As the holiday season approaches, your relatives may be eager to discuss the latest trends in cryptocurrency with you. While it’s natural to feel a sense of excitement and trepidation, remember that not everyone is as informed about crypto as you might be.
You’re Not a Crypto Guru
It’s essential to acknowledge that even experienced investors like yourself can’t predict the future or guarantee certain outcomes. As Chris Burniske, partner at venture capital firm Placeholder and former blockchain products lead at ARK Invest, noted:
"No one knows anything for sure about markets. The only people you know for sure are lying, are those who say they ‘know for sure’."
This mindset is crucial when interacting with family members who may be new to crypto or seeking your advice.
Give Them Context on Where We Are in the Bull Market
Retail investors often succumb to FOMO (fear of missing out) and rush into the market without fully understanding the risks. As Burniske pointed out, the attention cycle can create a feedback loop that accelerates when prices become extraordinary:
"The later we are in that attention cycle, the worse the entry."
He recommends giving them context on where we are currently in the cycle, which may be nearing its final stages.
Entering the Market: A Word of Caution
When your relatives express an insatiable appetite for crypto exposure, even if it’s possibly the wrong time to enter, Burniske suggests allocating their investment across a few quality assets:
"Give them context on where we are currently in the cycle. Enter with an equal proportion to Bitcoin, Ether, and Solana (50%/25%/25%). If they get trapped if the market turns into a bear market, at least ‘they’re holding quality’."
He also advises cautioning against allocating more than 10% of their total investment to altcoins or memecoins, which are often associated with high-risk get-rich-quick schemes.
Timing the Crypto Exit: The Real Challenge
Stepping into the crypto markets is relatively easy. Many retail investors dive in with excitement and quickly see gains as the bull market drives prices upward. However, remember that what goes up must come down:
"The conditions for the crypto markets have rarely been more favorable, particularly in terms of crypto regulation and institutional adoption."
Some believe this could lead to a supercycle, where assets may continue to grow exponentially without reaching an extreme peak. Burniske acknowledges that "ETFs and potential sovereign buying ‘could’ mean we don’t have as brutal a bear in the future for BTC." However, he cautions:
"Anything that goes 100x quickly is prone to at least an 80-90% crash at some point, structurally — too many people sitting on profit."
Taxes and the FOMO Trap
When investors sell during a bull market, they may watch the coin continue to soar. Burniske advises teaching new investors to resist FOMO and avoid reinvesting profits in an attempt to chase further gains:
"This is generally a horrible idea."
He recommends placing gains out of the crypto market for 12-18 months in traditional accounts, which can provide some interest (crypto stablecoins have additional risks). This reserved money will be used to pay tax liabilities.
Avoiding Common Mistakes
As an experienced crypto investor, it’s essential to help guide new investors to avoid repeating the same mistakes in the next bull market. Encourage them to get interested in crypto when the attention cycle is low or non-existent. If done right, they’ll be well-positioned to educate other newcomers who might jump in during the next wave of hype.
Conclusion
As you engage with your relatives about cryptocurrency this holiday season, remember that not everyone shares your level of knowledge and experience. Be patient, offer guidance, and encourage responsible decision-making. By doing so, you’ll not only help them navigate the complexities of crypto but also establish a foundation for future conversations.
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