How Much Of Your Income Should You Invest In Cryptocurrency In 2023?
Investing is an important part of increasing your finances, your spending power and your disposable income. The money you earn should not be used solely for paying bills. Setting aside a portion of it to invest in stocks, a small business, digital assets like cryptocurrency, or any other opportunity that catches your eye is advisable. As a company focused on expanding financial options through cryptocurrency and sharing the importance of financial literacy, we can offer some insight into how digital assets can work for you in 2023.
Cryptocurrency is currently in a bear market. A bear market is a market phase in which there is a downward trend in the prices of cryptocurrencies. The market is said to be in its bearish phase when the prices of assets have seen a 20% decline or more from recent highs.
If you’ve been following the cryptocurrency price charts over the past 12 months, you’d have noticed more significant dips than highs. Bear markets are not a new phenomenon. In fact, they can be an investment opportunity for wise investors. To quote the legendary author of Art of War, Sun Tzu, “In the midst of chaos, there is always opportunity.”
Two questions are necessary to apply this to cryptocurrency: How much should you invest in cryptocurrency, and What should you consider before putting your money into Bitcoin, Ethereum or Solana or any other crypto?
Two Essential Factors To Consider Before Investing In Cryptocurrency
Your investment is a personal decision because it is your money and responsibility. You must consider two key factors - your budget and risk tolerance.
Your Budget and Income
The general rule for budgeting popularised by American senator Elizabeth Warren in All Your Worth: The Ultimate Lifetime Money Plan is the 50/30/20 rule.
50% of your income should go to your needs, 30% to wants and 20% to savings/investments. Your needs include rent, feeding, electricity, transportation, and internet bills. Your wants are things like Netflix subscriptions and fancy gadgets. Some people subscribe to the 80-20 rule - spend 80% of your income, save 20%. Whatever you choose depends on the peculiarities of your living situation.
Now, let’s focus on your 20% for investing. There’s a popular saying that you should never invest more than you can afford to lose. For some people, it could be 5% or 15% of their investment capital. Your risk tolerance determines the percentage of your investment.
Your Risk Tolerance and Patience
Gains can be as heavy as losses in cryptocurrency. You can go to sleep with a thriving portfolio and wake up to a bleeding red wallet. Conversely, you can spend a week downcast about the market prices, and by the weekend, prices have gone up and dropped a massive profit on your lap.
How much money are you comfortable with losing? Are you patient enough to work through price fluctuations? Is this a short or long-term investment? These are some questions you'll need to answer honestly. They will help you decide if you want to spend 5% or 15%, or even 1% of your investment capital on buying or trading cryptocurrency.
How Much Of Your Income Should You Invest In Cryptocurrency?
Let’s say you earn ₦150,000 ($200) monthly and want to buy some crypto now that the prices are down. Following the 50-30-20 rule, 20% of your income for investment would be ₦30,000 ($40)
If you decide to invest 5% (₦1500) into crypto, you can buy some BTC, ETH, ADA and XRP or only one coin like BTC. Exchanges like Obiex allow you to buy crypto for as low as ₦500.
After buying these coins, you can hold or save them in your crypto wallet. One of the ways people have earned money from cryptocurrency is by buying some coins for a low price and selling them when they increase in price.
Knowing which cryptocurrency to invest in can be confusing, so we wrote a guide to buying crypto and avoiding bad/shitcoins. We also have a guide to help you maximise your crypto investments.
Why should you invest in cryptocurrency?
The current global crypto market cap is $849.43B. There are 9,314 active cryptocurrencies and about 300 million cryptocurrency users worldwide. Despite the hits suffered by cryptocurrency in 2022, the industry is still valuable and working towards its goal of offering an alternate path to fiat currency and simultaneously working with fiat to make financial stability accessible to more people.
Investing in cryptocurrency may have lost its steam after the 2021 bull run, where Bitcoin hit almost $69,000. However, it is typical for any industry, particularly financial services, to have market ups and downs. There will always be bull markets, followed by bear markets, followed by bull markets. The cycle continues as long as humans exist, live, work, and trade.
When it comes to investing, Benjamin Graham, Famous Economist and Father of Value Investing, sums it up best - “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioural discipline that are likely to get you where you want to go.”
Disclaimer: This article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.