1, just a smaller day-to-day unit of account like when you buy a pack of mints at the store or some other small item.
Bitcoin Satoshi Nakamoto
Why do I think it’s still so early in this major technological revolution? Well, in 2015, I was working with a colleague that was immersed in Bitcoin and its development and so during this time, I read the book called Digital Gold, which is really an interesting story about the early history and origins of Bitcoin. My key takeaways were that Bitcoin is a direct response to the great financial crisis and the financial bailouts of 2008, 2009. Additionally, Bitcoin was engineered to provide any person on earth the ability to store their wealth so that the purchasing power of Bitcoin would not be reduced or degraded over time, like a digital version of gold, hence the name of the book. Despite the day-to-day volatility, as a new technology, the goal is that Bitcoin would remain a constant value over the long term and the only change would really be the number of goods and services that you could trade for it. So it’s really a true store of wealth technology.
Bitcoin Stacking Sats
This explains why every single cross-section of society globally either loves, hates, or is skeptical of Bitcoin based on their own perspectives. Regardless of the perspective, we’re living in a new era with a new digital ecosystem and a native currency for that ecosystem. Also, Bitcoin has over a decade of price history, it’s been attacked, has been media hysteria and uncertainty, and it’s still here plugging along for those that blocked out the noise. The argument is often that it’s too new, but that’s disingenuous because the same can be said for many other great technological inventions throughout time, but that does not make them any less valuable, for example, the printing press or even the internet. So, what are our key takeaways here? I like to follow the KISS Principle, which is Keep It Simple Stupid.
Bitcoin Adoption Is In Early Stages
What I mean by this is that you know your financial situation, you know your own risk tolerance, how much cash you have in the bank, so you ask yourself the honest question of what is a reasonable amount, a non-zero amount to purchase based on your current situation in life? Without some skin in the game, it’s impossible to really understand how the technology works and what all the hype is about? Next, regardless of your situation, you can set up weekly or monthly purchases of SATS to dollar cost average over time. This way, you can purchase what makes sense for you. For example, I want to eventually own $2,000 worth of Bitcoin in today’s dollars. Then, you could buy $500 worth of Bitcoin every month for four months. You can adjust the size and timing subject to your circumstances, but this is a simple framework to take as a first step. Next, resist the fear of missing out. FOMO is a powerful, emotional response that will help you lose money fast.
Bitcoin Protects Against Inflation
Keeping up with Mr. and Ms.Jones will only hold you back because you are on your own journey for financial independence, not some other persons. Speaking of independence, we all need to be independent thinkers where we do not know something, we as a community can provide the resources to help each other along the way. Each one teaches one principle that applies. And there are a number of tools, for example, that I use to help me decide what action to take and I’ll break that down in a subsequent article. Let me know in the comments below if you think you’d want to learn about that. Now, for those that stuck around this far, what else can you do to improve your chances for long-term success and avoid the emotional rollercoaster of price changes? Well, what I’ve done is set up a process that I follow as a roadmap and framework for when to buy and when to sell that matches my needs. You can do the same, subject to your specific facts and circumstances.
Bitcoin Has Survived Over A Decade Of Market Crashes
If you want to invest any amount of your own cash in crypto, you need to understand that the volatility is high and this volatility goes both ways, up in terms of explosive price rise, but it can also go down in terms of extreme price drops and so, you need to adjust the amount you might purchase accordingly. To avoid being in a position where you allocate too much cash, being greedy at some market high, and then sell at the very market bottom for a huge loss, you need to set up your own rules-based process and follow it religiously, just like my two basketball favorites, Kobe Bryant and Michael Jordan. They each had a routine, they never took shortcuts.
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Keep It Simple Stupid (Kiss Principle)
They never made excuses and you are gonna need that same level of discipline and rules-based process to follow and stick to it that relates to your own life. And that robust process serves as your muscle memory to fall back on in times of panic. Otherwise, you’ll make the same mistakes to either buy high and sell low and follow the rest of the crowd and you’ll get those same type of results, which no one wants. So one of my basic rules of thumb to summarize is that if you’re losing sleep at night because of the amount of cash you invested into Bitcoin or any other cryptocurrency, then your position is probably too large. Personally, I’m only making a purchase if I’m looking to hold for the next two to four years. So, 24 to 46 months, roughly and that’s how I think about any purchase that relates to Bitcoin. Until the next time.
Reviewed by Muneeb Awan
on
October 14, 2021
Rating:
