One of the greatest investors in the world, Warren Buffet, has shared different insights on investing over the course of his career. One compelling insight Buffet has dispensed is probably the theme of keeping your investing as simple as possible.
We’ll look at how Warren Buffet’s advice can be applied to the cryptocurrency sector and how you can make the most out of your cryptocurrency investment allocation.
Never Invest in a Business You Cannot Understand
Buffett has been able to do quite well because he kept it simple, he understood the companies he invested in and made certain to stick to his areas of competence. He learned from value investors such as Benjamin Graham and partnered with individuals of a similar mind like Charlie Munger.
Now, if we were to apply this philosophy to the cryptocurrency sector and choose one single cryptocurrency to invest in, we would have to change the rule slightly to make it more relevant.
Never Invest in a Cryptocurrency You Cannot Understand
At the time of this writing, Coinmarketcap lists at least 2000 cryptocurrencies. That’s a lot of cryptocurrencies, that’s a lot of complexity and lot of potential business models to understand. As such, to stick to the rule of never investing in a cryptocurrency you cannot understand, it is best to narrow our investing decisions to the top ten.
Then, we must narrow our investing criteria even further by looking at one cryptocurrency that meets this basic checklist.
- The cryptocurrency must have a history of use and has proven to be resilient over time
- The cryptocurrency must be one that is considered as a household name and has a brand
- The cryptocurrency must have a strong ecosystem that consists of developers who contribute to the system, miners who conduct consensus, prominent advocates, and a wide base of supporters
- The cryptocurrency must stick as closely as possible to the principles of decentralization
- The cryptocurrency must solve a specific problem
For good measure we might even add in the factor of the cryptocurrency having a significant influence on the larger cryptocurrency market, meaning that if this particular cryptocurrency moved upward, the rest of the market would follow, if it were to plunge others would follow.
If were to apply this criterion to one single cryptocurrency, we would quite likely see that one cryptocurrency stands out, bitcoin.
Bitcoin has existed since 2009 and continues to thrive while other cryptocurrencies have come and gone. The currency saw early adoption in countries such as Argentina, Venezuela, and Zimbabwe, all countries who have experienced problems of hyperinflation and problems with centralized fiat currencies.
This cryptocurrency has a brand, is one that everyone knows about and still has consistent transactions taking place daily.
The currency is not seen as security by the SEC and has obtained supporters from financial institutions and individuals involved in payments such as Peter Briger, Novogratz, and Wences Casares.
Bitcoin is simple to understand, it serves a scarce currency, digital gold, and a payments network. If the idea is to keep cryptocurrency investing as simple as possible, one would allocate a portion of their investing budget to bitcoin. Go through the simple checklist to see if anything has changed, if not, then continue to allocate more to bitcoin on a periodic basis, either through direct investments or through a Bitcoin IRA.