By Frank Corva
Before I started writing about digital assets for a living, I was studying to become a mental health therapist.
In my clinical social work classes, I learned a lot about what causes depression, anxiety and other mental and emotional disorders.
Oddly enough, though, I don’t remember a chapter in any of my textbooks that focused on what it feels like to go from having more money than you ever thought you might — on paper — to being broke as a joke within less than a year.
I guess most of those social work textbooks were written before crypto was a thing.
But now crypto is a thing.
And anyone who’s invested a substantial portion of their net worth in the asset class understands the difficulty in managing the adrenaline that floods your system during bull markets and the gut-wrenching feelings that come with digital asset prices plummeting during bear markets.
Plus, if the volatility doesn’t get to you, the stress of avoiding hacking and phishing scams as well as the challenges associated with self-custodying your crypto assets in a hardware wallet almost surely will.
So, it’s time that we talk about ways to mitigate the negative effects that crypto can have on your mental health — because, if you do learn how to invest in crypto properly and safely, it can have incredibly positive effects on your overall well-being.
Here are some tips to help keep you sane as a crypto investor.
Risk management in crypto is multidimensional.
Not only do you have to be mindful of volatility, but you also must learn how to self-custody your crypto assets — ideally with a hardware wallet — to keep your assets secure and in your control.
But when it comes to actual investing principles, a tried and true way to manage risk is to dollar-cost average (DCA) into your crypto positions.
If you do invest too much in a speculative asset that has fallen in value, learn how to cut your losses before they cause you too much pain.
Lastly, please, please, please don’t use leverage in crypto unless you are a mega pro trader. The volatile nature of crypto gives investors the opportunity to earn outsized returns without taking on leverage.
Half of succeeding in crypto is not blowing your account up while being both cautious and patient.
The gains will likely come if you play this game sensibly and you manage your risk responsibly.
If you don’t manage risk, prepare to feel all sorts of pains, as opposed to the joy of better-than-average gains.
Size your crypto position properly
The term “properly” is subjective.
For some, it might mean not allocating more than 5% of their portfolio to crypto.
For others, your body might tell you when you have too much exposure to crypto.
In George Soros’s seminal text The Alchemy of Finance, he shares how he would feel pain in his back when his portfolio felt off-balance. When he felt the pain, he made changes to his portfolio until the pain subsided.
Our bodies are more intuitive than we sometimes realize.
So, if you feel pain somewhere in your body the way Soros used to feel in his back, you may want to hesitate from taking a fiat-to-crypto trade or consider reducing your crypto position size.
Stick to blue-chip cryptos at first
If you’re new to the crypto space, your best bet is to start your crypto investment journey by stacking sats — or buying fractions of a Bitcoin (BTC) — as opposed to buying a hot new altcoin.
BTC is significantly more volatile than a traditional financial product like the Invesco QQQ Trust Series 1 — the index that tracks the Nasdaq. But it’s not as volatile as altcoins.
As crypto markets continue to mature, BTC’s volatility will likely lessen, but, for now, it’s still a notable factor to consider when investing in the asset.
Think of your initial investment in BTC like a down payment to learn more about the crypto space and not a way to get rich quick. Doing so may save you a lot of unwanted anticipatory anxiety.
Don’t put all of your eggs in one (altcoin) basket
If the Terra LUNA crash taught us anything, it’s that it’s best not to have all your eggs in one highly-speculative crypto basket.
In the weeks following the Terra LUNA ecosystem’s unraveling, those who badly lost due to the crash consoled one another online and posted information about suicide hotlines in the r/terraluna subreddit. The mental health of those who’d invested much of their net worth in the Terra LUNA ecosystem was fragile.
While not all hot new crypto projects fail as spectacularly as Terra LUNA, most drop 80% to 90% from their peaks at some point or another.
Keep this all but inevitable nosedive in mind if you find yourself on the verge of dumping your kid’s college fund into the next altcoin that some influencer (we’ll get to them in a moment) proclaimed is going to the moon. Doing so may just save you from stomach-churning pain as well as help to preserve your relationship with your significant other.
And if you do place an all-in bet that pays off, please keep the next tip in mind.
Take profits regularly during bull markets
Unless you’re wholly religious about your crypto investment, it’s best to learn how to take profits in a bull market.
When the coin or token you’ve invested in pumps 30%, 40% or 50%, take some money off the table. And keep doing so until you’ve removed your principal — or more — from your investment. It can be quite a liberating feeling.
Reaching a point where you’re only investing with your winnings can significantly reduce your stress.
Conduct your own analysis
Crypto markets are often driven by narratives pushed by crypto influencers.
Crypto influencers are not all-knowing shamans or gurus. In fact, most are quite the opposite: They’re often charlatans and scammers. Most are being paid to promote specific coins.
So, don’t let yourself get pumped up by what some influencer has to say about a crypto project.
Instead, conduct your own fundamental analysis as to why you think a crypto asset is worth your investment.
Learn how to read charts, as well. If you see that a coin is up 1000% in two months, it might not be the best time to buy that coin.
Learning how to conduct your own analysis insulates you from the emotional whipsawing that comes from feeling like you have to buy into every new crypto trend.
I know the bear market hurts.
I made my first crypto purchase in January of 2018 (XRP to the moon!), and it proceeded to lose 70% of its value over the course of that year.
Then, when the 2020-2021 bull run came around, I didn’t take enough profits near the highs.
I share this to illustrate that I’m well aware of the emotional rollercoaster that investing in crypto can be.
However, what keeps me going is the notion that Bitcoin is hope — financial hope at least — for both myself and the millions of other people around the globe who have invested in it and believe in the values the asset preserves.
This week, we celebrated the 14th anniversary of the release of the Bitcoin white paper, a document that some hold as dear as a religious text or a government’s constitution.
If you haven’t read it, I suggest doing so, because having a deeper understanding of the nature of the crypto assets in which you’ve invested is another way to mitigate some of the anxiety that comes with holding said assets through a bear market.
Because if you’re only here to gamble, then the adverse effects of losing a significant portion of your net value in crypto is only going to amplify the psychological and emotional challenges you’ll inevitably face in investing in this asset class.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.