If you’re new to The Guardian Academy (TGA), welcome! Chances are you probably stumbled across this article because you’re either considering Crypto as an asset to add to your portfolio or you’re already in a crypto community.
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.
If you’re already trying to figure out how to onboard money into the Crypto space but you have not considered the questions:
“Should I be in Crypto?”
Or even, “what is Crypto?”
This might be that uncomfortableness that helps you slow down, avoid any unnecessary risks, and hopefully get you to reflect on these answers before making any emotional based decisions due to FOMO or greed. Let’s dive in.
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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, FOMO. This is especially true during a “bull” market, when everything seems to just go up.
We are going to make an assumption here, that we are speaking to a purpose driven individual who has something that matters to them.
We would argue that the biggest risk is NOT “missing out” on something.
The biggest risk is that you make decisions that make it less probable that you actually get what makes you happy in life. This will look different for everyone (ex. A fancy car, a 5 bedroom house, send your kids to fancy private schools, vacation life, traveling 365 days a year). The possibilities are endless and in regards to Crypto, for some this might be a tool that increases the probability whereas for others it’ll decrease the probability of actually achieving what they want.
What Is Crypto?
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?
In order to determine the answer to the question you’d have to run through this concept of a Personally Indexed Risk Adjustment.
What is risky to you might not be risky to me.
Here is an example:
You already have all the cash that you need to fund everything that you want. Putting it into an investment now puts you at risk, you went from 100% certainty to not 100% certainty.
Someone else may be further away and if they don’t invest they will never get to where they want to. It would be less risky for them to invest compared to you, because the biggest risk would be them not getting what they want.
Function Over Form
Should I Get A Hammer?
What are you trying to accomplish?
Are you trying to hang a picture? Maybe a lot of pictures?
Maybe you’re a carpenter (in which case I’d imagine you’d probably want multiple).
The concept here is Function Over Form.
Don’t get stuck on the tools, get stuck on what you’re actually trying to accomplish. This will help you figure out which tool(s) would be the most efficient or best to use.
“Should I use this jack hammer?”
If your answer is yes, because you really like jack hammers, want to appear helpful, and want them to like jack hammers too, but they want a tool to hang pictures up… Well, good luck.
Let’s bring this back to “should I get into Crypto?”
If they present this without any context, they are thinking of form over function.
“Should I have this tool?”
“Should I use this jack hammer?”
Hopefully now, you’ll be armed with the knowledge to probe further- What are you trying to accomplish?
Occasionally you’ll have situations where your question really is coming from a place of curiosity and novelty, in which case you have to know that and categorize it appropriately in your brain. Often times you’ll see people go into a new venture thinking they are just “curious” and want to try it for fun, then over time it turns into an expectation of a return (in the case of crypto, financial).
People can want different things, have different priorities, and are on different timelines. It is important to recognize this so that we aren’t simply copying what others are doing. With that being said, keep reading if your priority is figuring out “should I use Crypto as a financial investment?”
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 here:
The Role Of Crypto In A Mature Traditional Finance Portfolio.
The question to ask is:
Does It increase or decrease the probability that you get what you want out of life (in an appropriate timeline)?
The highest probability of getting what you want out of life.
- Collapse Time.
Think of Google Maps as an example. In order to get to the right destination you need to know:
- Where you’re at.
- Where you want to go.
The first step is to get clear on where our starting point is, what we want, and in what timeline?
Am I on track to accomplish what it is that I need, in the appropriate time line I specified, doing what I am doing currently? If i keep following this roadmap by Google Maps will I be able to get to my destination or will I end up in the Ocean?
Continuing with the Google Maps analogy, after entering the starting point and a destination point a time frame is generated by Google Maps of the approximate time it’ll take you to get to your destination. Collapsing time would be the equivalent of doing things that might get you there faster. If the map previously said it was an hour walk but now you found the appropriate tool (a car) you can collapse the time to your destination down to 10 minutes.
Solvable Problem™ Informs
The following example and screenshots were done through the Certainty App.
- $10,000,000, the number that you came to after thinking about what would make you happy and have everything you could possibly want in life.
- Your target time frame is 10 years.
- You start with $150,000 and each month you can add an extra $40,000 toward an investment vehicle.
Feel free to do this for your own life, with your own values.
With a tax rate of 30% you would need an annual return on that investment vehicle of 23.2% with your starting investment in order to get what you said you wanted in life.
If you have been achieving an annual return of 23.2% and you believe that you can keep that up, you have now achieved certainty.
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 can learn more about this principle in TGA’s core principles article:
You also got a CPA and they helped you to develop ethical tax strategies to reduce your tax rate to 0%. The combination now brings your annual return from 23.2% to 13.9%.
This is looking less and less like a “need” for the next big moon shot in Crypto.
If we are optimizing for certainty the only need is how can we get 14% a year on our money safely?
This informs us as to when we would need to take more risk, or decrease risk.
Here’s another scenario.
In here you can see that with these current values in 10 years if everything stayed constant you wouldn’t even need ANY return to be able to achieve everything you want out of life. In this scenario, investing this money would actually get you further from what you want.
What the Solvable Problem™ tells us.
If you are on track:
- Don’t need crypto.
- Overage can go into collapsing time.
- Overage can go into novelty.
If you are NOT on track:
- Get on track.
- Recapture and reallocate.
- Crypto may increase probability.
Crypto can be a tool to use to help take you from uncertainty to certainty. Many unfortunately are using Crypto and end up going from certainty to uncertainty.
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?
We go into this in our Frequency Of Exposure article linked below.
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 training on the adaptive dilemma here.
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