The CEO of a crypto financial advisory firm says the bear market is a buying opportunity for investors who feel left out. The famous CEO shares 3 rules for investing in crypto money.
“The current situation is an opportunity for those who lag behind when it comes to cryptocurrencies”
The recent market crash has caused a lot of fear, uncertainty and doubt among crypto investors. Many thought that in an environment of high inflation, crypto would act as a hedge. However, government regulations are imminent. Also, tech shares are in a correction. So in this environment, the cryptocurrency hyp seems to have cooled.
Onramp is a fintech company that helps financial advisors provide crypto services to their clients. Eric Ervin, CEO of Onramp, joined a recent episode of Behind the Markets. Eric Ervin spoke about these issues with Jeremy Schwartz, Wisdomtree’s CIO, and Ben Dean, Director of Digital Assets.
They discussed on the podcast why investors should not be afraid of the recent crypto bear market. There were many who felt lagging behind on cryptocurrencies before. In fact, all three see the current situation as a buying opportunity for them.
Eric Ervin explains why developing a rules-based investing thesis in this crisis can result in asymmetric returns for principled investors. He also shares three rules for investing in crypto.
What are bear market woes and why is it an opportunity?
Ervin, Dean and Schwartz think that today’s bear market is actually the perfect time for those who were late to enter the crypto market earlier. Eric Ervin says:
Most people are more positive than they’ve ever been, maybe even a little more positive. Because I think some of the flowers are outside the rose. They wanted to allocate it to crypto. However, they hesitated a bit in this raging bull market that we have been in for many years. However, they start coming back and saying “okay, things make a little more sense”.
They also discussed the need for investors to diversify their crypto portfolios. Ervin states that recent history has shown why an investor cannot diversify their holdings by buying the ten largest cryptos by market cap. He notes that the reason for this is the turnover that occurs regularly in crypto.
For example, Luna became the 10th largest cryptocurrency on the market in December 2021. However, just five months later, the crypto collapsed, as you can see from the Cryptokoin.com news. In this context, Ervin explains:
You have to take a slightly more cautious approach to virtually avoid certain assets. But at the end of the day, you can’t avoid everything. This is a highly speculative asset class. That’s why you need to diversify.
Ervin’s rule of three cryptocurrency investment
Ervin and Schwartz believe that crypto has shown its resilience during this bear market. They also think that this is a good opportunity for investors to prepare for the next bull run. Additionally, they point out that investors can lay the groundwork for great results before the bull market.
However, they point out that a smart investor should act on principles, not emotions, in a volatile cryptocurrency market. Ervin wants to help investors do just that. So, he shares his three rules for investing in the cryptocurrency market.
1-Don’t dedicate more than 3% of your portfolio to crypto
Ervin warns investors not to keep too much crypto in their portfolio. For this, he recommends allocating ‘no more than 3% of your total portfolio to crypto.
Dean states that investors should behave similarly to investing in the startup ecosystem. In this way, he states that they should consider investing in crypto. He recommends thinking of crypto as a venture capital game. Similarly, instead of investing in more standard stocks, he suggests investing in bold ideas and entrepreneurs in a particular industry.
Schwartz also says it supports a 1% allocation to crypto in a portfolio initially. But as markets start to rise tremendously, he says he begins to feel left out of the gains. Ervin says that by 3% you keep yourself from feeling FOMO.
2-Invest with a longer-term mindset
Ervin states that the problem with many investors is the desire to see immediate profits. Therefore, it envisions a time frame of at least three years to evaluate success. It is, however, a reminder that a volatile asset like crypto will result in dramatic gains and losses in any time frame. On the subject, Ervin explains:
By committing to holding your investment for a certain period of time, you prevent you from acting irrationally. Because based on a bull or bear swing in the market and you are not chasing profits. Additionally, it is necessary to invest with a longer-term mindset.
Ervin states that this thinking will encourage investors to properly analyze their crypto investments. He also notes that it will help determine which cryptos have the potential to yield long-term returns and which ones are temporary.
3-Look at the average dollar cost of crypto
Ervin and Schwartz recommend ‘dollar cost average’ for purchases. They point out that this is one of the best ways to control your emotions when investing in a volatile market.
Dollar cost average means purchasing a fixed amount of an asset at regular intervals over a long period of time. They say to combine this with limiting your investment to 3% of discretionary income. They emphasize that this way, you will make a cautious, less emotional and more principled crypto purchase for your portfolio. Here’s how Ervin explains:
Close accounts, don’t look at accounts, and then come back. I don’t think you’ll hurt yourself if you do that. Because it’s just a rule-based equation. Most of the mistakes I made while investing were human-induced. But when I have rules and a system, I can stick to it. Usually things go well.
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