“Should I buy bitcoin now?”
“I should have bought bitcoin at $10,000.”
“Is the bitcoin price too high currently to buy it now?”
These are common questions and comments I receive from friends who know that I have been trading bitcoin since 2014.
Everyone wants to make money, but consider the risks. For example, in 2010 bitcoin was 17 cents in September. It promptly went to 1 cent in October 2010. That’s a 94% correction.
You could have bought bitcoin at $32 in June 2011 and watch it plunge to $2 by November 2011. That’s also a 94% correction.
Between 2013 to 2015 bitcoin went from $1,166 to $170, an 85% drop.
Remember “crypto winter”? Between December 2017 and December 2018 bitcoin dropped from $20,000 to $3,000. Critics declared bitcoin was dead.
More recently, in March 2020, bitcoin was $8,000. Then, during the crash, it dropped 55% to $3,600. It has since rebounded to $29,000 by December 2020.
See the chart below from Coindesk summarizing the biggest corrections in the bitcoin price since inception in 2010.
In deciding whether or not to buy bitcoin, you need to think about your own risk tolerance. If you bought a stock and it went down 85%, would you sell it or hold onto it? Personally, I bought bitcoin at $18,000 in 2017 and sold it at $3,000 in 2018.
During the 2008 financial crisis, I also sold many stocks when they were down 80%. I prefer slow and steady returns, rather than swinging for the fences for 10x or 100x and have the great risk of the investment going to zero.
When people ask me if they should buy bitcoin, my reply is often, “Yes, buy a tiny bit.”
Buy it first for learning purposes, not to make money.
To put this into perspective, when you first buy a stock, you check its price regularly and read the news. You learn about the stock, all while learning about yourself and your emotional reactions to the market’s ups and downs. After this experience, you can decide if you like this “roller coaster”. Then, you can choose to get out of the game or buy a little more.
However, be sure to start with a tiny amount of bitcoin, so that if it’s a complete loss, the only hurt is your ego and not your pocketbook. Consider this the cost of your bitcoin education.
There is most definitely some truth to the old adage, “What goes up, must come down”.
Mitchell.Dong@yahoo.com is the CEO of Pythagoras.Investments, a firm which manages cryptocurrency trading funds.