A Cryptocurrency Experiment

A Cryptocurrency Experiment

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A few weeks ago I wrote about the hottest investment out there: Cryptocurrency. In that post I argued that cryptocurrencies were dangerous, unpredictable and really can cause some serious damage if you put all of your eggs in that basket. When answering the question “should you invest in cryptocurrencies?” My answer was a big fat NO!

Of course there have been times when I don’t take my own advice.

I am not sure what got into me. Maybe it was the daily barrage of cryptocurrencies going to the moon. Maybe it was the fear of missing out. Maybe it was I was drinking too much Christmas punch, but I thought I would take the plunge and do a little experiment.

So I did what I said you should not do when it comes to cryptocurrency and I invested.

Now before you yell at me I did create some ground rules for myself and I am going to follow those rules (at least I plan on it).

Jason’s Cryptocurrency Ground Rules

First, I made sure I spent some time researching each cryptocurrency that I bought before just jumping in. I went to their websites, I learned what their currency is for (believe it or not they have some utility), what their current market cap was, predictions for price rising, etc.

Second, I promised to invest only an extremely small portion of my portfolio in cryptocurrency. And that is true. I only put in $500. And that is it. No more, no less. $500 is less than .1% of my investments. I am doing this as an experiment, not a get rich quick scheme.

Third, any money that I invested I was prepared to lose. Cryptocurrencies are EXTREMELY volatile. And I mean extremely volatile. For example, Bitcoin, the cryptocurrency with the biggest market capitalization, went from $750 at the start of 2017 to being over $11,500 as I write this post. However, Bitcoin has dropped 45% in just over 2 months because it reached a high of $19250 in mid-December. Since that time it has not been able to keep its gains.

And Bitcoin isn’t alone. In mid-December 2017 the market capitalization for cryptocurrencies was over almost $800 billion dollars. Now it is $570 billion. Again, that is a drop of almost 30% in just about 5 weeks.

So if you invest in cryptocurrencies make sure you ready for a bumpy ride and are prepared to lose that money. That is why I didn’t put a lot of money into it. This could pay off big with just $500, but it is more than likely going to be a blip on the radar screen.

Fourth, I promised myself I would wait ONE YEAR until I sold any cryptocurrency. I guess a popular term in trading “crypto” is what coins will you HODL. Yes, you read that right. It isn’t HOLD, but HODL. Anyway, what crypto will you hold for he long-term. Apparently, the long-term in cryptocurrency is a few months and/or even a year.

I am a buy and hold investor. I am not a trader so I am holding my coins for ONE year minimum.

Finally, I promised myself to not promote cryptocurrency as an investment. On this blog I am a huge advocate of using index funds for your investing. I am also an advocate of tracking your net worth and your spending. I actually track mine through Personal Capital.

However, cryptocurrency, at least to me, is not investing. It is speculation. I am speculating. It is like speculating about currencies like the Iraqi Dinar and the American dollar, etc. While I understand those things I want most of my investments to be in things that I understand and where they produce something with a long-track record. Crypto doesn’t have that long track record yet. It will take a number of years to get there.

What Does This All Mean?

Well, it basically means that I put $500 into cryptocurrency as an experiment and I guess I will see how I did at the end of the year. I can tell you right now that because of the downturn in the cryptocurrency market that I am down about $100 in my investment. So I have lost 20% so far. Let’s see if it will come back.

In another post I will detail how I went about investing in crypto. And I do not get any referral links for this stuff. I am just kind of feeling my way through most of this.

The Bottom Line: If you do decide to invest in cryptocurrency ONLY put money in that you can AFFORD to lose. Don’t put all your eggs in one basket. I implore you. There are all kinds of people who have lost their shirt on some ponzi scheme stuff in this space (another post for another time). DO NOT invest a lot of money in ANYTHING unless you understand it. DO YOUR OWN RESEARCH. I spent literally a couple of days researching a variety of currencies and basically what it was all about. I can’t say that I know a whole bunch, but I know enough to be dangerous.

Proceed cautiously. This is dangerous territory and really should be thought of as speculation and NOT investing.

2 thoughts on “A Cryptocurrency Experiment

  1. I believe I followed your post down to the letter when I got into crypto. I threw some money, that I knew was gone the instant I invested it, at both Ripple (XRP) and Stellar Lumens (XLM).

    I believe in their practical application and their ability to solve real problems in payment infrastructure.

    Like you, I am holding for a year. See what happens.

    Good luck and thanks for sharing!

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