Crypto Investing and Mental Health
This guide will remind you of good practices in crypto investing which can help you maintain your mental well-being.
Cryptocurrency trading has had its share of negative press, especially in relation to mental health.
The price volatility of any investment, but particularly the crypto market, combined with the fact that crypto is highly accessible to everyone, can mean increased stress and anxiety for many market participants.
This guide was written in the spirit of Mental Health Awareness Day. It’s aimed at crypto investors and traders at all levels. If you are new to crypto, let this be a useful lesson in crypto investing.
If you are experienced, let this be a kind reminder that your mental health is as important as the return on your investment.
- Before investing in crypto, ask yourself what your investment goals are in this asset class. Having a goal in mind allows you to stay grounded when the market volatility is high.
- Employ good investing practices: save before you invest, use only cold money, set goals for yourself, and stay consistent with your investments.
- Establish a healthy mindset and mental resilience by educating yourself and also conducting your own research. Understanding what you’re investing in can help you make more informed decisions.
New to crypto? Master the basics with our crypto 101 guide.
Having a healthy mindset
For those who are inclined, investing in new and often unproven crypto projects, or using leverage to multiply your crypto trading potential certainly play a part in investment strategy. However, in doing these activities, it’s always good to maintain a healthy mindset.
If it helps, let this be your mantra:
- You are risking a manageable amount of your total capital.
- This is NOT about getting rich quickly.
- As you are only risking what you can afford.
- You will be happy with any amount of profit you make.
- Be patient — remind yourself that prices go up and down.
Adopting a healthy mindset means taking some of the emotion out of the process which should, in turn, help reduce stress and knee jerk reactions that can impact your trading risks.
The systematic risks of trading or investing in crypto assets or projects may always be there as with any investment. However, you can reduce unnecessary risks that stem from emotional decision-making.
Mental resilience & media consumption
In general the media and other websites have one focus – to attract readers and listeners onto their own platform and to stay there as long as possible, so they can earn revenue from advertising.
This means that headlines and topics are often crafted to evoke strong emotions to keep the audience engaged.
You are likely to both be bombarded with messages and read or listen to news about a particular asset’s meteoric rise in the market, or total failures or scams in the scale of billions of dollars.
These may be enticing to learn more about, but they may not necessarily be helpful to you.
Therefore, think about what you consume and read widely – look for alternate opinions and do your research.
But if you often feel uneasy due to the volatility of the market, it is worth spending time learning about the cyclical nature of markets and how they move through phases of growth and decline. And perhaps even how these two concepts relate to what’s happening in the global economy.
A healthy world economy and advancements in science and technology are some of the primary drivers of wealth among the global population.
These advances will also get reflected on the market price charts over long periods of time.
Many experienced investors value slow and steady growth, and choose not to get too distracted by the noises of temporary market corrections that may impact on the current market situation.
Investing with good practices
You may be someone who trades crypto for a living. Or you could be someone who passively invests in crypto. Regardless of what you do, a basic understanding of good practices in investing can serve you well during periods of uncertainty.
Financial behaviours differ from one individual to another, but the overarching themes remain the same:
Save before your invest
It’s a common mistake to dabble in financial markets before you have a sufficient amount of savings. No matter your source of income, it’s never 100% guaranteed that you will earn money every single time.
So, set aside savings and only use some of those funds for investment.
Do your own research
This is imperative before going into any type of investment, especially cryptocurrencies. Doing your own research involves taking time to understand the various aspects of the crypto you wish to invest in.
Learn the fundamentals of the coin, how its value has performed historically, what factors have affected its price and volatility, what institutional backing does the coin have, what are the future prospects of the crypto project, what innovations does the project bring to the space, and many more.
It can be tempting to just buy and invest in coins that other people are investing in, but then that would open up yourself to a higher levels of risk, and potentially even scams or fraud. Doing your own research will help you make more informed decisions, and avoid potential compromises in the long run.
Need a place to start? Read our guide on how to do your own crypto research.
Invest with a goal in mind
“To earn as much profit as you can” may not be a realistic or useful goal. Investing is usually bound with time. Are you investing so that you can establish a deposit for a house in 3 years time? Are you investing for your retirement or for your kid’s financial betterment?
The shorter the investment time horizon, the riskier your investment will be. Remember, the crypto market is highly volatile. In 2022, Bitcoin has recorded a 60% drawdown, although its current price is about 70x higher than it was five years prior. The longer timeline for seeing a return the more likelihood you’ll see a better outcome with your investment.
You may love crypto for their historic gains, but it’s good to be practical. Crypto has only been around for a little more than a decade. Traditional investment instruments, like government bonds, stocks, index funds and mutual funds, have also helped many ordinary investors for many years.
It’s unwise to ignore these instruments or deem them as having less worth than crypto. A diversified portfolio is a sensible way to manage your investment risk. Even if you are investing aggressively into crypto for the long-term, it is worth including less volatile instruments in your portfolio.
Even within your crypto portfolio choices, it’s a good practice to diversify across a different coins, with both similar and varied project objectives and purposes
Related: Learn how diversification can benefit you.
Invest consistently over time
There are many Internet gurus who promise to teach aspiring investors the illusive knowledge of buying an asset at the best time possible. In reality, the market is hard to predict — at least, in the short-term.
However, rather than painstakingly analysing price charts, some investors don’t try to time the market at all. Rather than buying an asset in a lump sum, they would invest consistently in smaller amounts over time.
These investors would still invest, even if the market wasn’t going the way they wanted. That’s because they believe that the market will recover again, and that they are buying up assets at a discount.
This simple technique is called Dollar-Cost Averaging. Anyone can do it, even with very small amounts and there’s supporting evidence that it works well with extremely volatile markets.
Learn more: What is Dollar-Cost Averaging?
Having a healthy mindset and approach, being mindful of your media consumption, and investing following good practices will help you maintain a healthy mental outlook.
Keeping a focus on your long term goals should help maintain a clear mind about your financial objectives despite the short term swings of the markets.
If you have to take one thing away from this guide, it is that you should plan to be patient. We wish you every success in your crypto journey!
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated January 19, 2023