I’ve been in the crypto industry since the very beginning, having read the Bitcoin whitepaper literally on the day it came out. I run a high frequency cryptocurrency trading firm. I talk about crypto frequently and fervently with friends and family. So it goes without saying that this is by the most asked question that I get, and I’d like to think I have quite a bit of expertise in this area.

To cut to the chase, the definitive answer is… maybe.

Instead of answering the question directly, I’d like to instead provide a series of questions that comprise a decision-making framework for you to come up with your own personalized answer. I’ll include the first principles of why each element of the framework exists, so that you can understand the thought process required to make the best decision for yourself especially since I don’t know anything about you or your needs.

Important Note: I’m only going to answer the sole question of whether or not Bitcoin makes sense for you, but it’s in my strong opinion that if Bitcoin does turn out to be a good investment decision for you, then it’s also worth investigating other elements of cryptocurrency in your investment portfolio, but that will be the subject of another post!

Personal Situation / Net Worth

Will the amount you invest make a meaningful difference?

The context is that Bitcoin as an investment in particular requires a certain amount of education and potential operational overhead to properly custody / secure it, so if the notional amount invested isn’t going to make a meaningful impact to your life, then it’s probably not worth it.

Investing Philosophy and Personality

What are your investment goals?

Some people are looking to grow their wealth; others are looking to protect it.

Personally, I believe that both wealth preservation and growth strategies can benefit from adding Bitcoin to your portfolio, but I can also see an argument on the wealth preservation side that there are plenty of other ways to protect wealth; as a result, for those that are very conservative, I would actually urge looking elsewhere because if you don’t have the right mentality to hold Bitcoin, then I don’t believe it’s a good fit for you.

This segues nicely into my next question…

What is your thesis on Bitcoin? How firmly do you believe in the thesis?

Translation: Why do you want to buy Bitcoin? Why do you think it has value?

If you’re just chasing FOMO then Bitcoin is probably not good for you because it’s hard to time the markets and you won’t be able to hold when times get tough (and they will!). But if you believe in the principles behind it, that will give you the fortitude to hold when volatility rears its head in the markets.

Can you handle a large drawdown?

What is your risk appetite?

What time horizon do you need the money within?

I’ve been through all the crypto cycles as an OG who read the Bitcoin paper literally on the first day it came out - I am intimately familiar with the volatility and the associated feelings that kind of roller coaster ride may present to those who haven’t experienced it before. If you can stomach that risk without selling in fear, then Bitcoin might be for you.

As of early 2022, Bitcoin is institutionalized enough that 90% moves are unlikely, but we’re still seeing 30%+ moves on a quarterly basis. As a result, it’s important that you don’t need to access the funds for a long time; a long bear market can make it disadvantageous to sell, and bear markets can last 2-3+ years, so being able to hold through rough patches is very important.

Operational and Logistics

How are you going to execute the trade?

Getting a cryptocurrency account is much easier than in the early days now so this is less of an issue, but most liquidity still exists on centralized exchanges. If you’re looking to trade at size (i.e. > $1M USD), you’ll want to consider an OTC broker instead who can help you execute the trade off-chain if you want to lock in the current price, but it’s quite feasible for those who want to just slowly dollar cost average in as well.

How are you going to custody the assets?

Bitcoin is a bearer instrument much like cash so you need to be able to hold onto the asset after purchasing. Most people would benefit from just choosing a trustworthy custodian (Coinbase, Gemini) and not self-custodying from a pure convenience perspective, but philosophically you may want to self-custody, especially if your thesis is related to that aspect of Bitcoin (not your keys, not your coins).

DON’Ts

Don’t forget to file taxes! Don’t daytrade or trade with leverage unless you’re willing to do it professionally full time!

Conclusion

Hopefully these questions help you better identify if Bitcoin is a good investment for you.

Standard disclaimers apply: This is not financial advice. Do your own research. I am not a lawyer.