Biggest lesson from the crypto meltdown
Co-Authored and Reviewed by Gagan Sandhu, MBA - The University of Chicago Booth School of Business, CEO of Xillion
Posted on . 2 min read
š Biggest lesson from the crypto meltdown: if anyone promises greater than 10% returns & says nothing about tradeoffs involved, JUST SAY NO.ā
Letās dig in:
Investing is a tradeoff between four main things:
1ļøā£ Returns: Money you can make by investing in any asset. Generally represented in % terms. Higher is better.
2ļøā£ Risk: Probability of losing your entire investment. Lower is better.
3ļøā£ Volatility: How do these returns change over time, from one extreme to another? Lower is better.
4ļøā£ Liquidity: How quickly can I sell this investment to get cash? Higher is better.
High returns generally mean:
š Higher risk of your investment going all the way to zero.
š Higher probability of investment value changing wildly over the medium term.
š° Lower probability of converting this investment into cash in a short amount of time.
Venture capital (or angel investing) has been the best investment category over the last two decades, but you canāt take your money out for up to 10 years! And most investments go to zero, but very very few become 100x or 1000x. Thatās why venture funds make a large number of investments.
On the other hand, most crypto influencers put aside these trade-offs. Instead, they:
š¤© put laser-eyed profile pictures on social media
š¤¦āāļø chided non-believers with āhave fun staying poorā
š urged us to buy digital monkey pictures, calling them NFTs
š¤Æ came up with obscure terms like web3, DeFi
šÆ Grifters will be back with yet another scheme with an even fancier name as soon as the dust settles from the current crypto mayhem. But now you know how to snuff out such frauds! Donāt you?
šÆšCreate an account with Xillion if you would like to see how your money will grow when invested in different types of investments, with tradeoffs.