Economics & Crypto Part 4

In this final installment of the Economics & Crypto series, I'll summarize my cryptocurrency investment strategy, which builds upon the concepts discussed in previous articles.

To recap, we began by exploring the three forces that Ray Dalio suggests drive an economy: productivity growth and the long-term and short-term debt cycles. The short-term cycle typically spans 5-8 years, while the long-term debt cycle lasts approximately 75-100 years.

Understanding these debt cycles fundamentally changed my perspective on economic fluctuations. I saw that what often appears as economic hardship is merely a phase in a larger cycle. This realization helped me tune out media-driven pessimism during downturns and focus on actionable strategies.

Previously, I ignored sound economic principles, allowing media narratives and public sentiment to shape my financial outlook. I assumed that hard work alone would ensure financial stability. This mindset, however, prevented me from leveraging the insights offered by debt cycles to make informed investment decisions.

The wake-up call came when I envisioned myself working at McDonald's, managed by an 18-year-old, during my retirement years. This grim prospect motivated me to take full responsibility for my financial future.

While short-term debt cycles offer cues for investing in riskier assets, the long-term cycle signals the need to diversify into hard assets outside the traditional financial system, especially as we approach the period of potential regime change.

Crypto Investing Strategy: Increasing Your Surface Area

"Surface area" in investing refers to the breadth of your knowledge, exposure, and engagement across the investment landscape. By expanding your surface area, you can better understand risks and identify opportunities. Below are strategies to consider:

Diversify Your Portfolio

Diversification is essential. Allocate your investments across various asset classes, industries, sectors, and regions to mitigate risk.

Crypto-Specific Strategy

While I have other investments, my primary focus is on cryptocurrency. I diversify within this asset class by investing in cryptocurrencies and employing various trading methodologies.

Explore Multiple Cryptocurrencies

Don't put all your eggs in one basket, like bitcoin. Diversify across cryptocurrencies with different use cases, technologies, and market dynamics.

Investigate Blockchain Platforms

Cryptocurrencies operate on different blockchain platforms, each offering unique features. Consider diversifying across platforms like Ethereum, Binance Smart Chain, Solana, Optimism, Arbitrum, and Polkadot.

Consider DeFi Yield Farming

Once you own cryptocurrencies, you might park some in smart contracts that offer yield. DeFi platforms can offer high yields as they don't rely on traditional financial systems.

Assess Different Use Cases

Cryptocurrencies serve various functions beyond being stores of value. Investing in those with different use cases can diversify your portfolio further.

Allocate Across Market Caps

Balance your risk and reward by investing in cryptocurrencies of different market capitalizations.

Include Stable Coins

Stablecoins offer a hedge against market volatility and are pegged to stable assets like fiat currencies.

Research and Due Diligence

Always research thoroughly before investing. Understand the technology, team, adoption rate, and potential risks.

Stay Informed

Keep up with news, regulatory changes, and technological advancements that could impact the cryptocurrency market.

Set Allocation Targets

Decide what percentage of your portfolio will be allocated to cryptocurrencies and stick to it.

Rebalance Periodically

Review and adjust your portfolio to maintain your original allocation targets.

Avoid Over-concentration

While diversification is key, over-diversification can make your portfolio unwieldy.

Consider Regulatory Factors

Be aware of the regulatory environment in the countries where your chosen cryptocurrencies operate.

Use Crypto Index Funds or ETFs

If you're uncomfortable picking individual cryptocurrencies, consider index funds or ETFs.

Educate Yourself

Stay updated on investment options, strategies, and market trends.

Invest in Emerging Technologies

Look into artificial intelligence, blockchain, renewable energy, and biotechnology sectors.

Long-Term Thinking

Focus on long-term investments that align with your financial goals.

Consult Financial Professionals

Seek advice tailored to your financial situation.

Consider Impact Investing

Invest in projects that offer financial returns and positive social or environmental impacts.

Practice Simulation

Use simulators to practice without risking real money.

Stay Disciplined

Stick to your investment plan, irrespective of market fluctuations.

Monitor and Review

Regularly assess your portfolio's performance and make necessary adjustments.

Pay Your Taxes

Cryptocurrency is not tax-exempt. Keep records and pay taxes as required by your jurisdiction.

I hope you've found this series useful as you contemplate investing in cryptocurrency. Stay tuned for more articles exploring the fascinating world of crypto. Remember, it's not too late to invest; the industry is still in its infancy and offers significant growth potential.

Good luck, and feel free to share this newsletter with friends interested in cryptocurrency. Also, don't forget to visit my YouTube channel, Crypto For The Rest Of Us.

Until next time,

J. Scott