Should Students Invest in Bitcoin?

 And tips for when you do!

The student life is as tough as trying to chew ice ( the water one..not the Breaking Bad one).  Studying (if you are into that) and completing assignments, handling relationships with friends and family (among others), rogue viruses ( looking at you Covid-19), partying with the said friends ( and family? hmm), all the while trying your best to be cool ( pun intended); these are just a few of many aspects that a student has to juggle regularly, leaving said student little time for other pursuits. Such as managing themselves financially.

Now look, who am I kidding. Most students are broke. One way to identify any student is by estimating the number of instant noodle packets he/she/it buys. It's cheap, fills us up, and well its..uh..instant, as simple as that. Furthermore, our education system, while very good at providing us in-depth knowledge about certain topics we would never need to use in our future life, fails miserably at giving us any sort of financial knowledge. 

Financial knowledge is necessary to navigate the murky waters of today's world, where prices are skyrocketing and salaries are going down.  One needs to have a fall back to land during extraordinary times like when viruses do evil peekaboo, or oil prices do a "turntables". One needs to get their hands dirty and learn more about filing taxes, retirement accounts, fixed deposits, and most importantly: investments.

Investments can be done in a magnitude of ways. Fixed deposits, real-estate, index funds, but today, we are going to look at investing in Bitcoin. Because here's the kicker my friends, and it's a big one. Bitcoin isn't actually an investment!

Oh no! The horror.

Seriously though, it's not really strictly defined as an investment. More of speculation. The entire concept of it is run on the fact that it's a deflationary currency (meaning it has a mandatory cap), so you hope other people pay you more for it. Not my words but the words of the great Warren Buffet paraphrased by the great me. Put basically, Bitcoin has no intrinsic 'value'. 

The aforementioned investments like real-estate, index funds and etc., those have 'value'. But that doesn't mean that you as a student should ignore Bitcoin entirely, mainly because:

1. Buying into Bitcoin or any cryptocurrency for that matter is a lot cheaper than buying into real-estate or index funds or even at times, opening a savings account. This is because you don't have to buy 1 entire Bitcoin (BTC) or an altcoin at a time. You can buy small fractions of it.
2. The minimum buy-in amount differs from brokerage to brokerage, but the key part is that there are now so many online brokers available with great security features and on-the-go app access. All of them are competing for your money, and increased competitive gives the student better and more importantly cheaper choices. Some brokers have in-built wallet functionality too. I personally use Coinhako (sneaky advertisement but my referral code is 128340_48477963)
3. Bitcoin is one of the most liquid assets. You can easily place a sell order via your brokerage when you know those '20 dollars in my pocket' isn't going to cut it. Hell, many restaurants and shops also accept bitcoin as payment.
4. Bitcoin is as aforementioned, a deflationary currency and is controlled by no one. Due to its inherent 21 million cap and its halving and expensive mining mechanism, Bitcoin's value should, in theory, rise in the long term as supply decreases.

There are other reasons as well, but I feel that these 4 encompass the core of Bitcoin's attractiveness to potential 'Investors'.

Bitcoin's volatility is what makes is so special. Bigger the risks, bigger the rewards right. But bigger risks also leads to big losses. I have seen my Bitcoin net worth crash multiple times. I'm a student and seeing the money just disappear hurts. But investing, in any case, has to be done with brains and not the heart. Here are some of my tips for fellow students who do decide to take the plunge:

i. Don't invest money you can't write off: There's a popular saying which goes "Never put your eggs in one basket". I'm guessing because that if the basket breaks, you're gonna have to make one hell off an omelette. You are a student, you need money for essential products, like food, clothing and rent. Putting too much money in a market that is based on pure speculation could lead you to lose it in minutes. It's an ominous picture, but trust me, it's very possible.

ii. Stagger your investments: Invest a certain amount every month or every week. Staggering your purchases means you can benefit from dollar-cost averaging ( meaning that some times, due to price volatility, you could gain more or less bitcoin from the same dollar amount). Over some time, your overall principal amount also increases but the increase doesn't bite you as much because you have done it over the said period rather than in one go.

iii. Don't be emotional: Any investment can go awry. It's hard to see your money vanish because our mind always thinks of the "what if...?" question. Take your mind off it. Resist the urge to see your net Bitcoin/crypto worth every second ( unless important events are undergoing). Remember, Bitcoin is volatile. Prices can crash, but they can go up at the same time. To feel less emotional, it's preferable to invest part of the money (remember point i.) that you have saved from curbing frivolous expenses because, in those expenses, you are losing all the money and gaining short term satisfaction. However in Bitcoin, even in a crash, your net value will rarely if ever hit zero and you can always hope that the coin value rises. You can't do that for your very unnecessary expenses.

iv. Don't be too greedy: In 2017, when Bitcoin reached a peak of approximately 20,000 USD, the people who had sold their coins at 19,000 USD did lose some potential profit. But the same people who bought the coin at 20,000 USD, expecting it to rise higher, were stunned when the value of 1 BTC dropped to just over 3000 USD. Start off with smaller percentage profits, and then slowly increase it to a level that you are comfortable risking with. Remember "What goes up, must come down". Unless it's a Helium balloon, then its kinda lost forever.

v. Read the fine print: There are obviously several brokerages and wallet providers today then there were many years ago. So many options can be overwhelming for the average student. Don't be too lazy with anything involving money, however. Try to find out as many providers that serve your area/region. See how many types of cryptocurrency coins they bank. Look at the fees they charge for depositing/withdrawing fiat money ( the standard money) as well as the fees charged on every trade you make. My brokerage, Coinhako, for example, has a 1% fee every time I buy and/or sell a cryptocurrency, meaning if I have to make any profit from my initial investment, the margin has to be at least above 1 + 1 = 2%. 

When you do decide to venture into Bitcoin, you can either become a day-trader or a long term investor. A day trader is an investor who basically buys and sells bitcoin all day. These people usually have a higher principle investment, thus a small percentage increase can add huge value to their accounts. A long term investor is one who buys in and holds it for a longer time. Sure they may do more than 1 buy and sell order in a day, but that's not a regular occurrence. 

You can, in theory, be a combination of both sides, but there is always one side you do more and that is what puts you in either category. I see myself as more of a long term investor. As a student, I don't have much principal to invest, and I always stagger my purchases. Time (at least pre-corona) was limited. But I always checked the value of investments at least three times a day. Sometimes, I have done many a buy and sell orders in one single day. But that is a rare occurrence and most influenced by external factors which affect the value of Bitcoin.

These external factors are something you should also pay attention too. When Coinbase, one of the world's leading crypto-exchanges got hacked, Bitcoin value dropped by almost 20%. When macro investor Paul Tudor Jones decided he was going to take the plunge into bitcoin, Bitcoin's value jumped from 8000 to 10000 USD. If you are well positioned and took advantage of just a few of these many factors, your profits would have been quite..um..profitable. At times like this, it's okay to spend a little more than intended, as long as you are not messing up with points i to v. Don't let the FOMO destroy you.

Start small, learn more and treat like a fun exercise. Trust me, you'll learn a lot. 

P.S. You don't have to be a student to invest in Bitcoin.