Managing Risk
SALtoshi Whitepaper #103
Fellow humans,
Quick note to address the current bitcoin market conditions, and hopefully provide some helpful insight about risk/perspective. Please note risk comes in many forms, not limited to those discussed below. Breathe, don’t panic, and step away from the market if needed.
Being an investor is mostly about managing risk. If I’m taking too much risk, I’ll probably lose. If I’m not taking enough risk, I’ll probably lose. Other factors are helpful too, such as being able to do relatively basic math, and understanding my preferred asset (bitcoin). I remember a time when I actually sold my entire crypto portfolio years ago, because I was suddenly aware of my lack of understanding of crypto assets. Realizing my ignorance probably saved me from a lot of losses. Also, acknowledging Bitcoin is not just another crypto. Bitcoin is the crypto.
Education is paramount.
Clearly I had no idea what I was doing when I was introduced to Bitcoin in July 2017, which is probably common for anybody entering the Bitcoin space now. No worries though, education takes time and effort. I didn’t understand the concept of money. I didn’t understand financial markets. I didn’t understand the importance of being debt free. Being in a bunch of unnecessary debt does not mix well with being an investor.
The first lesson I needed to learn was to become debt free before becoming an investor. How can I take the first step of investing in volatile markets like bitcoin, when I don’t have my financial priorities straight? Let’s imagine for a moment that I have loads of debt (which I did) — auto loan, credit cards, personals loans, etc. Take a look at the 24 hour chart below, and imagine how much danger I would be in if I’m depending on bitcoin to consistently perform well.
Notice bitcoin went from $55k to $45k in about 12 hours. Major market dips are very common with bitcoin, because bitcoin is such a young asset. We’re still very early, and the volatility is proof. Investors taking on too much risk probably cannot handle 18 percent dips in a 12 hour period. However, I’m not taking too much risk, so this scary red chart has no negative impact on my financial situation. I’m not a short-term investor making short-sighted moves. I’m not depending on bitcoin to perform well in order to cover current expenses. I’ll simply ride the wave, and probably buy more.
Additionally, I’m only buying spot bitcoin with dollars from my savings account. I’m not borrowing money to invest, and I’m certainly not using leverage. More power to those who succeed with debt and leverage. I’m just a simple man who wants to stack sats, and not worry about downward volatility. The main reason I’m not worried about the recent crash is because I have nothing to lose. Just because bitcoin lost value against the dollar, does not mean I lost bitcoin. I had X amount of bitcoin before the crash, and I have X amount of bitcoin now. One bitcoin always equals one bitcoin.
Best information I can provide — your financial situation is unique to you. I have my own circumstances, and you have yours. However, one common factor all of us should strongly consider is holding bitcoin for long periods of time, as long as possible. Why? Because I’m extremely hopeful for the future of Bitcoin. The first, strongest, and most reliable blockchain will not disappear. I believe bitcoin’s market will be a direct reflection in the long term, which means bitcoin’s market value is going up forever.
Until next time,
Salvatore Norge
P.S. — Seriously considering dreadlocks for my 32nd birthday.
Sal,
I saw that Bitcoin was trending down, so thank you for the information. It was very helpful.
BTW if you DO lock your hair, be sure to research how to properly maintain them. It is a process. You want them to look nice, clean and neat. There is nothing more unattractive than unkempt, matted locks.
Good luck! 🙏🏾
Robbin