Has Bitcoin become part of your identity?
- Ramit Sethi thinks cryptocurrency investors keep quiet when the market slows because it has become part of their identity.
- Sethi says cryptocurrencies can play a role in a diversified portfolio, but points out that some investors only own cryptocurrencies.
- It is important to make intentional decisions and not to buy because you are afraid of losing yourself.
Ramit Sethi’s direct approach to money has earned him a large community of fans. The author of the best-selling book “I’ll Teach You To Be Rich” has a popular website and also teaches courses on money, career and business management. The famous finance guru thinks a lot of money is for psychology rather than math. And this psychology is why he thinks cryptocurrency investors keep quiet when the market is down.
Ramit Sethi’s views on cryptocurrency
Sethi is not a voice critic of Bitcoin (BTC) per se. But he is critical of the way some people invest in cryptocurrencies. Sethi says he makes “intentional” decisions about his investments, which means never investing in something just because you’re afraid of losing yourself.
1. Invest only in cryptocurrencies
Sethi explains that he has no problem with people putting 5% to 10% of their portfolio into what he calls “fun investments”. The important thing is to make sure you buy Bitcoin and a reasonable mix of other safer assets. “When people put all their money into an investment, it’s not about investing, it’s about speculation,” she says.
Sethi says that many people who buy cryptocurrencies do not hold any other investments. For him, that’s where it gets dangerous. As he points out on his website, “When I asked some Bitcoin investors how they think about their overall portfolio, diversification, asset allocation, some got good answers. Most didn’t have any answers.”
2. Allow cryptocurrencies to define you
Another concern Sethi has about cryptocurrency investors is their mindset. He thinks that rather than seeing Bitcoin as an investment, some Bitcoiners have made it part of their identity. As a result, when prices drop, their beliefs double. This prevents them from considering that they may be wrong and from selling an asset that may not perform well over the long term.
In a recent tweet, Sethi made comparisons with cryptocurrency investor behavior and a Washington Post article on how people behave when they are victims of fraud. “One of the reasons cryptocurrency speculators get very, very quiet when they lose 70% of their money,” she wrote.
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The article quotes a psychologist who explores how being scammed can destroy a person’s sense of self. Sethi seems to be suggesting that the cryptocurrency community is silent because the dramatic drop in prices contradicts their beliefs and, as a result, questions how they view themselves.
What Cryptocurrency Investors Can Learn From Ramit Sethi
It’s a bit extreme to suggest that everyone who bought cryptocurrencies has been scammed and are now suffering some sort of identity crisis. But it is true that there is a fine line between holding onto an asset that you believe will perform well over the long term and blindly holding onto a failing asset because you don’t want to admit you were wrong.
Does that mean you should sell your cryptocurrency? Not an easy question to answer, but in general, falling prices are not in themselves a reason to sell. The important thing is to look at the fundamentals and try to objectively consider why you bought cryptocurrencies in the first place. For example, I am cautiously optimistic about Bitcoin because I think it could transform the way we use money and I can see several billion dollar industries, such as international money transfers, that could have an impact on Bitcoin. These reasons are still true, so I’m not selling my Bitcoins.
However, I also know that there are many factors that may be preventing him from reaching his potential. For example, we may see stricter regulatory controls or other technological advancements that override or undermine the blockchain. It is a new and relatively untested industry. As a result, I only invest money that I can afford to lose and manage the risk I am taking. My cryptocurrency investments are part of a larger portfolio of less risky assets.
Sethi’s points on diversification are worth reiterating. Even if you think cryptocurrencies can perform well in the long run, there is no point in betting everything on a single asset class, especially a high-risk one. Cryptocurrencies can play a role in a balanced wallet, but if that’s the only thing you own, you could be in trouble if the entire market collapses.