There’s No Crying in Crypto

In the 1992 film, A League of Their Own, Tom Hanks, starring as baseball manager Jimmy Dugan, brings one of his players to tears after scolding her for making mental mistakes on the field. As a result, Hanks recites one of the most famous lines of his long acting career: “There’s no crying in baseball!”

Hanks’ character is alluding to the idea that to play baseball, you need to be tough, resilient, and you can’t let things get to you. But, of course, the same can be said for investing in any fashion but especially in the highly volatile space of cryptocurrency markets.

In baseball terms, investing in blue-chip stocks, bonds, or mutual funds aims to hit singles and doubles. Nonetheless, you have a high probability of success over the long run if you stick with it. It will win games, and if you keep it up over many decades, you can find yourself in the Hall of Fame.

Investing or trading in cryptocurrency is more like the equivalent of taking home run swings. Home runs happen but not nearly as much as strikeouts, which occur 35% of the time a batter steps up to the plate.

According to mlb.com, the odds of hitting a home run in the Major Leagues per at-bat are 1 in 18 or around 5%. However, narrow that down to the odds of hitting a home run per pitch, and the likelihood shrinks to 1.1%.

I do not know the odds of Bitcoin, Ethereum, or any other cryptocurrency ending up as a home run. Still, I think most would agree that there is at least a slight percentage chance that some of these coins do go “to the moon,” and investors end up making a fortune investing early in this new technology.

The key to this will be long-term thinking and the stomach to handle multiple 50%+ drops as have been the norm since Bitcoin came on the scene as the world’s first crypto asset in 2009. However, even with the resilience to not sell during one of these significant down phases, it is still far from guaranteed that you won’t end up with a strikeout.

That doesn’t mean that no one should allocate these volatile assets, but it does mean that many people do not need one. So who should invest in 1% probability outcomes? A question like this is challenging, especially since nearly all Las Vegas casino games have much better odds than that.

The answer is, first of all, investors with plenty of time to wait and a long-term mindset. Secondly, they must also possess a high-risk appetite and a desire to speculate. And finally, and most importantly, investors need to already have a solid financial plan in place and the rest of their financial lives in good order.

No one can control what the markets do short-term, but you can maintain the level of risk you take with your money. Do you need to own an ultra-high risk asset? For a lot of people, the answer is no. Cryptocurrency may be the future of money, but only time will tell. If you choose to invest, heed Tom Hanks’ advice to be mentally tough and resilient. And if in the long term, you end up striking out anyway, remember: There’s no crying in crypto, either.

Chase Kerby, CFP® AIF® is an Advisor with Rather & Kittrell.  Chase is available at [email protected].