How Much Should You Invest in Bitcoin?
How to Invest in Bitcoin? You should invest in Bitcoin somewhere around 5% to 30% of your investment capital. I consider 5% to be very safe and 30% to be pretty risky. Personally, I sit most of the time between 15% and 50%.
This is because I have a background in gambling (former professional poker player) and feel particularly comfortable losing money. I would not recommend anyone invest 50% or more.
Ultimately, the decision is yours. And although it depends on market factors, it also depends on personal factors such as your risk tolerance and the amount of money you can afford to lose.
Now, let’s dive into my cryptocurrency-related recommendations, and specifically 5 factors you should consider when deciding how much to invest in Bitcoin and the best way to invest in Bitcoin.
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Factor #1: Risk tolerance
The crypto market is very volatile.
So, when thinking about how much you should invest in Bitcoin, think of an amount that you feel comfortable losing entirely.
Think of how much you want to invest. Picture this amount, and imagine yourself in the future:
- Will you feel comfortable losing your full investment – say $12,000?
- Will you judge yourself severely because you decided to invest? Will you lose sleep or even consider suicide?
If the answer to any of these questions is even “maybe yes,” you need to lower the amount you had in mind and ask yourself the same questions again. If you’re not sure of your answer, ask your friends and family.
Investors who invest too much money will also be tempted to ‘panic sell’ at a loss. Selling at a loss can be the right decision sometimes, but only if the decision is rational – not emotional.
Keep the amount you invest at a level where it doesn’t affect your judgment.
Factor #2: Profit tolerance
Although it can seem like stupid advice at first, think about it: if you invest an amount that can get you highly emotional when you lose it, what will happen if you x20 your money?
This happened to a lot of investors back in late 2017 when cryptocurrency was booming. They became millionaires because they made the (poor) decision to invest their life savings.
But if they were too greedy to be reasonable about their investment, do you think they sold their positions and took their profits? No, so this is clearly not the best way to invest in Bitcoin. Most of them went back where they were during the 2018 market crash.
Only reasonably-minded investors end up making profits with Bitcoin and cryptocurrencies.
So once again, think about the amount you plan on investing. How will you behave if it’s worth 20x its initial value in one year?
- Will you rent a bigger apartment? Buy a fancy car?
- Will you fall in love with your cryptocurrencies and hold them until you die?
So how to invest in Bitcoin? Once again, investing an amount you’ll feel emotionally detached from is essential, whether your assets go up or down. It will make you a solid investor that will lose less money when the market goes down, and profit more when it goes up.
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Factor #3: Timing
I bet you’ve heard much more about cryptocurrencies when Bitcoin’s price was booming, as opposed as to when it’s declined or stabilized. This is because of people and media alike have a natural tendency to follow existing trends.
But do you know that the cryptocurrency market is made of repeated market cycles? These market cycles often last for 1 to 2 years. Prices surge fast, creating bubbles. BIG bubbles. And then, these bubbles burst badly.
This is why timing is crucial in cryptocurrencies. It can completely change your journey and the way you’ll look at it.
As a result, when deciding how much you should invest in Bitcoin, look at where we’re at now in these market cycles, and you are going to find the best way to invest in Bitcoin.
To find out this information, open the global market chart of CoinMarketCap. Look at it closely, and answer the following questions:
- Are we close to the market all-time high?
- How long since we experienced a market bull run?
The closer we are from the market’s all-time high both in terms of price and time, the least you want to invest. On the other hand, if the current price is $5,000 and the highest price was $20,000 two years ago, then it should be a better time to invest in Bitcoin right now.
Don’t get me wrong: even though we’re in the middle of price surges, it’s not a bad idea to invest money in cryptocurrency right now, because it gets you started. The timing should only change your entry approach and lower/increase the amount you had in mind initially.
Factor #4: Change of mind
I’ve never seen any cryptocurrency investor say “I’ll invest $X in cryptocurrencies” and stick to his/her words. People change their minds by nature, even more when they are confronted with an ever-evolving market.
So, before you make a final decision on how much to invest in Bitcoin, leave room to change your mind in the future. The easiest to go about this is to divide your investment over time. Set the amount you have in mind, and invest it within the next 3, 6 or 12 months.
Let’s say you want to invest $12,000 over the next 12 months. But the market is currently close to its all-time high. Instead of investing $1,000 every month, you can adjust the amount to start with $400 per month and invest more to compensate when the prices go down and that is how to invest in Bitcoin.
Factor #5: Diversification
Diversification is a technique any mature investor uses to reduce the importance of luck. It means you will not only invest in cryptocurrencies but also allocate your capital to different investment vehicles, such as real estate, stocks, gold.
You can also leave some of your money at your bank to earn a small interest rate.
All in all, don’t put all your eggs in your cryptocurrency basket. It would be like playing roulette martingale. You’ll win, and win, and win, but when you lose, you lose everything.
