By Frank Corva
Before I started writing about digital assets for a living, I was studying to become a mental health therapist.
In my clinical social work classes, I learned a lot about the causes of depression, anxiety, and other mental and emotional disorders.
Oddly enough, though, I don’t recall a chapter in any of my textbooks that focused on what it feels like to go from having more money than you ever thought – on paper – to being broke like a joke in less than a year.
I guess most of these social work textbooks were written before crypto was a thing.
But now crypto is a thing.
And anyone who has invested a substantial portion of their net worth in the asset class understands the difficulty of dealing with the adrenaline that floods your system during bull markets and the heartbreaking feelings that come with falling digital asset prices during bear markets. .
Additionally, if the volatility isn’t getting to you, the stress of avoiding hacking and phishing scams as well as the challenges associated with self-custody of your crypto assets in a hardre wallet almost surely will.
So it’s time we talked about ways to mitigate the negative effects that crypto can have on your mental health – because, if you learn how to invest in crypto correctly and safely, it can have incredibly positive effects on your general well-being.
Here are some tips to help you stay sane as a crypto investor.
Risk management in crypto is multidimensional.
Not only do you need to be aware of volatility, but you also need to learn how to self-custody your crypto assets – ideally with a hardware wallet – to keep your assets safe and under your control.
But when it comes to actual investing principles, a proven way to manage risk is to use dollar cost averaging (DCA) in your crypto positions.
If you invest too much in a speculative asset that has lost value, learn how to cut your losses before they cause you too much pain.
Finally, please, please, please do not use leverage in crypto unless you are a professional mega trader. The volatile nature of crypto gives investors the opportunity to earn outsized returns without taking leverage.
Half success in crypto is not blowing your account while being both careful and patient.
Winnings will likely come if you play this game sensibly and manage your risk responsibly.
If you don’t manage the risk, prepare to feel all kinds of pain, as opposed to the joy of above-average gains.
Properly size your crypto position
The term “correctly” is subjective.
For some, that might mean allocating no more than 5% of their portfolio to crypto.
For others, your body can tell you when you’re exposed to too much crypto.
In George Soros’ seminal text, The Alchemy of Finance, he recounts how he felt pain in his back when his portfolio felt out of balance. When he felt the pain, he made changes to his wallet until the pain went away.
Our bodies are more intuitive than we sometimes realize.
So if you feel pain somewhere in your body like Soros felt in his back, you might want to hesitate about doing a fiat-to-crypto trade or consider reducing your crypto position size.
Stick to top-notch cryptos first
If you’re new to the crypto space, your best bet is to start your crypto investing journey by stacking sats — or buying fractions of a Bitcoin (BTC) — instead of buying a hot new altcoin.
BTC is significantly more volatile than a traditional financial product like the Invesco QQQ Trust Series 1 – the index that tracks the Nasdaq. But it is not as volatile as altcoins.
As crypto markets continue to mature, BTC’s volatility will likely decline, but, for now, it’s still a notable factor to consider when investing in the asset.
Think of your initial investment in BTC as a down payment to learn more about the crypto space and not as a get-rich-quick scheme. This can save you a lot of unwanted anticipatory anxiety.
Don’t put all your eggs in one basket (altcoin)
If the Terra LUNA Crash taught us something is that it is better not to have all your eggs in a highly speculative crypto basket.
In the weeks following the collapse of the Terra LUNA ecosystem, those who lost badly from the crash consoled themselves online and posted information about suicide hotlines in the r/terraluna subreddit. The mental health of those who had invested much of their net worth in the Terra LUNA ecosystem was fragile.
While not all new crypto projects fail as spectacularly as Terra LUNA, most drop 80% to 90% from their peaks at one point or another.
Keep in mind that almost inevitable plunge if you find yourself about to pour your child’s college fund into the next altcoin that an influencer (we’ll get to that in a bit) has proclaimed is going to the moon. It may just save you stomach pain and help preserve your relationship with your loved one.
And if you place an all-in bet that pays off, please keep the following advice in mind.
Take Profits Regularly During Bull Markets
Unless you are entirely religious about your crypto investment, it is best to learn how to take profits in a bull market.
When the coin or token you have invested in reaches 30%, 40% or 50%, remove money from the table. And keep doing it until you’ve withdrawn your principal – or more – from your investment. It can be quite a liberating feeling.
Reaching a point where you only invest with your earnings can significantly reduce your stress.
Do your own analysis
Crypto markets are often driven by stories driven by crypto influencers.
Crypto influencers are not all-knowing shamans or gurus. In fact, most are just the opposite: they are often charlatans and scammers. Most are paid to promote specific plays.
So, don’t get sucked into what an influencer has to say about a crypto project.
Instead, perform your own fundamental analysis to determine why you think a crypto asset is worth your investment.
Also learn to read charts. If you see that a coin has risen 1000% in two months, now may not be the best time to buy that coin.
Learning to conduct your own analysis insulates you from the emotional whiplash that comes from feeling like you have to buy into every new crypto trend.
Head held high
I know the bear market hurts.
I made my first crypto purchase in January 2018 (XRP on the moon!), and it lost 70% of its value in that year.
Then when the 2020-2021 bull run came, I didn’t take enough profits near the highs.
I am sharing this to illustrate that I am well aware of the emotional roller coaster that investing in crypto can be.
However, what keeps me going is the idea that bitcoin is hope – a financial hope at least – for myself and for the millions of other people around the world who have invested in it and believe in it values the asset preserves.
This week we celebrated the 14th anniversary of the release of the Bitcoin White Paperdocument to which some hold as much as a religious text or the constitution of a government.
If you haven’t read it, I suggest you do, because having a deeper understanding of the nature of the crypto assets you’ve invested in is another way to alleviate some of the anxiety that comes with owning of these assets through a bear market. .
Because if you’re only in it to gamble, the detrimental effects of losing a significant portion of your net worth in crypto will only magnify the psychological and emotional challenges you will inevitably face when investing in this class of cryptocurrency. ‘assets.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.