Navigating the Cryptocurrency Conversation: Tips for Retail Investors

The holiday season is upon us, and with it comes a flurry of family gatherings, social events, and conversations about cryptocurrency. As a retail investor, you may find yourself facing questions from curious relatives and friends about how to join the bull market in Bitcoin (BTC) and other cryptocurrencies.

Staying Humble: Remember, You’re Not a Crypto Guru

One of the first things you must do is make sure your family and friends know that any action taken is their responsibility. Inexperienced investors might mistake you for a crypto guru, but let’s be honest – that’s probably not the case. According to Chris Burniske, partner at venture capital firm Placeholder and former blockchain products lead at ARK Invest:

"No one knows anything for sure about markets. The only people you know for sure are lying, are those who say they ‘know for sure.’"

When crypto markets roar in a full-blown bull run, everyone feels like the next Warren Buffett. Stay humble – admit you don’t have all the answers. Remind them not to follow your footsteps blindly like a herd of sheep. Caution is key, even in the frenzy.

Giving Context on Where We Are in the Bull Market

As Bitcoin dominates headlines, everyday investors with little experience often succumb to FOMO (fear of missing out) and rush in without fully understanding the risks. Retail investors are often desperate to get in fast, driven by the overwhelming hype where everybody seems to be becoming rich with crypto.

The Attention Cycle: A Feedback Loop of Buying

Burniske describes the "painful reality" that rising cryptocurrency prices inevitably draw attention, which fuels further buying. The feedback loop, which he nicknamed the "attention cycle," accelerates when prices become extraordinary:

"The later we are in that attention cycle, the worse the entry."

Burniske advises giving your family and friends context on where you are currently in the cycle. He believes the market has been in a bull run for two years and may now enter its final stages.

Entering the Market with Caution

When their "appetite for crypto exposure remains insatiable," even if it’s possibly the wrong time to enter, Burniske recommends entering with an equal proportion to Bitcoin (50%), Ether (25%), and Solana (25%). If they get trapped in a bear market, at least they’ll be holding quality:

"If they get trapped if the market suddenly collapses, investors could owe more taxes on realized gains than the value of the assets left after the crash."

Burniske recommends placing the gains out of the crypto market for 12–18 months in traditional accounts, which can provide some interest. This reserved money will be used to pay tax liabilities.

Avoiding FOMO and Reinvesting Profits

When investors sell during a bull market, they may watch the coin continue to soar, as no one can predict when the peak has been reached. Burniske advises teaching new investors to resist FOMO and avoid reinvesting profits in an attempt to chase further gains:

"This practice is risky because if the market suddenly collapses, investors could owe more taxes on realized gains than the value of the assets left after the crash."

To avoid falling into this FOMO trap, he recommends placing the gains out of the crypto market for 12–18 months in traditional accounts. This reserved money will be used to pay tax liabilities.

Getting Interested in Crypto When Sentiment Turns to Apathy

As an experienced crypto investor, it’s crucial to help guide new investors to avoid repeating the same mistakes in the next bull market. Encourage them to get interested in crypto when the attention cycle is low – or non-existent. If done right, they’ll be well-positioned to educate other newcomers who might jump in during the next wave of hype.

Conclusion

Navigating the cryptocurrency conversation can be challenging, but with caution and humility, you can help guide your family and friends through the ups and downs of the market. Remember that no one knows for sure what will happen next, and it’s essential to avoid FOMO and reinvesting profits. By staying informed and providing context on where we are in the bull market, you can help others make more informed decisions about investing in cryptocurrency.

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Disclaimer: The views expressed in this article are for informational purposes only and should not be considered as investment advice.