January 28, 2022
Entering the world of crypto can feel overwhelming.
There are thousands of coins and tokens to invest in and choose from - and figuring out how to actually buy them is a challenge in itself.
Nonetheless, crypto has been the hottest asset class in recent times and there’s real money being made.
Younger generations are taking notice as a recent CNBC survey found the following:
There’s no denying that crypto is here, but investing in it can take many different forms since it’s such a new, unique type of investment. These are seven different types of crypto investors:
New investors find their way into crypto through many different avenues.
Whether their friend won’t stop talking about NFTs or they’re tired of missing out on the seemingly endless gains, every crypto investor has a moment where they finally decided to take the leap and deposit some funds.
If you haven’t had your moment yet, prioritizing education may help you feel more comfortable about the space. Crypto comes with a considerable amount of risk, but that risk can be reduced through education and strategic, informed investing.
Many new investors tend to follow headlines and fail to do research prior to investing. This leads to emotional investing, which tends to lead to poor investment decisions. Always do your own research & due diligence on an investment prior to putting money into it.
For beginners, it’s also generally recommended to only invest money that you can afford to lose. If you treat crypto funds like another category in your budget, like shopping, your financial situation shouldn’t be affected if the investment was to drop in price.
New crypto investors are like freshman in high school. They’re entering a new world, there’s a lot to learn, it can seem scary - and there’s a chance they get “bullied” by those already there.
Early adopters bought bitcoin at $1,000 and ether at $200.
They were early. And they’ve told you multiple times that they were early.
They’re also not shy with their opinions about how crypto and blockchain is going to change the world.
While some early adopters can have a “superiority” mentality and tend to talk down to new investors, many are less boastful and take the time to welcome and educate new faces in the space.
Early adopters have seen the trends and experienced significant drops & unbelievable gains all while staying the course.
Believers have some experience in the space and understand the impact cryptocurrencies may have. They’ve educated themselves and they believe in the movement towards digital assets. They understand the present risks, but see the future opportunities.
This perspective allows them to withstand the day-to-day volatility because their investment thesis is to “hold” (or better known as HODL in the crypto community). The term HODL originated from a typo in a Reddit post:
Believers and HODLers take a more passive approach to investing in crypto and tend to only accumulate more crypto assets over time, oftentimes through dollar cost averaging.
Traders are most likely Believers as well. But rather than holding investments for the long term, traders aim to capitalize on the day to day price fluctuations of crypto.
They follow the crypto markets closely and may make multiple trades every day. Because of the frequent activity, just like with stocks, trading crypto comes with a considerably higher amount of risk when compared to buying & holding.
While there are trends and charts to evaluate, nobody can predict the future and trading crypto should be done with caution.
The self-proclaimed SlumDoge Millionaire had made over $1,000,000 (on paper) by investing in Dogecoin ealier this year. Investors piled into the dog-themed crypto as they saw the price 10x in a short period of time.
However, the key takeaway here is “on paper”. While his Dogecoin holdings were worth more than $2,000,000 when the price hit all-time highs in May, the price has since dropped more than 75% - and the profits dropped right along with it.
If you’re buying based on attention you’re not investing in the traditional sense, you’re gambling in a modern sense.
It’s possible to make money with meme investing, but it’s essential to understand the risks and to only invest money you can afford to lose.
There are some investors who believe crypto is a scam, or that it doesn’t serve any real purpose.
However, they don’t let their beliefs get in the way of making money. They’ve seen the returns it can provide and even though they believe it may not be around forever, they’re putting money in to hopefully turn a profit.
Being skeptical can be a strength because it creates an opportunity to learn and become educated, but being too skeptical before becoming educated can cause an investor to miss opportunities.
The investor that many strive to be is The Level-Headed Investor. A level-headed investor acknowledges the digital movement taking place, but is also aware of potential risks. Level-headed investors don’t get in and out of the market based on headlines, but they may adjust their portfolio based on new opportunities that they’ve taken the time to understand.
They don’t flaunt their crypto holdings and they treat them like every other investment. They build an investment plan & thesis, they stick to it, and they manage risk along the way.
While this definitely isn’t an official list of crypto investor demographics, I’ve found that most people fall into one of these seven categories. And they aren’t mutually exclusive either - a level-headed investor can also have some fun and buy the latest meme coin. Skeptics can evolve into believers and traders can turn into HODLers.
But being aware of the different tendencies and personalities in the space can help you form a clearer picture of what investing in crypto looks like. It’s more than meme coins and internet money. Some people treat it that way, but there are also institutions and companies investing into crypto and adding it to their balance sheet and countries aiming to adopt digital currency into their financial systems. While that could all be a positive sign for adoption, investing in crypto does still come with risks that need to be taken into account.
No matter which investor you are, it’s always important to do your own research, consider your own risk tolerance and financial situation, and ensure that you understand the risks of what you’re investing in before doing so.
Written by Treyton DeVore, CDAA™
Disclaimer: This post is for education purposes only and should not be considered financial or investment advice. Consider talking with your Certified Digital Asset Advisor before implementing any financial strategies.