Opinion: Win or lose, crypto investors are finding a reason to stay all in

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Despite bad news about cryptocurrencyyears — the monumental price drops, the bankruptcies, the thefts, the corruption — true believers are looking for no way out. In fact, it is usually the opposite.

Financial Advisor Chelsea Ransom-Cooper has a client who had large amounts of cryptocurrency that he sold last year with incredible returns. For early adopters, total return on bitcoin
BitcoinUSD,
+2.39%

and ether
ETHUSD,
+4.24%

from 2015 to the peak in 2021 could be as high as 4,000%.

What does the customer do with all that money?

“Looking for an opportunity to buy more crypto,” said Ransom-Cooper, managing partner at Zenith Wealth Partners in Philadelphia.

Another customer cannot find a solution at all, despite the fact that he is suffering substantial losses on paper.

“We talk about the value of having a diversified portfolio and not being overly concentrated in crypto, but when you have such a high risk tolerance, the only thing that is attractive is another high risk,” says Ransom-Cooper.

So even though bitcoin is down more than 60% this year — more than three times the drop in the S&P 500 index
SPX,
-0.03%

of the largest US companies — the potential for stratospheric returns on cryptocurrencies can be enticing. And it makes getting 3% in a high-yield savings account or 4% in Treasury Inflation Protected Securities (TIPS) ridiculous.

“Nobody wants to get rich slowly,” says Ryan Losi, a CPA and executive vice president at PIASCIK, based in Glen Allen, Virginia, who handles many clients with cryptocurrency holdings. “But many get-rich-quick people don’t know what to do with that money, like people who win the lottery. You look down the road and they have zero.

Define goals

For crypto investors, the all-in mindset can be tempered by one of the first steps of financial planning, which is goal setting.

“You have to ask yourself: what is the purpose of the money? Fun doesn’t have to be contradictory. But thinking it will be a continuous windfall is not how our markets work,” says Amanda Claymana financial therapist based in Los Angeles.

Financial Advisor Doug Boneparth, who is interested in crypto himself, has had many conversations with his clients about goals as a way for them to find out when they’ve reached them, and then they’ll know it’s time to get out. If you stay indoors, you may reach your goal sooner, but you may also miss the opportunity to get there.

“You have to have a plan that can be your North Star to make tough decisions. Say you’ve done well, and maybe you’ve shaved five years off your ability to retire. Does that motivate you to pin it now, or do you want to let it ride? asks Boneparth.

Psychologically, this comes down to what is enough. “You have to know what your enough is,” says Ransom-Cooper. “Is it the point where you’re good, and when you get more, it’s great? But if you don’t, you’re fine too, because it’s enough?”

Anti-Wall Street Sentiment

Investor sentiment about crypto can vary based on when you first purchased the investments.

“If you bought it last November, you might want to throw up,” says Erika Rasure, a financial therapist who is a crypto enthusiast and runs a community called Crypto Goddess. That said, she still sees those green-for-the-gills investors who continue to ride the rollercoaster, including herself. “I’m just going to sit and see where it goes,” she says.

Clark Shi, a CPA and senior director at Dimov taxhas been helping clients with their crypto taxes since 2017 when he first started seeing big profits.

“People turned their portfolios from $20,000 to $200,000 within a few months,” he says.

What did they do? reinvested. Then there was a market crash in 2018, before another upswing, and they kept repeating the cycle. Say it to “the human nature of chasing more profit when they already made profit,” says Shi.

Losi has been able to convince some clients to diversify.

“I had a few buying small businesses, a few buying land or rental real estate. I’ve also seen many who bought their first home – for all the money,” he says. “But I can say that not many people have traded their crypto for what I would call investment-grade securities. Many of them are anti-fiat currencies and anti-Wall Street, and convincing them to buy into that asset class is nearly impossible.

The thinking behind some of Losi’s clients is that every time they have a profit, they think it’s not the right time to sell because it could go up even more tomorrow. And when they lose, no one likes to admit it or take their chips off the table.

“They should put money in safe stuff. You can get 4.5% on a bond. You can get 3% in a savings account. That’s damn good. If I pay 3% of my mortgage, the bank pays for my mortgage every month,” says Adam Markowitza tax professional based in Florida who has developed an interest in cryptocurrency issues.

Nevertheless, the true believers persist, even those who understand the fundamentals of investing.

“The one thing I haven’t lost faith in is bitcoin,” says Boneparth. “Everything else looks pretty shaky. But that’s okay. It’s not dead. It will continue to evolve.”

Do you have a question for “Fix My Portfolio” about how investing works, how it fits into your overall financial plan and what strategies can help you get the most out of your money? You can write to me [email protected].

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