What gets you in trouble in crypto investing, and in life, isn’t when something bad happens; that's easy to rebound from. Instead, it's when multiple bad things happen at once, which we'll call the triple-coincidence. That's why it's important to plan contingencies with the same attention-to-detail as a NASA scientist planning a rocket launch.
There are two common places in crypto where the triple-coincidence can hit you hardest and where you have to prepare the most: custody and investing.
When your custody goes wrong
The longer you've been in crypto, the more likely you are to have a story like mine...
Years ago, I invested in a cryptocurrency that required its own wallet. I setup the wallet on my phone and then forgot about it.
Later, the price of the crypto skyrocketed, so I dug up my old phone and was hit with the dreaded triple-coincidence.
- No password worked
- I couldn't find my backup seed-phrase
- My phone didn't synch whatever password I had set to its cloud backup
It was a triple-coincidence, but it was preventable. Had I not rushed setting up the wallet, taken a deep breath, and spent a few minutes thinking through what could go wrong at each step, I'd be a richer man today.
When thinking about what could go wrong, think two levels deep, like this:
- You write down the seed phrase in a notebook. "What could go wrong?" Well, you could lose it, so write it down in your password manager vault too. "What could go wrong?" You could have written it down wrong! So delete the wallet and try to restore it using your seed phrase to make sure.
A lot of people ask me where to store their crypto, which I'll cover in a separate article. But the short answer is to remember the risk of the triple-coincidence and spread it around. For example, keep 1/3rd on a hardware wallet, 1/3rd on a trusted custodian in your home country and 1/3rd on a trusted custodian outside of your home country. Now, even if your hardware wallet is compromised or your home country bans crypto, you'll have a majority of your holdings safe.
When your investing goes wrong
Outside of custody, your biggest risk with the triple-coincidence relates to your investing strategy. Here are three common pitfalls:
- You don't have a cash emergency fund. If you have surprise bills to pay and the crypto market dips, you don't want to be forced to sell your holdings for pennies on the dollar to cover your expenses. Build a moat around your crypto portfolio by having the rest of your finances be in good shape. I know many investors who would have been multi-millionaires had they not been forced to sell to pay for a surprise hospital visit or emergency home repair.
- You're all-in on anything. Going all-in can be smart in poker or make you seem like a badass on social media, but it's never the wise move. You'll meet many "maximalists" in crypto whose portfolios are 100% Bitcoin or 100% Ethereum. More extreme are those whose entire financial portfolios are in crypto. I respect their convictions and maybe they'll outperform the market, but frankly they're behaving like amateurs. History has shown us that in a world of triple-coincidences, you should always hedge your bets.
- You're too public about your crypto holdings. The risks here are two-fold. First, you invite professional hackers, who can increase your risk of a triple-coincidence. And second, you invite friends/family members to see you as a second bank account, which can drain your energy, deplete your holdings, and leave you less resilient to survive a triple-coincidence.
One last thought
Recognize that you could do everything right, with the best mentorship in the world, and a triple-coincidence could still take away your portfolio. That's life, but don't give up!
The vast majority of early Bitcoin investors lost everything, through hacks, faulty exchanges, forgetting wallet passwords, or losing hard drives. Those who gave into despair lost out forever. But those who kept their chins up and jumped back in were fabulously rewarded. Be the latter!
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