Meet Mark. He’s a really smart guy, runs an incredibly successful business, but he started thinking of Bitcoin like a lottery ticket. He got FOMO’d by that clickbait, he got Lambo’d by that hype, and he dove into the space without knowing anything. He had purchased high, panicked at the bottom of a dip caused by concerns over regulation, and sold low. Now, he goes around saying Bitcoin is a scam. Mark’s story isn’t unique. It was a foolproof example of emotional investing at its worst.

FOMO Is Eating Your Portfolio

We’ve all been there. Watching an opportunity skyrocket and that annoying voice in your head saying, “FOMO FOMO FOMO. That's FOMO – Fear Of Missing Out – and it’s Bitcoin's best friend and your wallet's worst enemy. That buzz makes consumers willing to line up down the block for the new iPhone. They’ll do it even if their existing phone is in great working order! The problem? The stock market is not a new iPhone.

Bitcoin's volatility amplifies FOMO. You watch it go up, you feel like you’re going to miss the spaceship to wealth, and you load up. And then when the inevitable correction arrives, fear sets in. You want to collect, you see red, you remember every single horror story about someone losing everything so you sell at a huge loss. It’s an awful cycle, and it’s fueled completely by emotion, not reason.

Bitcoin's fixed supply of 21 million coins should be a source of long-term price support. FOMO makes it a speculative mania. This artificial shortage serves as the perfect excuse to panic buy, inflating the price to unsustainable levels.

HODL Is Not Always Holy

HODL – Hold On for Dear Life – has morphed into a Bitcoin lovers’ battle cry. It’s intended to be a bold statement of deep faith and enduring loyalty. HODL can be a dangerous mantra. It’s a term that’s frequently used to justify staying the course in a bad investment, no matter what the market is doing or one’s life situation may be.

Imagine this: You bought Bitcoin at $60,000. It drops to $30,000. You HODL. It drops further to $20,000. You still HODL. How long do you wait before throwing up your hands and saying, “this has gone far enough?”

The folly of HODL is that it has no concept of risk management. That’s a huge assumption, it assumes Bitcoin will only go up, and that’s just false. Market sentiment can change overnight, regulatory headwinds can arise, and technological innovations can reshape the terrain. Blindly HODLing through all of that would be sailing a ship through a storm with no rudder.

This isn’t about compromising your principles — it’s about being practical. The Crypto Fear & Greed Index is an excellent starting point for gauging the mood of the market.

Bitcoin's Gold Rush & Tulip Mania

Arguably, it is bitcoin’s appeal as digital gold that has led to the lack of consumer protections. Yet it eerily reflects past bubbles, including the Tulip Mania of the 17th century. At the time, tulip bulbs were the subject of one of history’s most notorious speculative bubbles, the prices of which reached ridiculous heights before collapsing dramatically. Some people were taking mortgages on their houses to get tulips. They were motivated by the same FOMO and get-rich-quick fantasies that power Bitcoin in 2022.

The contrast couldn’t be more striking. Bitcoin is more complicated and international in scope, and it could definitely be much more disruptive than tulips ever were. The underlying psychology is the same. To be fair, people are attracted to the promise of easy money. In their rush to cash in on the new gold rush they frequently fail to consider the risks involved.

It can be a transformative technology, but it is not a guaranteed path to riches. It’s an investment, and as with all investments, it is a risky investment. Don’t let your excitement make it a money pit. Take it on with a logical brain, a reasonable plan, and a big spoonful of cynicism.

  • Develop a plan: Before you invest a single dollar in Bitcoin, define your investment goals, risk tolerance, and time horizon.
  • Diversify: Don't put all your eggs in one basket. Spread your investments across different asset classes to reduce risk.
  • Set stop-loss orders: Protect your capital by automatically selling your Bitcoin if it falls below a certain price.
  • Detach your emotions: This is the hardest part. Learn to separate your emotions from your investment decisions. Don't let fear or greed drive your actions.
  • Educate yourself: Understand the technology, the economics, and the risks of Bitcoin before you invest. Don't rely on hype or hearsay.
StrategyDescriptionBenefit
DiversificationSpreading investments across various assets (stocks, bonds, real estate, crypto)Reduces risk by mitigating losses in any single asset.
Stop-Loss OrdersAutomatically selling an asset when it reaches a predefined price threshold.Limits potential losses during market downturns.
Dollar-Cost AveragingInvesting a fixed amount of money at regular intervals, regardless of the asset's price.Reduces the impact of volatility and averages out the purchase price over time.
Research & Due DiligenceThoroughly investigating an investment opportunity before committing capital, including analyzing financials, market trends, and regulatory factors.Increases understanding and reduces the risk of making uninformed decisions.

Bitcoin has the potential to be a transformative technology, but it's not a guaranteed path to riches. It's an investment, and like all investments, it carries risk. Don't let your emotions turn it into a trap. Approach it with a rational mind, a clear plan, and a healthy dose of skepticism.