Cryptocurrencies have been having a tough time recently.
Whether you’re talking about how bitcoin has lost all of its post-election gains or whether you’re talking about the failure in getting crypto regulation legislation through Congress (so far, at least), some of the things that gained the interest of more cautious retail investors have dampened that enthusiasm.
Of course, just the cooling of retail investors’ interest could be enough, but institutional investors are showing more hesitation with cryptocurrencies, too.
It hasn’t exactly been a situation that supports a bull market in crypto.
I’m going to take a contrarian stand today, and tell you why these are all good things. All positive developments for crypto as an asset class.
Clarity comes to crypto
Now, you may be asking why you should want these things to happen, and that’s a good question.
The answer comes down to clarity about crypto.
See, one of the smartest things that you can do with your savings is to look at it coldly, rationally, in the clear light of day. You want to keep from getting caught up in irrational exuberance and speculation.
Irrational enthusiasm about some things, like your kids or your hobbies, is a good thing! At least most of the time. Irrational enthusiasm about your investments leads to poor decisions driven by emotions, not logic.
So, when illusions around an asset class crack and shatter, it may be uncomfortable in the short term, but it’s a good thing in the long run because it helps you to make smarter decisions with your investing dollars.
Take some of the popular ideas that have been used to promote crypto over the last couple years:
The government will set a price floor with a Strategic Bitcoin Reserve!
Nevermind that the government can’t balance its own budget. Congress spends most of its time deadlocked in partisan bickering like the world’s longest and worst Thanksgiving dinner… While a strategic bitcoin reserve is arguably a very good idea, the fact that federal bitcoin would exclusively come from assets seized during law enforcement actions, the notion of a federal price floor for bitcoin doesn’t hold up.
If institutions are invested in crypto, then, that makes it safe… because they’re there!
Granted, institutions usually have stronger research departments and more resources than you and I do to inform their decisions. But institutions can make mistakes, too. Ultimately they’re looking out for their own interests, which can be very different from your interests. Institutions are made up of individuals, yes, but they aren’t individuals.
It’s smarter to buy crypto in a business wrapper, and easier than owning it directly!
We’ve talked about this fallacy before, back when I made the case that it’s just plain silly to pay $2+ for $1 in crypto. For a while, businesses were treating crypto adoption as an “infinite money glitch.” But the hype faded… Recently The Wall Street Journal gave a rather disheartening update on the state of digital asset treasury (DAT) companies. Spoiler alert: overpaying for an asset doesn’t make it worth more.
Price action is progress!
This might be the ugliest fallacy of all because buying into it causes people to make especially terrible decisions, yet, it’s a half truth at best. You do want price action, and volatility is necessary for potential price gains… but not all price action is good. Sometimes price action is a signal that you don’t want to stay in that particular investment because you rationally don’t see it recovering.In other words, you have to rationally evaluate that price action to see whether it’s something to be weathered or a signal for you to make a change.
Recognizing these illusions allows you to see when you may have been unconsciously working with them as assumptions, and recognizing that, you can choose to discard those assumptions to make better investment choices for yourself.
So, what is the truth about crypto that we’re seeing now?
The first thing to realize is what not to expect with crypto:
You should not expect a government bailout of your coins if there is a downturn. They’ve specifically said that won’t happen.
And, really, you don’t want bailouts for crypto. If it needs them, that’s an indication that it’s not a good investment choice.
After all, you do realize that crypto exists outside the mainstream system, and because of that, can’t depend on the system, right?
You also may not want to wait until crypto regulation gets through Congress to make a decision about investing into crypto based on that assumption. At this point, it’s not clear how soon that legislation will pass.
And you don’t want to approach crypto as a “smart” gamble. You weren’t looking for crypto to be the next quick buck gambling habit, were you? (The right answer is “No.”)
Crypto in general, and BitIRA in particular, is not for quick buck day traders who treat investing into crypto like a slot machine or blackjack table. It’s not for those who want guarantees in investing from government bailouts. It’s not for people who need investing “gurus” in the media to tell them what to think or do or to soothe their anxieties with their proclamations and narratives that change every few weeks..
BitIRA may be for you, though, if you take the following approach in your investments:
- Work from long-term investment thinking (think retirement planning, not speculation)
- Make modest allocations into different investments and investment classes
- Want disciplined custody and security
- Are risk-tolerant enough to weather a crypto winter (the long-term planning helps with this)
- Approach crypto like every other financial asset: no percentages, no promises, no price targets
So, crypto is growing up, and growing up can be hard.
But growing up leads to good things, too! Yes, there’s awkwardness and periods of bad decisions (and bad haircuts). But overall, growing up is part of the process leading to maturity and wiser decisions. Financial assets, like people, go through stages of growth and maturity.Once the noise fades, what matters most isn’t headlines or speculative price action, but how an asset is owned, secured and sized within a long-term savings plan. Our Crypto IRA Guide explains those mechanics in plain terms, so you can decide for yourself whether crypto deserves a place in your retirement strategy.
