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1 Silly Trick That Will Help You Avoid 1 Serious Mistake When Buying Bitcoin
It is essential to maintain a long-term perspective.
Bitcoin (Bitcoin 0.53%) is gaining widespread acceptance as an asset that will be around for some time, but can still be intimidating for many investors. It’s easy to see why this happens, as everyone has heard stories of investors losing everything with cryptocurrency investments.
But big losses are not a foregone conclusion, and with a very simple trick, you might even be able to avoid one of the most serious mistakes people tend to make with Bitcoin. Let’s dive.
Some investors make this mistake over and over again
To start, let’s take a look at some snapshots of Bitcoin price action to see where it might be possible to disrupt your investment, starting with the one-month view.
Bitcoin Price given by Y Charts
As you can see, if you purchased the coin at the beginning of last month, you have lost more than 10% of your investment in the last 30 days. If this happened to your retirement account with a stock shortly after you purchased it, it would likely cause consternation. The potential outcome is clear: this is going straight to zero. Your more risk-averse friends and relatives would be warning you or even begging you that it’s better to get out now, with most of your money, while your losses aren’t so severe.
But wait. A small drop in the currency’s price is far from a death knell and selling could, in fact, be a serious mistake. The inability to tolerate temporary losses could therefore lead to the loss of much larger gains. Let’s zoom out and take a six-month view:
Bitcoin Price given by Y Charts
Here there is still a risk of making the same mistake of selling prematurely.
This time, though, the logic of eager viewers and perhaps your own brain usually seems a little different. After such a rapid rise in the currency’s price, sell proponents will say, there is simply no way its bull run can continue. Also, Bitcoin is a bubble and will one day go to zero, so it’s best to get out now, with a considerable profit, before you lose most of your money.
The fact that a bull run is ongoing is not proof that the bull run will end promptly, although it is true that eventually it probably will. Furthermore, the fact that all bull runs end is not evidence that a security’s price will fall to a level lower than that at which you purchased it. Cutting your gains too soon can ultimately be as destructive to your portfolio’s growth as cutting your losses too early.
Now let’s take a look at the 10-year period:
Bitcoin Price given by Y Charts
Study this chart. Where would you be most tempted to buy or sell your Bitcoin?
Be honest. If you’re like most investors, the temptation to sell will hit you hardest during sharp declines after price peaks, when your investment is rapidly losing value. The exact opposite situation is when you are most inclined to buy, precisely when the price is at its peak and just before it starts to fall.
One more question: where on the chart would it be more ideal to buy or sell? It is obvious that the correct move would be to buy during the lows and sell during the highs. Take a closer look at how much time passes between the valleys and the peaks.
This is where the biggest challenge of investing in Bitcoin or any other volatile cryptocurrency lies. With perfect timing, you would need to hold your coins for a few years for the investment to work optimally. Most investors simply aren’t patient enough to make this basic strategy work. Others are struck by panic during crises, so that they sell before their patience can reward them.
Do not be afraid. There is an easy remedy.
This trick is a magic bullet
For most people, it is not possible to time the market or Bitcoin. Remember, you won’t see the 10-year chart of future currency performance the day you sit down to make your investment. You can only see what happened in the past. This means that relying on patience is even more important, as is using dollar-cost averaging (DCAing) instead of buying coins in bulk.
But that’s not even the trick, it’s just a tool that helps mitigate the impact of daily price fluctuations on the total value of your investment.
To avoid selling your shares too early, before reaching the Target Price outlined in your investment plan, the most important trick is to simply not look at your Bitcoin or crypto investment every day.
Looking at the price of Bitcoin doesn’t change that. Looking at the value of your investment does not help you gain value or recover lost value. Stressing about your investment doesn’t do anything positive either – but it can sap your patience and cause you to make the serious mistake of selling before the right time.
Set up your DCA plan with your broker and close your browser window. Find some distractions, preferably pleasant ones, that can occupy you for months or years on end. Check back every now and then, and if you haven’t reached your specified target price yet, try checking back later. Out of sight is out of mind and therefore out of opportunity to waver.
Bitcoin is an investment to be held for the long term. Don’t trade in and out and don’t be afraid to manipulate your own psychology to develop the patience needed to profit. When in doubt, zoom out of the chart, take a look at the trend, and log off.