Minimizing Risk in Cryptocurrency Investments

TL;DR: Invest 1% or less of your portfolio in cryptocurrencies for the long term. Pull out your initial investment after it doubles and let your investment grow on the gains after that. Pull out some gains every 6 months or so to lock in profit for as long as the crypto market keeps going up. If you want to sign up for Coinbase, please use my referral link to get $10 USD in free Bitcoin after you invest $100 USD. I also get $10 in Bitcoin for referrals, so I appreciate it!

The first time I heard about cryptocurrencies was in 2013, when Bitcoin was much cheaper and mining it was still financially feasible to the masses. I had a co-worker that had invested a few hundred into it, and another co-worker a few thousand. I read about people mining it, but didn’t bother to research what that even meant at the time. It was considered to be too new, and not proven, so a high risk investment.

Fast forward to around June of 2017, the cryptocurrency market is much hotter, and is growing at an astounding rate. I talked with some of my co-workers again about it, and most of them were of the mindset that it was  still too risky of an investment due to its volatility day to day. Having a bit more investment research and knowledge than four years ago, I was able to see that the risk, if handled appropriately, was an acceptable one to take with a very small part of my portfolio. Below I will cover my strategy to cryptocurrency investment.

Measuring Risk

If you are planning to get into a high risk, high reward investment like cryptocurrencies, you want to test the waters a bit with a small percent of your portfolio that you are willing to lose and won’t affect your daily life. I took $900 that my spouse and I had agreed beforehand that I could use however I wanted in investments and invested it in a Coinbase account after researching the different exchanges and their pros/cons. The biggest selling point for me on Coinbase was that they were US based, and offered three of the top cryptocurrencies available, Bitcoin, Ethereum, and Litecoin. They also have one of the largest user bases of all exchanges for cryptos.

To mitigate my risk, I split my initial investment to $400 in Bitcoin, $100 in Ethereum, and $400 in Litecoin. My reasoning was that it takes a lot more growth and investment for Bitcoin to grow than it does for Litecoin, which was at a much lower price per coin. The fees in Coinbase are sometimes pretty high, but worth the cost with how much you can potentially gain investing in cryptos.

Setting Goals

My goal with my first investment was to test the exchange to see how it worked, as well as see if it was right for me before investing more. Verifying my identity on account creation took a little while to work out, but I got it to succeed after a few attempts. Buying directly from a bank checking account takes a week before your funds show up in Coinbase, but the purchase of your cryptos goes through at the price you place the order at. This means, that you can’t sell what you purchased for at least a week. Since my goal was to invest for the long term, this wasn’t a problem. If you want to day trade and try to time the market buying low and selling high, then I’d suggest you transfer the funds to your account first before trading. As my account grows or shrinks, I would periodically rebalance the account to make sure that I wasn’t too overweight in one cryptocurrency.

Collecting Reward

Three weeks after my initial investment, Litecoin tripled in value. I now had an account that had $1,200 in Litecoin. At this point, if this were all I wanted to invest in cryptos, I would have pulled out my initial $900, and let the profits ride. However, now that I had proven that my investments could make money, and that Coinbase was reliable enough for longer term investments, I decided to put the remainder of my higher risk funds into the account. After seeing Ethereum rise up over 60% since my initial investment as well, I invested $2,000 more in Ethereum and $2,000 more in Litecoin. Bitcoin had been hovering around the 16K-18K mark and didn’t seem like it was taking off like the other two. Within 3 days of my investment, I had earned another 30% on the account as a whole.

Conclusion

I plan to withdraw my initial investment of $4,900 after my account doubles in value to reduce my risk and let the coins I have left grow in value over the next year. I will keep rebalancing, and invest in new cryptocurrencies as they become available in Coinbase. If I lose the profits at this point, it was a fun experiment that helped me diversify my portfolio and I can tell others that I at least tried to invest in cryptos. If it continues to grow, then I will keep drawing out profits every 6 months or so to lock them in in case this is truly a bubble and not just a rising new currency type that will eventually be more commonly used than country-specific currencies.

If after reading this, you want to try this or a different strategy, please use my referral link to sign up! You receive $10 USD in Bitcoin when you invest $100 or more.

I’d like to hear from you about some of your strategies and outcomes with investing in cryptos.