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Cryptocurrency Investing Wisdom: Insights from Coinbase COO
Get practical investment advice from Coinbase’s COO on how to navigate the volatile cryptocurrency market or, really, any investment opportunity.
At a recent conference on technology, media and communications hosted by JP Morgan Chase, CoinBase (CURRENCY -3.77%) COO Emilie Choi made an observation that should resonate deeply with seasoned investors and newcomers alike.
When asked about the current stage of the crypto cycle, she sidestepped the question with a brilliant insight: “So I’m smart enough not to make predictions about where we are in the cycle because I’m sure I’ll always be wrong.”
This was just a throwaway line at the start of a fireside chat, and the conversation soon moved to a detailed analysis of the current cryptocurrency market. But it stuck with me long after I abandoned the larger presentation. Choi’s self-deprecating pearl of wisdom highlights a fundamental lesson in any form of investing: Trying to time the market is the wrong kind of fool’s errand.
The futility of market timing
Investors often fall for the allure of timing the market: buying at the low point and selling at the high point. It’s a great idea when combined with a long-term mindset, but dangerous if you’re chasing the thrill of day trading and get-rich-quick schemes.
Even the most experienced professionals admit that they predict accurately market cycles it’s almost impossible. The cryptocurrency market, known for its volatility, it only amplifies this challenge. While it can be tempting to enter and exit the market based on short-term trends, doing so often leads to missed opportunities and substantial losses.
Here at The Motley Fool you’ll often see a different approach: time in the market. This strategy involves buying and holding investments for the long term, allowing them to grow and accumulate over time. Lead investors like John Bogle AND Warren Buffett have always viewed compounding returns as the real magic behind the results of their wealth-building investments. Every small increase in value sets you up for even bigger wins in the future, and it’s an exponential effect.
Historical data supports this philosophy, proving it Long-term investments typically outperform frequently traded ones. Emilie Choi is following wise doctrine here, in the well-worn footsteps of world-class role models.
Because time in the market works
By staying invested, your returns may worsen, which means you earn returns on your returns. Over time, this effect can significantly increase the value of your portfolio. In general, economic markets tend to gain value over the long term, with occasional dips, crashes, and crashes along the way. By trying to miss these inevitable pullbacks, you are just as likely to miss the next big rally instead.
Constantly monitoring the market and making quick decisions can be stressful. A long-term strategy allows you to focus on other important aspects of your life without the anxiety of daily market fluctuations. Opportunistic investors should be prepared to do so buy more stocks, funds, real estate or cryptocurrencies during dips. More balanced wealth builders could be helpful a dollar-cost averaging strategy instead, consistently adding funds to their favorite investments over time, regardless of short-term price movements. This approach can also be automated.
Never forget that investing can be an emotional exercise. Decisions made in the midst of a market boom or economic panic often lead to buying high and selling low, the exact opposite of a successful strategy. Staying invested calmly helps you avoid these common pitfalls.
Applying the “time in the market” idea to cryptocurrencies
The inherent volatility of the cryptocurrency market may make long-term investing seem daunting. However, the principles of time in the market apply here too.
It is essential to do your research and choose cryptocurrencies with solid fundamentals, but a cool and calm long-term approach can mitigate risks associated with short-term volatility. As long as you invest in solid names with a promising long-term future, unpredictable market swings along the way won’t matter.
Remember, the market will have its ups and downs, but a disciplined and patient approach can help you weather the storms and enjoy the sunny days that follow. The president and COO of Coinbase gave me a much-needed reminder of this fundamental philosophy today. As a long-time Coinbase investor, it is truly inspiring to see his approach his top job in a volatile industry with this modest mentality.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Anders Bylund has positions in Coinbase Global. The Motley Fool has positions in and recommends Coinbase Global and JPMorgan Chase. The Motley Fool has a disclosure policy.