Are you learning or earning?

The fundamentals of crypto money management

Jun 14, 2022

👋 Welcome to the 21st issue of The Syllabus from Invisible College — a weekly newsletter that helps you navigate the fast-moving world of web3. To get this newsletter delivered to your inbox, subscribe here:

Before we begin, a disclaimer — nothing in this piece should be construed as financial advice. With that, let’s dive in.

Invisible College Updates

🔐 Bitcoin Masterclass – Our first course — Master Bitcoin In 5 Days — starts tomorrow! All Decentralien NFT holders get free access to this course (as well as any future courses). To get the discount, you’ll just need to connect your NFT by following the instructions in this video.

🎟 Upcoming Events – We’ve got a bunch of upcoming events including:

NFTuesday (Tues. 6/14 @ 2:30 pm PT)*
Bringing Crypto to K-12 Education (Weds. 6/15 @ 12 pm PT)
Breaking Down the NFT Stack (Thurs. 6/16 @ 12 pm PT)
Town Hall (Fri. 6/17 @ 12 pm PT)*
Office Hours w/ Rockwell Shah (Mon. 6/20 @ 1 pm PT)*
Building Financial Lego Blocks (Wed. 6/22 @ 12 pm PT)*
Learning about Learn-to-Earn (Thurs. 6/23 @ 12 pm PT)

* To access these events, you’ll need to hold at least one Decentralien NFT.

Now onto this week’s post…

Many years ago, I played poker professionally. It started with low-stakes games with friends in my garage and grew into quitting my job and grinding for 8+ hours per day. The experience taught me some valuable lessons when it comes to money management—some of which I draw on when investing in crypto, as well.

With the amount of wildly speculative activity happening in the NFT space lately, which I wrote about in last week’s post, it’s a good time to step back and talk about some fundamentals.

Bankroll management

In poker, you can make all the right decisions and still lose sometimes. It’s not a fun feeling and it can really mess with your emotions. The key is knowing that if you continue to make smart decisions, they will work themselves out in the long run. Well, if you don’t run out of money first.

This is where the concept of bankroll management comes in—something I rarely see people talk about in crypto circles.

Bankroll management is all about limiting your chances of going broke. When it comes to poker, that means choosing the right stakes and games to play based on the percentage of your overall bankroll that’s at risk. It also means keeping your poker money separate from the money you need to pay your bills and put food on your table.

The same goes for crypto. Determining how much you’re willing to set aside is step number one.

But there are other variables to consider, as well.

What’s your goal?

"Are you maximizing for learnings or are you maximizing for earnings?"

Invisible College faculty member Rockwell Shah said this during our NFTuesday event last week. I agree that it’s an essential question to ask yourself.

If your goal is purely to grow your investments over the long run, that will shape your behavior differently than if you’re looking to launch a web3 project of your own. And there are all sorts of nuances and gray areas in between.

For those of you who are new to web3, having a budget for learning is essential. This is money you’re okay with losing because it will be used to further your knowledge about the space. Trying out different web3 products or getting involved in communities often means buying tokens of some sort. If they go up in value, that’s great, but it’s okay if they don’t.

How much money you have to work with will help you determine where you should learn too. For example, if your budget is $100, you should steer clear of the Ethereum blockchain because gas fees are much too high and you would eat up all your budget in one transaction. In this case, the Solana or Avalanche ecosystems may be better playgrounds for you to explore.

For those looking to maximize earnings, minting an NFT from a brand new, untested project is probably not the wisest choice. Whereas investing in a more established project that is rumored to have a potential catalyst event—like a partnership with a major brand—would be a better decision. And sometimes simply dollar-cost averaging into assets you’re most bullish on is the best approach.

Bet sizing

Now that you know your budget and your over-arching goal, figuring out how much to invest in each project or asset is the next step.

Bet sizing is about how you allocate your funds. For example, I like to keep a lot of my holdings in ETH and/or ETH-based NFTs. I do so because, despite how terrible it has done lately, I feel confident that the price of ETH will rise significantly in the future. Plus, although ETH can be quite volatile, it’s the second-largest cryptocurrency in the market and therefore highly likely to rally after this bear market we’re in.

When I’m deciding whether or not to invest in a new project, I consider what percentage of my overall budget it would cost me. If I’ve done extensive research and have some conviction about the bet, I might choose to invest more. If it’s more speculative, I won’t commit as much. Having clear parameters helps me not over-invest in one area or another.

Yet I’ll give myself permission to bend my rules if it makes sense. For example, when I won a raffle spot for the Moonbirds NFT mint, I didn’t bat an eye at the 2.5 ETH (~$7,500 at the time) mint price—even though it was over 10x what I’ve paid for any other NFT before then. But I had been following their founder, Kevin Rose, for years and saw how much success he and his team had with the Proof Collective NFTs, so I was confident that the Moonbirds project would go well.

Not everyone feels comfortable moving that amount of money around. And that’s okay. If you’re active in web3, there will be plenty of opportunities to invest in great projects within your budget range.

When I played poker, I developed what I call a healthy disregard for money, meaning I didn’t let the dollar amounts handcuff me and prevent me from making the right moves. In crypto, having a budget, a clear goal in mind, and a framework for sizing your bets will allow you to make the right moves too.

The Syllabus