Crypto’s Unpredictability and Volatility Lead Investors to Clarify Goals and Expectations. Get Rich Quick Mentality? 5% Rule to Consider Before Buying Cryptocurrency.

3 min read

Vision for Ethereum Vulnerable to Greed.

Ethereum’s co-founder worries that too many new crypto investors are taking the wrong lessons from wealth-flashing crypto enthusiasts who claim to have struck gold.

“The peril is you have these $3 million monkeys, and it becomes a different kind of gambling,” Vitalik Buterin said in an interview with TIME, referring to the high value and flashy excesses associated with the Bored Ape Yacht Club NFT community.

If you’re one of those looking to buy Bitcoin or other cryptos to get rich quick, think again. Cryptocurrency is much riskier than conventional investments because of its unpredictability and volatility. That’s why investing experts say it’s crucial for crypto investors to clarify their goals and expectations before buying in and to stick to the 5% rule — don’t contribute more than 5% of your portfolio to risky assets like crypto. 

As one of the most influential people in crypto, Buterin has watched the network he created to evolve with mixed feelings. While Ethereum intended to re-architect the web and allow for all sorts of uses, from fairer voting systems to peer-to-peer borrowing and lending, the Russian-born Canadian acknowledges that his vision for Ethereum has become vulnerable to human beings’ greed. 

“Crypto itself has much dystopian potential if implemented wrong,” Buterin said.

It has emerged as a vehicle for tax evasion, fraud, and wide-scale scams. It has led to shameless displays of mass wealth, particularly for white men who dominate the sector, which in turn, has created a public perception that owning crypto will make you rich quickly. And inequities have crept into the ecosystem, including a noticeable lack of gender and racial diversity.

But despite all that, Buterin remains optimistic. Above all, he told TIME he wants Ethereum to challenge the notion of centralized governments and disrupt Silicon Valley’s hold over everyone’s digital lives.

“If we don’t exercise our voice, the only things that get built are the things that are immediately profitable,” he said. “And those are often far from what’s the best for the world.”

Here are a few things you should consider if you’re investing in crypto or considering buying in.

What to Consider Before Buying Cryptocurrency

Ask Yourself Why

If you’re thinking about investing in crypto, start by evaluating your situation and what you aim to accomplish. Figure out what view is on crypto: Are you approaching it from a long-term or short-term perspective? With crypto, you should look for something other than quick, easy money. 

You’ll also want to make sure your financial bases are covered before investing in crypto, such as a well-stocked emergency fund, a conventional retirement savings strategy in place, and no high-interest debt. If you’re in an excellent financial position, focus on building your crypto knowledge and understanding your investment before buying. Advocates who see long-term value in cryptocurrency point to the underlying blockchain technology and its potential to drive innovation in conventional finance and other industries. 

Think About Your Risk Tolerance

Crypto is a highly volatile, speculative asset. With such a young market (compared to the stock market, at least), the value of various cryptocurrencies can rise and fall, and there’s no guarantee that they will only collapse partially. You must have a high-risk tolerance to buy or invest in cryptocurrency. 

And it’s more reason for investors to play a steady long game instead of trying to earn quick cash, according to experts. If you’re in it for the long term, you don’t need to worry about short-term swings.

Figure Out How You Plan to Invest in Crypto

If you’ve decided to buy crypto, research where and how to buy it. 

Crypto exchanges are largely unregulated, so investors need more oversight and protections than they tend to get with banks and mainstream investment platforms. The investor is responsible for evaluating and assessing different levels of security and insurance offered by other crypto exchanges.

Experts generally advise sticking with mainstream, high-volume cryptocurrency exchange, like Coinbase, eToro, or Gemini, that proactively complies with federal and state regulators.

Decide What Cryptocurrencies You Want to Buy

There are over 10,000 different cryptocurrencies, so you’ll want to do a good amount of research and education on a coin before you put any money down. 

If you’re interested in cryptocurrency primarily as a long-term investment, Bitcoin and Ethereum have the longest track records of increasing value over time. Several financial advisors say their advice to clients interested in cryptocurrency is to buy some Bitcoin or Ethereum but pass on the more volatile, lesser-known altcoins.

But if you’ve done much research and feel passionate about the specific innovation being driven by a lesser-known altcoin, then investing in it might be as much about personal belief as return on investment. 

In either case, experts say you should only invest what you’re willing to lose.



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