I am currently the Head of Research at SmartFi, a crypto community that has been around since 2017. Over that time, we have met a lot of people that made a lot of money from crypto. They all had different stories of course, but there were some things that kept coming up as we discussed their success. Their crypto journeys had nearly all involved a repeating, three-step process. Here are the three steps they took…
1: Learn
You have probably heard people say, in an investing context, that you should never put money into anything that you don’t understand. That is good advice in some ways, but it should not be taken too far…and it often is when it comes to crypto. Learning about crypto isn’t about understanding every technical aspect of blockchains and mining. It is about understanding different tokens and coins and the advantages and disadvantages they have, and it is about understanding yourself; what are your goals and how long are you looking ahead?
If you can learn about those things, you can use crypto to help with getting to where you want to be. People do that all the time with other things, without necessarily understanding their ins and outs. Most people, for example, don’t understand how to calculate a bond’s duration or even its yield to maturity, but that doesn’t mean that they should never buy bonds or use them as part of a long-term strategy. Where the need to learn comes in is not in terms of the complex workings of the fixed income market, but in the specifics of a bond that you may intend to buy. What is the annual interest you will earn, when does it mature, and how solid is the issuing body, the company or government entity that you are in effect lending to, are all questions that should be asked.
The learning process before getting involved in crypto is similar, although the questions are different. In that case you should first be asking questions of yourself. “What am I trying to achieve?”, “How much time and patience do I have?”, and “What amount can I use from each paycheck without negatively impacting my lifestyle?” are all good questions to answer before you get started.
Then, you need to learn something about the available tokens. If you developed an early interest in crypto, Bitcoin was just about your only viable option, but there are now over 20,000 crypto coins and tokens to choose from. Understanding then all in detail is just about impossible. However, if you start with certain things that you see as important and narrow it down, it can become much more manageable.
Do you want some kind of guarantee, for example, or is a US based project with some kind of regulatory agency registration important? Do you want something purely speculative, or something with utility and the backing of assets? Are you looking for a “one stop shop”, where you can combine crypto with fiat currency and traditional banking for ease of transactions? These are all considerations before you move to the next step…
2: Plan
Once you have landed on a crypto coin or token that fits your requirements, or maybe several of them, the next step is to plan an approach. In a market as volatile as crypto that means more than just jumping in and committing all your available funds in one go. The most successful people we have spoken to over the last five years rarely did that.
They understood that if you did, the emotional pressure should the price drop after you bought could be enough to make you sell out from a position that was initially designed to be for the long-term, something to be held for periods measured in years, not hours or days. You could end up selling a long-term investment because of short-term factors. In other words, they understood that trading and investing were two different things, and that when you are investing you should avoid making decisions based on trading criteria.
The answer is to do what investment professionals call “dollar cost averaging”, buying in small, regular increments until you have either bought the total amount you intended to, or until you reach your goals. That way, if the price goes down after your first purchase, you are happy…now you can buy lower. If it goes up, you have at least bought some at or near the low, and it may drop again before your next purchase.
The point is, you are following a plan, buying what you can afford, when you can afford it, with long-term goals in mind.
3: Do
In many ways, “do” seems to be the easiest of the three, but when it comes to crypto, there are couple of points to make when it comes to “doing”.
First, for beginners, buying crypto isn’t usually a matter of just pressing a button. To buy crypto, you have to set up an account with a specialist exchange and then fund it. Depending on what you are buying and from where, you may also have to go through an additional step, buying a stable coin with your fiat currency to exchange for the token.
Second, the difficult thing about following through with a plan to buy crypto can be staying committed as the market fluctuates. As that happens various talking heads will add to the pressure as they tell you that disaster is coming. You have to trust the research you have done and the plan you have made through steps one and two, and stay committed to the course through the inevitable ups and downs. After all, you knew they were coming…that is why you planned in the first place.
The last part of doing is to go back and repeat the process, to close your own feedback loop. Go back and look at how you did. Learn from that, plan to do better, then do again.
If you follow the three basic steps, you learn, you plan, and you do, there is no guarantee that you will get to your goal with crypto; there cannot be any guarantee with anything that is traded and that fluctuates. However, learning from those who have been successful in the past and following their three steps to success will increase the chances that you get to where you want to be.
Watch the video to learn more
Author: Martin Tillier
Martin has around forty years of market experience and, in addition to his role as Head of Research at SmartFi, is a daily contributor of market analysis and opinion to Nasdaq.com. He first became interested in crypto 2014, when he started writing regularly on the subject. He is from England but now lives in Connecticut, USA with his wife, his dogs, and his three kids’ college tuition bills.
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