According to Raoul Pal of Real Vision Capital, the average annual returns from investing in Bitcoin over the past ten years have been more than 150%. If you had bought one Bitcoin in 2020 for $5,000, you would now have $66,000. That’s 13x in 4 years. Similarly, if you had bought Ethereum, you would have seen your investment multiply 15 times. Is it still a good idea to invest in Bitcoin or crypto more broadly, or is it too late? This article will help you decide.
The biggest question you need to answer is whether Bitcoin and crypto have a future. To answer that, let’s look at Bitcoin.
What’s the Deal With Bitcoin?
Here is what you need to know about Bitcoin and why people make a fuss over it
- It has a limited supply of 21 million. This won’t change as Bitcoin enthusiasts consider it a good store of value similar to gold.
- There is no central authority, such as a central bank or government, that can dictate what happens with Bitcoin. They can’t increase the supply or change who owns what. Again, this indicates it’s a good store of value.
Detractors will argue that it is way too volatile.
While this is true, Bitcoin has only been going in one direction when you zoom out. And that is up. Yes, you can see 80% drawdowns within a year, but overall, the trend is up and to the right.
Here are some reasons to be bullish on bitcoin
- In January 2024, the Securities Exchange Commission in the United States approved spot Bitcoin ETFs (exchange-traded funds). An ETF is a fund that has invested in Bitcoin and that you can own a share of. It makes it easy for traditional investors to buy Bitcoin through their brokerage accounts and for large investment funds (pension funds, insurance funds, etc) to purchase Bitcoin.
- Companies are investing the cash in their treasury into Bitcoin. Examples include Tesla, Microstrategy, Square, and Stone Ridge.
- Countries such as El Salvador and the Central African Republic are buying Bitcoin.
If you believe that Bitcoin will play a part in the future of finance, then it would be naive not to own some.
It would also be naive to sell your house and invest your life’s savings into Bitcoin. There are some people who claim to do that.
However, placing 5-10% of your savings into Bitcoin and Ethereum is a common strategy amongst the more conservative investors.
Ethereum
The second largest digital currency after Bitcoin by market capitalization is Ethereum.
What’s unique about it is that you can build an automated app on top of it using smart contracts.
For example, you might have an app that accepts savings and issues loans.
Or you might have another app that is a decentralized crypto exchange for trading between various cryptocurrencies.
Ethereum is the largest such platform and has cornered just under 60% of that market.
While there are other contenders to Ethereum out there, such as Solana, Polkadot, and Cardano, Ethereum has the largest network effects.
If you are building on Ethereum and everyone else is building on Ethereum, then there is no reason to move to another platform.
For this reason, Ethereum is likely to stick around for the long term, and it could be part of your long-term portfolio. That 5-10% we talked about.
Other Cryptocurrencies
Bitcoin and Ethereum are not the only cryptocurrencies.
There are thousands of crypto coins and tokens, and each one has its own narrative. To decide which one to invest in, you need to start reading about them on this website and other sources. In my crypto crash course, I teach a framework for evaluating crypto assets.
You can start by reading my guide on what is the best crypto to buy right now.
How to Avoid Volatility
If you want to avoid the inherent volatility of crypto, you can buy and lend stablecoins.
Stablecoins are a special class of cryptocurrencies that tie their value to that of a fiat currency such as the US dollar.
The largest stablecoins are Tether’s USDT and Circle’s USDC. Once you buy a stablecoin, its value is unlikely to change.
So, the way to make money with stablecoins is to lend them to borrowers or decentralized exchanges that need them.
You can even use a yield optimization protocol such as Yearn Finance to find the highest yield at any time. (see What is Yearn Finance for more.)
Risks
- The biggest risk with investing in crypto is that you buy when prices are high and sell when they are low. You want to do the opposite, but this is easier said than done. Most people who lose money in crypto invest in something extremely volatile, such as meme coins. They invest at the peak, by which time everyone else is ready to sell.
- Another risk is that you might end up losing your crypto if you store your crypto on a digital wallet and don’t store your private keys securely. Anyone with access to your private keys has access to your crypto. Rookie mistakes are clicking on scam links, storing screenshots of your private keys on your laptop, or losing the piece of paper with your codes on it.
- Placing all your eggs in one basket. In general, if you want to preserve the value of your savings. The way to do this is to diversify your holdings. Some portion of you will invest in the crypto market, while the rest will be invested in other financial products such as the stock market, index funds, bonds, commodities, real estate, and other asset classes.
- Lack of regulation. In most countries, there is a lack of regulatory clarity around the legal status of digital assets. For example, you don’t know whether you have to pay capital gains tax or how much that tax is. However, only a few countries have banned crypto transactions outright.
Steps You Need to Take Before Investing in Bitcoin and Crypto
1. Due diligence
Don’t just blindly follow the recommendation of an influencer.
Understand the technology you are buying and what it does. Look at the team’s background.
Are they even willing to share who they are? Who are the investors? How many tokens are they printing? Is supply fixed or inflationary? What does the token do?
Are people excited about the coin or token? How many followers are there on social media, and is this number increasing over time?
See my trending coins section on how I analyze coins.
2. Dollar-cost average
No one can time the market perfectly.
If prices are low, you don’t know if they will rise or fall next.
For this reason, it is best to buy a little at a time.
Say you have 10,000 to invest.
Rather than invest a lump sum, you can buy some today, some next week, some the week after, and so on.
This way, you can average out across the current trend rather than buy at a specific price point.
3. Ensure you have a diversified investment portfolio
Don’t invest everything in crypto, and when you invest in crypto, don’t bet the house on one coin only.
If you are looking at short-term trading, then investing in a basket of digital currencies is likely better than choosing a favorite.
Having said that, you want the majority of your funds to be invested in the large blue chips: BTC, ETH, SOL, etc.
What You Need to Do After You Invest
- If you want to make money in the short run, you should dollar cost average out as prices increase. Similar to how you shouldn’t enter a market suddenly at a single price point, you also shouldn’t exit it all at once. Take profit, but leave some on the table in case the price continues to rise.
- If you have a long-term strategy, you can set your crypto and forget it.
- Store your crypto in cold storage. This means withdrawing it from the exchange where you bought it and sending it to a hardware crypto wallet for safekeeping.
FAQs
Is it better to buy shares or crypto?
Crypto is highly volatile. However, major coins such as Bitcoin and Ethereum have been trending upward in the long run. Shares are less volatile than crypto, but like crypto, they are considered a risk to investment. For more sustained returns, you are better off diversifying your portfolio into stocks and crypto.
Is crypto still worth investing in?
Most people on crypto Twitter would argue that we are still in the middle of a bull run. Predictions for the price of Bitcoin range from $120,000 to $1,000,000, depending on who you ask. Michael Saylor predicts Bitcoin will reach $8 million.
Is it worth buying Bitcoin now?
At the time of writing, the price of bitcoin was $66,000. If Bitcoin were to replace gold as a store of value, then it would be worth $700,000. There is still a lot of upside if this scenario plays out.
What is the best crypto or Bitcoin?
Bitcoin is considered a more robust cryptocurrency. However, it will see lower gains than coins with smaller market caps. Which one you choose to invest in depends on your risk tolerance and how much you can afford to lose.
Which coin is best to invest in now?
There are four overarching themes in this bull run: gaming, AI, DePIN, and Real World Assets. Check my research on coins that are trending on social media here.