Optimize Ethereum and Bitcoin Investing with the 80/20 Rule

Before spending your hard-earned cash to load up on Bitcoin and Ethereum, you need to ask yourself an important question:

Do I want to be a trader, or an investor?

While these two words sound interchangeable, they represent very different strategies for buying and selling in markets. At Coin Coaching, we believe that for the 99.9% of us with full-time jobs, being a specific kind of investor maximizes the potential gains from the cryptocurrency revolution, while reducing stress, time commitment, and exposure to the volatility of market forces.

Let's first explore the differences between your average cryptocurrency trader and investor.

The Cryptocurrency Trader

The Cryptocurrency Trader is all about maximizing return by leveraging movements and trends in the market.

Market analysis - The core of trading is understanding and predicting the demand of assets in the short-term. The Cryptocurrency Trader tries to identify patterns in the technical charts of markets to make educated guesses about hourly, daily, or weekly trends in pricing.

Continuous monitoring -The Cryptocurrency Trader checks in on the markets at least once a day, generally multiple times. Any movement up or down in the markets has him glued to his seat, waiting for "signals" that it is time to buy or sell.

Time sensitive - The Cryptocurrency Trader has alerts set up to notify him of suddens gains or losses in the value of his coins. Cryptocurrency markets are much more time-sensitive than the big stock exchanges because of their increased volatility.

The Cryptocurrency Investor
The Cryptocurrency Investor, on the other hand, makes long term plays based on the potential of the asset itself. He's happy to let the ups an downs of the market work themselves out, because he's confident in the future potential of the assets in his portfolio.

Asset analysis - The Cryptocurrency Investor is more interested in the potential of the underlying technology than price charts.

Occasional monitoring - The Cryptocurrency Investor checks in on cryptocurrency markets maybe once a week or even just once a month. The current price really doesn't matter to him, because he's not trying to time highs and lows in the short-term. He is most concerned with recognizing a major dip in the market, when he is ready to buy more to continuously establish his position.

Time independent - The Cryptocurrency Investor is more concerned with macro than micro movements in the markets. Since he has confidence in the future potential and demand of his investments, he's happy to hold onto them through short-term ups and downs in the market (see our article on "HODL" investing for an example of one strategy).

So which makes more sense: trading or investing in cryptocurrencies?

It's not tough to see that from a time-commitment perspective, investing is the much more practical approach. It also takes a significant technical ability to be a successful trader. Trading in cryptocurrencies can lead to very rewarding returns, but it also exposes you to more ups and downs, long hours staring at rates and movements in charts, and late night alerts when markets are rising or falling quickly. Plus, there's way more risk involved with trying to time markets.

The 80/20 Approach to Investing in Cryptocurrency
There is a principle in economics called the 80/20 Rule (formally called the Pareto principle) that states that in almost any system, 80% of its outputs can be accounted for by only 20% of its inputs. 80% of your sales come from 20% of your clients, 80% of the wealth in the world is owned by 20% of the population, etc.

Where the 80 / 20 investment strategy rule becomes interesting and relevant to our daily lives is maximizing efficiency. The core idea is that if you need to identify and focus on the 20% of tasks that account for 80% of the results. In the case of investing, we want to find the 20% of the work involved with making investments that yields 80% of the value of our profits. For a much more thorough explanation of how this principle applies to investing, check out David Schneider's excellent book, The 80/20 Investor.

80 20 investment strategy

Here at Coin Coaching, we strongly believe that an 80/20 investment strategy is the best way to maximize safety, efficiency, and profits. In our upcoming course, we will be helping beginners with four basic principles in our approach:

Research your investments - Identify technologies that you believe in. You don't need to understand the underlying technology, but you do want to understand the bigger picture.

Choose a buying strategy - You'll want to choose a method of stocking up on your investments that makes sense for a long-term approach. We cover several of these ideas in our course, but the basic idea is that you want to step into the market slowly, in stages, and use dips in the market as buying opportunities.

Secure your investments - If you're not careful with where and how your store your cryptocurrency, you're at risk of hackers stealing some or all of your investments. Take the time to beef up security for all your relevant accounts (including email!) using Two-Factor Authentication. Learn about how to maintain your own cryptocurrency wallets away from cryptocurrency exchanges, which are massive targets for hackers.

Plan and stick to a long-term strategy - Once you have your investments in place, be patient. Cryptocurrency is volatile, with large day-to-day swings relative to other kinds of markets. It's important to remember that we're in this for the long-term potential, so don't let ups and downs of the market trigger panic buying or selling.

In 80 20 investment strategy terms, once you have a handle on these tactics, you will have the 20% of the knowledge in cryptocurrency investing necessary to get 80% of long-term returns.

DISCLAIMER: Cryptocurrencies like Bitcoin and Ethereum are highly volatile and risky. We cannot give you advice about what to invest in or how much to invest. You should take the information we provide in our courses and blog posts, do your own additional research on specific cryptocurrencies, and plan to decide what kind of investments work for you. We highly recommend talking to a financial advisor to understand the level of risk that you are comfortable with.
FREE e-book by Coin Coaching

3 Mistakes That Bankrupt Beginner
Investors In Bitcoin and Ethereum

New investors to the cryptocurrency market make the same mistakes over and over... and over!

In this guide we share some important insights:

  • The 3 most common mistakes beginners make, with solutions!
  • A smart way to buy coins for the first time
  • Why understanding security is so important
  • Controlling emotions to be a smart investor
  • Text Hover