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The #1 Reason You Will Regret Bitcoin Investing isn’t about Price

Bitcoin investing is dangerous, not because of the investment but what it does to your future investing decisions

Everyone is talking about Bitcoin investing, and for good reason. The price of the digital currency has boomed 23-fold in 2017 alone.

Just about every investing news or analysis website I follow now has a section on bitcoin, even if the ‘official’ stand is that the cryptocurrency is in a major bubble.

I’m happy for you if you’ve made money investing in Bitcoin but you need to understand that this is setting you up for a major loss in the future. In fact, investing in cryptcurrencies could be one of the worst decisions you ever make.

It has nothing to do with the price or whether Bitcoin is an investment and everything to do with an investor behavior that causes people to lose everything.

Watch this video or scroll down to see why you WILL regret investing in Bitcoin.

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My First Experience with Bitcoin

The first time I heard about Bitcoin was in 2012. I was in the basement at work during a tornado drill (yep, that’s Iowa) and a friend told me about this new cryptocurrency mostly being used by hackers and money launderers.

The price of Bitcoin had just passed $1 the year before and some people were starting to talk about it as an investment.

Of course, I didn’t invest in Bitcoin at the time. There were almost no places to use your Bitcoins and the technology was still untested. It was impossible to estimate a fair value, still is today, or a potential return on the investment.

The Problem with Bitcoin Investing

I often fantasize about how much money I would have if I had put just $10,000 in Bitcoin back then. Even investing at the beginning of 2017 would have turned into hundreds of thousands by the end of the year.

why you should not invest in bitcoinBut the problem is that fantasy is always better than reality.

It’s always fun to imagine what you would do with the millions from a hot stock investment but actually chasing that fantasy leads you to one of the worst investing decisions you can make.

One of two things are going to happen if you invest in Bitcoin.

You’re either going to lose money (Bad) or you’re going to make money which is actually worse.

Making lots of money in an investment, one where you probably know little about its fundamental value or a target price, is going to create a mindset of thinking investing is about those huge returns.

You will start looking for the hot stocks and quick investments with the potential to double or triple your money.

You will turn investing into gambling.

What Happens When You Gamble on Stocks

 

 

What happens is a behavioral investing problem and how people react to regret.

Investors tend to sell their winners quickly, booking maybe 20% or 30% gains but they hold on to their losers in the hope of getting their money back. You might make good money on a few stocks but those one or two losers will destroy your portfolio.

So let’s look at an example of how this works. You create this habit of looking for hot stocks because you did so well on Bitcoin. You really didn’t know what the long-term investment was about or a fair price target but you just knew it was going through the roof and wanted in on the action.

You start investing in the hot stocks, the penny stocks and the hot tips you get from online. You might do well for a while, booking that 20% or 30% gains in a couple of stocks but then one starts to go down.

And this stock it falls by 30%, for example from $100 to $70 per share. So you buy more thinking that you’ll lower your average cost to $85 a share and the stock only has to rebound a little for you to get your money back.

Instead of rebounding though, the stock keeps falling so you keep chasing it with more money. You reason that it has to come back eventually so you’ll make your money back.

It doesn’t take long and you’ve got almost your entire savings in this one stock, waiting for it to rebound. You’ve got all the profit you made on other hot stocks and everything else. In fact, it’s not uncommon for investors to even start borrowing on margin to invest more as their investment drops.

You’re not sleeping at night and you wonder how you got here.

Lots of stress and no money is not a good investment strategy but that’s where the idea of jumping in the hot investment will take you.

Stay Strong and Avoid Bitcoin Investing

I know it’s hard watching Bitcoin surge. Everyone that has given in to the bitcoin dream is suddenly an expert and telling you there’s no risk, that bitcoin will still go up.

Investing is not sexy. It’s not exciting and it won’t make you rich in a year. Investing is about beating your financial goals, not about beating the market or getting in on a sure thing.

Not investing in bubbles is going to be your toughest investing challenge but if you can avoid things like bitcoin investing and hot stocks, you will reach your financial goals.

Making money is easy. Stocks, bonds, real estate – all these asset classes will make you a lot of money. The trick is not losing money when the bottom falls out. That means avoiding these bad investing behaviors that are going to get you in trouble like chasing fantasy returns and bubbles.

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