Opportunity Cost & Investing in Crypto - Are You Missing Out?
Opportunity cost refers to what you miss out on by going with one investment choice over another comparable option. The concept is an important part of investing, especially in the fast-moving world of cryptocurrency.
In other words, opportunity cost investing means that when you make an investment decision, you are making a decision about what you are going to miss out on in the future.
There is an opportunity cost to every decision you make. This is a very important concept to understand because it can help you make better investment decisions on what to hold versus what to let go of. It can also be used to explain why some projects are so successful while others struggle to gain adoption.
Do You Ever Compare Your Crypto Investment Thesis?
When it comes to opportunity cost in crypto investing, one of the biggest risks you can have is holding on to (or embracing) a failed narrative with changes that happen from cycle to cycle. For example, popular cryptocurrency projects of the past cycle may not be the winners of the next one.
A mistake that some crypto investors made this past cycle was either holding onto cryptocurrency projects from the previous bull cycle ending in early 2018, or taking profits from newer projects that were still doing well and rotating into those same older projects because they "had not run yet" and the "potential for returns were higher" - but never really did perform before the market crashed and the bear market began.
That is an opportunity cost example and sometimes it is a form of investing thesis that needs a reality check or "wake up call" if you might say. Because of the "waiting for something to take-off" approach, some investors of the past cycle were caught-off by newer projects that stole the spotlight.
So the question is, are you considering factors that are changing from cycle to cycle instead of what has not changed (like buy the rumor and sell the news events) or other considerations?
Being a smart investor takes recognizing that our own thesis may need to be compared and fact-checked periodically in order to maximize our strategy.
Here are just a few considerations to make that can help avoid opportunity cost when crypto investing for the next bull cycle, and hopefully, increasing your returns and improving your investment choices.
Who are the new participants this cycle and what interests them?
As a seasoned crypto investor, you may have some bias to what worked for participants of the past cycle. But it is important to identify what the new entrants are interested in, where they are getting their information from, the changing demographics of investors, and more.
Compare what they are discussing now to what was popular in the past cycle in order to avoid opportunity cost that could be staring you in the face. One good move is to always ask at least a few people, both younger and older than your own age group, on what crypto projects they like and why.
Next, where and what are the points of entry for participants?
As investing in cryptocurrency matures and evolves, so does the entry points and onboarding. In past cycles, there were more limited means on how people bought and sold crypto. From the early days of forum exchanges to previous cycle limitations of just a few trusted exchanges.
But as each new cycle is formed, so will the places that market participants will use to buy and sell crypto. And what projects do the masses have the easiest access to? Mainstream investment services like Robinhood and PayPal now offer crypto for buying and selling, so is that going to affect what you invest in? Who, having access to what, is more important than ever.
With changing points of entry, the cryptos those points offer and the pairings they have, can affect your thesis. Compare these more mainstream offerings and availability to your own narrative and entry points of the past.
We are dealing with technology, and it improves fast. But does it matter?
To an extent, of course it does. But the next project that is bigger, better, faster, and stronger may still not be enough to get it across the finish line in the end. In the same sense of discounting established projects for newer and flashy cryptocurrencies - how will the new ones compete against the first-mover advantage of more senior projects? Will traction for your newer project be harder or easier?
Technology improvements will continue to get better over time. There will always be a new chain for example that is faster than older ones. Project A chain may be a split-second faster than Project B chain, but does that matter if the Project A chain can not garner the adoption that Project B chain has? It is also assumed that an older chain can not be upgraded or make improvements somehow.
In opposite form of what we have already discussed, opportunity cost also happens when we simply discount the established for something new and flashy. It works both ways.
Where Do We Go From Here?
All of this is not to help you decide which investment to choose, it is about helping you make a decision about what you are going to miss out on, or could miss out on, if you don't take a moment to compare your investment thesis to changing factors.
Cryptocurrency moves too fast to think otherwise. You are making a decision about the future of your financial outcome so it is important to slow down and consider opportunity cost on that outcome.
There is no one-size-fits-all investment path. There is no one-size-fits-all business model either. But there are many ways to be successful when investing in crypto.
Some of them are better than others, some of them are not but had a great narrative at the time and that narrative no longer applies. Sometimes we fail to see it.
The real question is: What is the vision for what you want when investing and will you be open to considering when you are wrong? Will you take the time to compare your investment thesis and be willing to adapt in order to truly be successful?
The answers to these questions will help you define what you need to do to get where you want to go. But you also need to have some kind of strategy for how you’re going to avoid opportunity cost again. You need a plan ahead this time and constantly compare your thesis to change.
Start Considering Opportunity Cost With Your Investments
In summary, opportunity cost in investing is an important topic that gets ignored often. And it is something you should understand deeper if you want to earn more from your investments. Even the smartest of investors do not know that they are making mistakes when it comes to investing in crypto.
Every amount you invest in one area, means you are subject to be losing money in other areas. When it comes to these areas, there is a better chance of winning when you periodically check your investment thesis and review the crypto projects you have in your portfolio. Know what you hold and why you continue to do so.