The Bitcoin Investment Plan – A Helpful Guide
Table of Contents:
- Recognize Opportunity In Risk and Establish Objectives
- Develop A Wealth Preservation Strategy
- Transitioning From Motion To Action
This article is intended to aid the reader in creating their Bitcoin investment plan. It begins by defining a foundational approach to risk assessment concerning Bitcoin. After defining and understanding risk, the focus shifts toward two high-level investment objectives: wealth preservation and accumulation. The Bitcoin investing strategy – a step-by-step approach
Recognize Opportunity In Risk and Establish Objectives
Any investment strategy must begin by identifying the opportunity and defining value and risk. For these articles, we will avoid going into great depth on the potential, value, and risk associated with bitcoin as an investment since this would detract from the primary objective, which is to develop an investing strategy centered on bitcoin. With that stated, everyone is urged to do their research.
As a result, Bitcoin is the world’s largest hedge against the economic rules that govern all money. Despite this, bitcoin should be seen as a binary investment. Because in the end, a decentralized global digital money will either succeed or fail – moon or bust. When defining risk in an investment plan, keep in mind that the value of a bitcoin might decrease to zero (although slowly). So a consensus must be reached. How bad would it be if the investment was halved? This question must be addressed honestly and absorbed before buying a single bitcoin. Assume someone chooses to invest 50% of their annual income and 50% of their liquid assets in bitcoin.
Develop A Wealth Preservation Strategy
The next stage in constructing a bitcoin investment plan is to create an efficient execution strategy – a method for achieving the objectives established in Step 1.
Generally, the first step’s bitcoin investing objectives will fall into two categories: wealth preservation or wealth increase. Each has its own set of concerns while developing a plan of action. When it comes to wealth building, the investment horizon is often shorter, and the earnings of created money are typically used to sustain a certain lifestyle. When it comes to asset preservation, it’s critical to remember that the investment horizon is theoretically endless. This is because safeguarding wealth from seizure, devaluation, and natural calamities is a never-ending process that often spans numerous generations.
Suppose the purpose of investing in bitcoin is to preserve wealth. In that case, it should be underlined that bitcoin should NOT be the sole vehicle used to accomplish this aim (recall from the previous step that only a fraction of net worth should be held in risky investments). Having stated that, wealth preservation is accomplished by converting a fraction of total wealth to bitcoin.
Transitioning From Motion To Action
Whether investing in bitcoin with wealth preservation or an accumulation attitude, a strategy without execution is pointless. So what factors contribute to the success of a bitcoin investing strategy? The three critical components are consistency in investment habits, emotional control, and tax preparation.
First, consistency. Whether the goal is to protect money by DCAing a million dollars over six months or grow wealth by saving $100 per week for 20 years, consistency is key. They function well together because each strategy is based on averages, and the only way to duplicate that average in real life is to be rigorous with measurement frequency. Consistency helps real-world outcomes match mathematical models. And the mathematical model’s expectations (earnings) will be closer to reality than the mathematical model’s average price/growth. The saner an investor remains! Controlling emotions is as crucial as executing a strategy consistently.
Even the most disciplined investor will succumb to emotion while following a strategy. Because even with flawless execution, outliers occur. It is conceivable to start purchasing at a macro market top, whether for preservation or accumulation. You could also get fortunate and capture the bottom. Emotions accompany rare results (and all other noteworthy outliers). This feeling may be harmful because it creates a sense of urgency that hinders the implementation of the original plan. Imagine purchasing at the peak and holding for five years to break even as prices return to normal. Imagine purchasing at the market’s low and selling three years later after a 3x profit, only to watch bitcoin surge 10x. The point is that bitcoin will always have price fluctuations, and the best way to limit them is to adhere to the strategy while focusing on the objective.
Let’s not forget about taxes. However, early tax planning and infrastructure creation are critical to executing a trading strategy properly. There are too many factors to name here, such as jurisdiction, tax rates, tax vehicles, budget, and citizenship. So seek expert advice. Generally, the more someone plans to collect or preserve, the more care should be taken to ensure that the investment is made using vehicles that suit the final purpose. Record keeping is required for both complicated and basic tax plans. After all, the records validate the transactions in the eyes of the state.
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