Should I Be In Crypto? What Is Crypto?

Level 2: DIYer

Dec 04, 2023

Future Guardian,

A warning- there may be some uncomfortableness or dissonance as you learn more about yourself and your decision making criteria as you open some loops today with this topic.

As the financial landscape experiences a changing tide, we stand at a pivotal moment. The gloomy bear market has given way to a resurgence of optimism, hinting at a return of bullish sentiment. Interest in Crypto is on the rise once again, but the question remains: Is now the right time?

If you're already contemplating how to enter the Crypto space but haven't pondered the fundamental questions—Should you be in Crypto? What even is Crypto?—then this discomfort you're feeling might be the nudge you need. It's a reminder to take a step back, avoid unnecessary risks, and reflect on these answers before succumbing to impulsive decisions driven by FOMO or greed. Let's explore further.

Setting The Stage- Fear Of Missing Out (FOMO)

“I know it’s going to be the next big thing and I don’t want to miss out.”

This statement is coming from a place of non-sobriety, a sense of excitement commonly known as FOMO, and it tends to intensify during a "bull" market when everything seems to be on the rise.

In these times, poor decisions that happen to yield favorable outcomes are often perceived as strokes of genius, while even the most rational or composed individuals find themselves questioning their thought patterns when good decisions result in unfavorable outcomes.1

Now, let's make an assumption here: we're talking to purpose-driven individuals who have something meaningful in their lives.

In our view, the most significant risk doesn't lie in "missing out" on opportunities. Instead, the greatest risk comes from making decisions that reduce the likelihood of achieving your personal happiness. What brings happiness varies from person to person – it could be a fancy car, a spacious five-bedroom house, providing a top-notch education for your kids, living a life of perpetual vacation, or traveling year-round. The possibilities are limitless, and concerning Crypto, for some, it might be a tool that enhances their chances of attaining their desires, while for others, it could diminish those chances.

What Is Crypto?

Blockchain
Cryptocurrency

When discussions around Crypto are had these are the two main topics that come up and are used interchangeably.

In theory the blockchain can’t be altered because of this structure (block orientation instead of columns and rows) and it is also faster, safer, and cheaper to utilize this to store data.

A bit of a misnomer as many of the cryptocurrencies aren’t actually currencies. There is an entire infrastructure to explore (networks, insurances, currencies, exchanges, an entire world living on the blockchain).

Before doing so though… Does it even make sense to do so?

Should I Be In/Get Into Crypto?

It depends.

To discern whether Crypto aligns with your financial strategy, you must consider the concept of Personally Indexed Risk Adjustment.

What may constitute a significant risk for you may not hold the same weight for someone else.

Here is an example:

For instance, if you currently possess sufficient cash to fulfill all your needs and desires, channeling it into an investment introduces an element of risk. You transition from a state of 100% certainty to a realm of uncertainty.

Conversely, another individual might find themselves farther from their financial goals. In their case, abstaining from investment could be riskier because their greatest gamble is falling short of achieving their aspirations."

Another perspective to assist in answering this question can be found in the concept of Function over Form.

Function Over Form

You approach an employee at your local hardware supply store and ask, “Should I get a hammer?”

In response, they ask, “What are you trying to accomplish?” Are you trying to hang a picture? Maybe a lot of pictures? Or perhaps you’re a carpenter (in which case I’d imagine you’d probably want multiple).

The core principle here is Function Over Form. Instead of fixating on the tools themselves, focus on your actual objectives. This approach guides you in determining which tool or tools would be the most efficient and suitable for your needs.

Now, let's circle back to the question at hand: “Should I get into Crypto?”

If someone raises this query without providing context, it suggests a tendency to prioritize form over function. It's akin to asking, "Should I have this tool?" or "Should I use this hammer?"

Hopefully now, you’ll be armed with the knowledge to probe further- What are you trying to accomplish?

Occasionally, your curiosity and sense of novelty might drive your inquiry. In such cases, it's vital to recognize and categorize your motives appropriately. Many individuals embark on new ventures initially driven by curiosity, only for it to evolve over time into an expectation of returns, particularly in the case of crypto—often, financial returns.

It's important to acknowledge that people have diverse aspirations, priorities, and timelines. To make informed decisions, we must avoid simply mirroring the actions of others. So, if your primary concern is determining whether to use Crypto as a financial investment, read on for further insights.

Should I Have Crypto In My Investment Portfolio?

One of our Guardians created a capstone project to help reason through whether or not he should include Crypto within his financial portfolio.

You can read about his thought process here2

The question to ask is:

Will this increase or decrease the probability that you get what you want out of life (in an appropriate timeline)?

3C Framework

Here's the 3C Framework that can serve as a guide when contemplating how to maximize the likelihood of achieving your life's aspirations:

Clarity.
Certainty.
Collapse Time.

Clarity

The first crucial step is gaining absolute clarity about where you currently stand, what your goals are, and the timeline within which you aim to accomplish them. To illustrate the importance of clarity, consider Google Maps. To reach your desired destination, you must know:

Your current location.
Your desired endpoint.

Certainty

The second component, certainty, involves assessing whether your current actions and strategies are moving you toward your goals within the specified timeframe. In essence, it's akin to following a route on Google Maps and determining if you'll arrive at your destination as intended or risk veering off course.

Collapse Time

Drawing from the Google Maps analogy, once you input your starting point and destination, the app provides an estimated travel time. Collapsing time corresponds to finding methods to expedite your journey. In practical terms, it's similar to initially expecting an hour-long walk on the map but then discovering a more efficient tool, like a car, which reduces the travel time to just 10 minutes.

We can apply this framework along with our Solvable Problem™3 to help keep us in a state of sobriety and guard against FOMO.

Solvable Problem™ Informs

In the example below you can follow along but feel free to do this for your own life, inputting your own values.

Imagine you’ve set a financial target of $10,000,000, a sum you believe would secure your happiness and fulfill your life’s desires. Your target time frame is 10 years. You kickstart your journey with an initial investment of $150,000, and every month, you allocate an additional $40,000 toward your chosen investment vehicle.

With a tax rate of 30%, your investment would need to generate an annual return of 23.2% to reach your life goals, given your starting capital. Achieving this level of return would provide you with a sense of certainty about your financial prospects.

Now, let’s consider the original question, “Should I be in Crypto?”

Do you want to be in crypto?

Maybe… What if you could first figure out if there was a way to increase your probability of getting what you want while reducing your risk?

Using the CCA principle, Two Oreo, you ended up finding $5,000 and $5,000 extra reoccurring monthly revenue.

You also seek the expertise of a Certified Public Accountant (CPA) who assists you in developing ethical tax strategies, ultimately reducing your tax rate to 0%. As a result, your annual return decreases from 23.2% to 13.9%.

At this juncture, the necessity for a "moon shot" investment in Crypto appears to diminish. If your primary focus is certainty, you might simply need to identify how to secure a 14% annual return on your investment safely.

This informs us as to when we would need to take more risk, or decrease risk.

Now, let's explore an alternative scenario: one where, if all your current financial variables remain constant, you wouldn't require any investment returns to achieve your life goals within the next 10 years. In this case, investing your money might actually move you further away from your desired outcome.

Many individuals, unfortunately, venture into Crypto without a clear plan and end up transitioning from a state of certainty to uncertainty in their financial journey.

So… Should You Be In Crypto?

If you're on track, Crypto might not be a necessity, and any surplus funds could be directed toward accelerating your progress or exploring novel opportunities.
However, if you find yourself falling short of your financial objectives, it's essential to reevaluate your strategy, recapture lost ground, and reallocate resources4. In such instances, Crypto may serve as a valuable tool to enhance your probability of success.

Know Yourself

If you don’t know yourself (your impulses, what you want, how you behave, have your Solvable Problem™, etc.) the odds of blowing yourself up in Crypto is very high with the speed in which it moves.

Does my personality really jive with Crypto? For a deeper dive on this, be sure to read through Frequency Of Exposure.5

Fight The FOMO

Make decisions from a state of sobriety; the scientific orientation (probabilities and risk) instead of the dogmatic orientation (certainties and absolutes).

If you want to learn more about this you can reference our article on the adaptive dilemma.6