If You Want to Invest in Bitcoin, I Believe This Is the Best Way

Jan 12, 2018

Over the years, I have seen people make big mistakes with asset allocation.

Instead of having an overall portfolio strategy, they invest in stocks in a very ad-hoc manner.

I'm going to show you in a bit how people missed out on bitcoin because of the very same mistake.

Yesterday I revealed one mantra about navigating through expensive markets - Move forward...but with caution.

As Rahul Shah showed in his Profit Velocity report, one of the ways to minimise your downside risk in an expensive market is to get your asset allocation right. If you think the markets are too expensive, you probably don't want to have 100% of your investible corpus in equities. Keep a certain proportion of your corpus in cash.

When it comes to investing, 'how much to buy' is as important as 'what to buy'. At times, even more important.

The key to making big money in high-risk investments in bitcoin

The saga of bitcoin is the most telling case study to validate the importance of asset allocation.

Let me elaborate...

Three friends, Ramesh, Vijay, and Amit had the opportunity to invest in bitcoin - a very high-risk, high return investment.

Ramesh felt drawn to the opportunity, but was overwhelmed by the riskiness and price volatility.

Vijay was super enthusiastic about the prospects of bitcoin and allocated 20% of his investment corpus to the cryptocurrency.

Amit weighed the risks and the potential upside, and decided to limit his exposure to 1% of his investment corpus.

What happened?

Ramesh stayed on the sidelines, being a mute spectator of bitcoin's phenomenal rise. Now he feels helpless, regretting his confusion and indecision.

Vijay, who had allocated heavily to bitcoin, panics with every dip. After many sleepless nights, he quickly exits bitcoin with average gains.

Amit felt quite unperturbed by the volatility in bitcoin prices as his allocation was limited. At the same time, he enjoyed the upward trajectory in bitcoin prices. He knew that in the worst case, he would lose 1% of his investment corpus. In the end, he stays put, manages to ride the bitcoin bull run, and makes multi-fold gains.

The moral of the story is...Asset allocation is very, very important.

Here's the way forward...

My friend, Prasheel Vartak, who has been tracking bitcoin for over five years, believes that the best way to participate in the crypto boom is to invest only so much capital that you're willing to lose completely.

This way you know that in the worst-case scenario, your losses will not mess up your overall investment portfolio. And in the best case, the upside potential is immense.

But aren't cryptos in bubble territory? Isn't bitcoin way too expensive to buy now? Is there still scope to make multifold gains in cryptos?

Prasheel, who has international crypto guru Tama Churchouse by his side, believes that despite the massive boom, cryptos are still in a nascent stage. And they still have a long way to go as they slowly get mainstream acceptance.

Having said that, Prasheel recommends not diving into cryptos blindly. Simply because it is a recent technology with high risks.

So he has made it his mission to educate and empower crypto enthusiasts with the best ideas and insights on cryptocurrencies with his newly launched newsletter Crypto Confidential.

But there's more...

He's specially designed Crypto Academy - a very useful, easy-to-understand, free 10-lecture video course to help set a very solid foundation in the crypto space.

He has released the first lecture a couple of days ago. And he's scheduled to release the remaining lectures over the next three weeks.

I believe this may be a great time to learn about the crypto world.

After achieving a peak of about US$20,000 in December 2017, bitcoin has been in correction mode. It is currently down about 30%.

If you have been intrigued by bitcoin and the whole world of cryptos and blockchain, waiting on the sidelines all this while, here's an opportune moment to learn about this high-risk, high potential investment opportunity.

Happy Investing,


Ankit Shah (Research Analyst)
Editor, Equitymaster Insider

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