The 20-30 rule of bitcoin investment
The world of financial technology is raving at the moment and cryptocurrencies are leading the charge. It is a war of who makes the most money. While fintech start-ups are busy snapping up funding from new investors, the prices of digital currencies – particularly bitcoin, are shooting up with reckless abandon and early investors are having course to say “I told you so” to cynics.
I want to tell myself “I told you so”, but I can’t for the shame of it. How did I miss out on the fun?
As at the time of writing, bitcoin had hit another milestone, soaring to USD3500 a coin on Tuesday. Many analysts are beginning to dust their prediction box; mind-numbing numbers are being thrown around without caution. I am also guilty for predicting it will cross Goldman Sachs’ USD4000 even before December, and I believe it will.
However I went seeking for the barrier for caution and found it from two analysts.
For old and new investors in cryptocurrencies, questions on making a digital currency like bitcoin a long term asset have lingered. Now that the price is bubbling with overwhelming excitement, what percentage of cryptos should you hold on to in the long term? How much should you sell?
Vinny Lingham, co-founder of Gyft and Silicon Cape and a renowned trader in cryptocurrencies provided the answer in a tweet:
“Biggest lesson learnt trading cryptos: When you exit a position in a crypto profitably (3x+), leave 20-33 percent in and then just forget about it.”
It is a view that might sound a bit too bold when not understood from a more realistic point of view, as another notable analyst in Nigeria explained to me later.
“Think about the house your parents built when you were young. Then it was beautiful and massive. But you grew up with your brothers and decided you will not be living in the same town where it was built. So everyone moved away. What does your father do? He can decide to convert the house into blocks of flats and rent it out while leaving a block for himself and your mother or he can decide to sell it and use the money he realized to build a smaller house where he will live.”
Vinny is simply saying, don’t let greed get the better of you that you forget there could still be some profit to make tomorrow.
Hence, sell 80 to 70 percent of crypto holdings and leave the remaining. That way you, no matter whatever happens, you are not perturbed. After all, 20 to 30 percent is only the profit you invested back.
