The crypto market is an unforgiving place. A study by the Bank of International Settlements estimates that 73% to 81% of Bitcoin (BTC) investors have lost money on their initial investment.
Considering those odds, I've done reasonably well. My cryptocurrency portfolio is up about 45% from what I initially invested. I'm not exactly one of those crypto millionaires you hear about, but I've at least come out ahead so far.
That isn't because I'm a master of picking cryptocurrencies. I just have three rules for investing in crypto that have helped me succeed. If you're a current or future crypto investor, they could improve your odds, too.
1. Buy and hold for at least five years
Patience is a virtue, especially when you invest in crypto. It's extremely volatile, and it often goes through bear markets (a lengthy drop in prices). With crypto, these bear markets can last for years.
Buying and holding is recommended with other types of investments, too. But it's harder to stick to the plan with crypto, because it goes through larger price drops and for longer time periods. When your portfolio has lost 50% of its value and counting, with no end in sight, it's understandable that you might want to just cut your losses.
When I buy cryptocurrency, I tell myself that I'll hold it for at least five years. This has been crucial for me. My portfolio spent years in the red, but I didn't sell, and prices eventually rebounded.
Our top crypto play isn't a token - Here’s why
We’ve found one company that’s positioned itself perfectly as a long-term picks-and-shovels solution for the broader crypto market — Bitcoin, Dogecoin, and all the others. In fact, you've probably used this company's technology in the past few days, even if you've never had an account or even heard of the company before. That's how prevalent it's become.
Sign up today for Stock Advisor and get access to our exclusive report where you can get the full scoop on this company and its upside as a long-term investment. Learn more and get started today with a special new member discount.
Get started
2. Focus on the largest cryptos
I've dabbled in smaller cryptocurrencies, but most of my portfolio is in the top two: Bitcoin and Ethereum (ETH). These have been the largest cryptocurrencies since 2016. They make up over 80% of my crypto portfolio.
I understand the appeal of less popular altcoins. Everyone wants to invest in one of those cryptocurrencies that explodes, turning $1,000 into $100,000 or more. But the overwhelming majority never do, and it's impossible to know which ones will.
All cryptocurrencies are risky and highly volatile, but Bitcoin and Ethereum are the safest. They've shown the most staying power so far, and when the crypto market does well, they tend to do well.
While smaller cryptos may have more potential to go "to the moon," they're also more likely to lose 90% of their value -- or disappear entirely. If you want the best odds of making money with crypto, I'd recommend putting the bulk of your portfolio in Bitcoin and Ethereum, in that order.
3. Don't overcommit
Due to its volatility, crypto shouldn't be a large part of your investment portfolio. A good rule of thumb is to put no more than 5% to 10% of your portfolio in crypto. The other 90% to 95% should be in more proven investments, such as stocks and real estate. So if you're investing $100,000, don't put more than $5,000 to $10,000 into crypto.
I follow this rule, and I accept from the beginning that my crypto investments could go to $0. I certainly hope that the cryptos I've invested in change the world and make me a ton of money in the process. But if I lose all the money I've invested in crypto, I'll be fine.
This makes it much easier to handle the ups and downs of the crypto market. When prices drop, I'm not tempted to sell and salvage what I can of my money. Instead, I think, "Why would I want to sell now and lock in my losses?" Since I don't need the money, I can wait and see what happens.
It's always a good idea to have a plan as an investor. That's especially true with crypto, where many investors make rash decisions. There's no guarantee that you'll make money, but if you follow these three rules, it's more likely.
