The right mindset to invest in cryptocurrencies

Right mindset when investing in cryptocurrencies is crucial. Investing in crypto assets is no different than buying gold, real estate, or stocks. Many consider a high-risk activity buying Bitcoin; others are all too confident in the future of this asset.

Trade and investment in cryptos require the same skills necessary to operate in the stock market. It’s not a gamble; it’s not a get-rich-quick scheme; it’s not a way to rebel against the establishment. Cryptocurrencies are a financial asset; I buy a cryptocurrency if I think it will appreciate over time.

The right mindset is essential when investing your savings. Switching from investing to gambling with cryptocurrencies is easy, and you risk getting hurt. 

As I have already written several times, I don’t like intraday trading; I prefer to have a long-term view of my investments. With digital currencies constantly buying and selling is even more complicated. 

Bitcoin volatility vs other assets Lukkval
Image from link

An investment in cryptocurrency Bitcoin is much riskier than stocks due to the higher volatility, but it is only a matter of correct position sizing.

Related articles:

By using the right mindset while purchasing cryptocurrencies, we will avoid gambling with the hope of triple the account in one week.

Cryptocurrencies are financial assets and must be treated in precisely the same way. We must choose based on an in-depth analysis. Just as you would never buy a stock found on a tweet, you shouldn’t buy crypto.

The period is critical because cryptocurrencies move a lot and therefore must be purchased a little like gold. Let’s explore this aspect immediately in the next chapter.

Buying for the long term

I can’t entirely agree with using cryptocurrency trading in the same way people traded forex a few years ago. Many platforms allow you to spread cryptocurrencies, and I don’t find it a good idea. 

Investing in cryptocurrencies, for me, is like investing in gold or an ETF. I buy if I think it can appreciate over time, and I keep it in my portfolio. I am convinced that they will understand a lot in the long term, so I dedicate a small part of my portfolio to this asset.

Buying for the long run means buying to stay in place for probably years. I purchased during the recent downturn. I try not to enter the highs. If you are buying crypto for the long term, the timing of entry is of little importance. 

I look at the price every day for fun, I like using the investing app, but I would never dream of selling for reasons related to price percentages.

If I had to liquidate or lighten some positions, I would do it only for reasons related to long-term expectations, not because I have doubled the investment.

For example, I am convinced that Bitcoin may soon have problems related to the environmental sustainability of mining. For this reason, I have liquidated every position for some time and moved to Ethereum. As long as I don’t have real motivation to close the Ethereum position, I will stay long. 

The excesses in the stock indices tend to fall when the markets are at their highest; it is always worthwhile to reflect. In cryptocurrency exchanges, I don’t think it’s worth doing this kind of evaluation. 

Cryptocurrencies also have bullish and bearish cycles, but they are not as predictable as is the case with the S & P500 index. An indicator like the RSI is useless with Crypto exchanges, an overbought or oversold phase could last for months. I do not recommend using the RSI for Bitcoins, and likewise, I do not recommend the RSI for small caps.

Using a small percentage of capital

Investing in the long run and given that cryptocurrencies are a dangerous financial tool, we have to invest a tiny amount of capital. 

Mentally we must be willing to lose the capital invested. It’s kind of like buying penny stocks, they might perform well, but they might disappear overnight.

Bitcoin or Ethereum cannot disappear or go to zero, but it has already happened to see their value halved in a short time. 

Panic is one of the feelings to avoid when investing your money. With cryptocurrencies, the only way to avoid panic is to invest an amount considered expendable.

Forget about using leverage or a stoploss; you don’t need leverage on an asset that doubles in a week. The correct mindset is to decide how much money you can lose, and the stoploss must be the entire investment.

We must consider that losing 70% of the purchase value in Dogecoin or XRP is like losing everything. It would be best if you didn’t trade down; never add positions in the hope of catching up. 

Dogecoin chart high volatility
Image form TradingView

For smaller cryptocurrencies, I use a simple system. I decide the capital to be allocated on that cryptocurrency, I buy using half of it, and if crypto drops over 50%, I repurchase it using the last 50%, and that’s all. There are only two alternatives; I could lose all the capital invested or earn and liquidate when I decide to do so.

Some funds or ETFs replicate the trend of a cryptocurrency basket. With these financial instruments, you avoid keeping money in virtual wallets, and there is greater security regarding the deposit of funds. However, I believe it is safe to save money on a wallet, obviously by choosing the leading companies in the sector.

What can I tell you more? Protect yourself, think carefully before buying, and stay calm if the price drops. The same rules for every other purchase in finance.

Follow me on Twitter LukkVal