Is It Safe to Invest All Your Savings in Cryptocurrencies?
In 2017, a 39-year-old man from the Netherlands, Didi Taihutu decided to sell everything he had, including his house to invest in Bitcoin. He and his family adopted a minimalist style, waiting for Bitcoin to explode by 2020 and receive a considerable fortune from all-in the investment. Regardless of whether Didi’s method is reasonable or not, there have been waves of appraisers from all over the world for his dedication.
The question remains: Should you follow Didi’s footstep and invest everything you have in cryptocurrencies?
Diversification is key
Before gathering all of your money and start investing, it’s vital that we have a look at the rules of investment. Aside from ‘buy low, sell high,’ diversification is an investing concept that truly works for everyone.
While there have been many success stories of how some people concentrate all of their funds into one sector and win bigger than any other diversified portfolio out there, those cases are merely winning a gamble rather than investing. If you can win big, you can lose big too.
The key is not in the profit, but rather in how much we can control the risk for long-term rewards, and controlling risk means staying diversified at all times.
However, diversification here is regarding sectors diversification, not companies. If you can gather a variety of sectors in your portfolio, you cannot get hit by the sudden storms that come way more often than you think.
With all that said, there is no reason why you should go all-in for the cryptocurrency sector alone.
If the market collapses, everything inside the sector will fall, and all of your savings will go to waste. There’s no guarantee that the market will never collapse because no one is capable of knowing exactly what will happen in the future.
The cryptocurrency market has been considered highly volatile throughout this year, and the fact that it is on a continuous downfall makes it even riskier. You don't know when this trend will stop.
As mentioned above, every good investment requires a certain degree of diversification. Hence, you should not invest everything into just one thing, which is cryptocurrency in this case.
Instead, divide your portfolio into different sectors such as real estate, tech or fiat currencies, and leave a space for cryptocurrency. Even after you have decided to give cryptocurrency a room on your highly divided investment portfolio, don't go all-in for just one cryptocurrency like Bitcoin, but rather invest equally in a variety of cryptocurrencies such as Ethereum, Litecoin, Dogecoin, Ripple and many more.
The future of cryptocurrency is auspicious, yet very volatile due to its characteristics. Be wise, invest some and get it rolling, but never put all of your eggs in one basket.