Ethereum’s co-founder worries too many new crypto investors are taking the wrong lessons from wealth-flashing crypto enthusiasts who claim to have struck gold.
“The peril is you have these $3 million monkeys and it becomes a different kind of gambling,” Vitalik Buterin said in an interview with TIME, referring to the soaring value and flashy excesses associated with the Bored Ape Yacht Club NFT community.
If you’re one of those people looking to buy Bitcoin or other cryptos as a way to get rich quick, think again. Cryptocurrency is much riskier than conventional investments because of its unpredictability and volatility. That’s why investing experts say it’s crucial for crypto investors to clarify their goals and expectations before buying in, and to stick to the 5% rule — that is, don’t contribute more than 5% of your portfolio to risky assets like crypto.
As one of the most influential people in crypto, Buterin has watched the network he created evolve with mixed feelings. While Ethereum was intended to re-architect the web and allow for all sorts of uses, from fairer voting systems or peer-to-peer borrowing and lending, the Russian-born Canadian acknowledges his vision for Ethereum has become vulnerable to human greed.
“Crypto itself has a lot of dystopian potential if implemented wrong,” Buterin said.
It has emerged as a vehicle for tax evasion, fraud, and wide-scale scams. It has led to shameless displays of mass wealth, particularly for white men who dominate the sector, which in turn, has created a public perception that owning crypto will make you rich quick. And inequities have crept into the ecosystem, including a noticeable lack of gender and racial diversity.
But despite all that, Buterin remains optimistic. Above all, he told TIME he wants Ethereum to challenge the notion of centralized governments and disrupt Silicon Valley’s hold over everyone’s digital lives.
“If we don’t exercise our voice, the only things that get built are the things that are immediately profitable,” he said. “And those are often far from what’s actually the best for the world.”
Here are a few things you should consider if you’re investing in crypto, or thinking about buying in.
What to Consider Before Buying Cryptocurrency
Ask Yourself Why
If you’re thinking about investing in crypto, start by evaluating your situation and what you aim to accomplish. Figure out what view is on crypto: Are you approaching it from a long-term or short-term perspective? With crypto, you shouldn’t go in looking for quick easy money.
You’ll also want to make sure your financial bases are covered prior to investing in crypto, such as a well-stocked emergency fund, a conventional retirement savings strategy in place, and no high-interest debt. If you’re in a good place financially, focus on building your crypto knowledge and have an understanding of what you’re investing in before you buy. Advocates who see long-term value in cryptocurrency point to the underlying blockchain technology, and its potential to drive innovation in conventional finance and other industries.
Think About Your Risk Tolerance
Crypto is a highly volatile, speculative asset. With such a young market (compared to the stock market, at least), the value of various cryptocurrencies can rise and fall and there’s no guarantee they won’t collapse completely. That’s why you need to have a high risk tolerance to buy or invest in cryptocurrency.
And it’s more reason for investors to play a steady long game, instead of trying to earn quick cash, according to experts. If you’re in it for the long-term, then you don’t need to worry about short-term swings.
Figure Out How You Plan to Invest in Crypto
If you’ve decided to buy some crypto, do some research on where and how to actually buy it.
Crypto exchanges are largely unregulated, which means investors lack some of the oversight and protections they tend to get with banks and mainstream investment platforms. The responsibility is placed on the investor to evaluate and assess different levels of security and insurance offered by different crypto exchanges.
Experts generally advise sticking with a mainstream, high-volume cryptocurrency exchange, like Coinbase, eToro, or Gemini, that proactively complies with federal and state regulators.
Decide What Cryptocurrencies You Want to Buy
There are over 10,000 different cryptocurrencies, so you’ll want to do a good amount of research and education on a coin before you put any money down.
If you’re interested in cryptocurrency primarily as a long-term investment, Bitcoin and Ethereum have the longest track records of increasing value over time. Several financial advisors say their advice to clients who are interested in cryptocurrency is to buy some Bitcoin or Ethereum, but pass on the more volatile, lesser-known altcoins.
But if you’ve done a lot of research and feel passionately about the specific innovation being driven by a lesser-known altcoin, then investing in it might be as much about personal belief as return on investment.
In either case, experts say you should only invest what you’re willing to lose.