Four Friends, Investor Profiles and Cryptocurrency
Bitcoin is usually associated with younger speculative investors. However, despite the preconceived notion many types of people have entered the cryptocurrency arena. My 59 year-old father, who began investing in crypto this summer, is an excellent proof of that.
When I heard that my father was putting some money into Ethereum, the world’s second largest Crypto-Asset after Bitcoin, I was surprised. I had always known my father as a prudent investor who had slowly saved up enough money to pay for my university education by investing in lower-risk mutual funds and RESPs.
My father was two years away from retirement as a secondary school teacher and had limited investing knowledge. I was soon relieved to learn that he had only put a few hundred dollars in, as a “gambling chip” but this made me wonder about different investing styles. After all, why might volatility be acceptable to certain investors but not others?
To find out how each investors personalities played a role in crypto-investing, I decided to invite my friend, Alexander, to lunch at my fathers work.
Alex knows everything there is to know about cryptocurrencies and computers in general and had recently set up a Cardana (3rd most popular crypto-asset) mining station in his basement. We were also going to be joined by Aaron Grey, an excitable manufacturing teacher who had initially convinced my dad to start crypto-investing.
Over the course of lunch, I realized that Aaron, Alex, my father, and I all viewed crypto very differently. Alex seemed very analytical, confident, and knowledgeable about cryptocurrency and knew both the advantages and disadvantages. He differentiated between currencies by explaining which computer could mine them, which required the most electricity and where he felt the market was going.
Aaron, for his part, had hands-on experience with “crypto-pumps” but beyond that took a backseat to Alex’s knowledge. For him, it was the general feeling that there was a large market for digital currencies which drove his optimism.
My father, alas, was least knowledgeable of all but felt he was missing out on the next big invention. Despite this, he was only willing to invest a small portion of his savings in cryptocurrency. As for me, I had little understanding of cryptocurrencies and felt it was thus altogether too risky to invest.
According to Tyton Capital Advisors, all investors can be divided into 5 personalities: The Adventurer, The Celebrity, The Guardian, The Straight Arrow and The Individualist. The adventure is someone like Aaron Grey, a gung-ho individual who does not see risk as an obstacle. They are “very confident individuals” who may purchase “volatile assets and experience volatility in their personalities too (Tyton, 2013).” My father is between a “guardian” and a “celebrity” as he both is heavily influenced by what his peers invest in, despite knowing his limit.
Celebrity-type investors are always hopping into popular investments without entirely thinking them through while a guardian is often an older individual who is satisfied with their situation and unwilling to invest wildly. In my father’s own words, Ethereum is a “long-term” investment and may lead to some “fun money” for our family to spend on vacation. My friend Alex on the other hand is an “individualist” due to his highly specialized set of knowledge and his methodical approach--although that by no means absolves him of risk. Myself, I learned that I lean towards a straight arrow approach, investing in a balanced portfolio of assets I understand without getting off of the beaten path.
So whose approach is right? The truth is it depends on the individual. A younger individual like myself or Alex can tolerate a higher amount of risk than average as we have fewer expenses and time to make up for lost income. In contrast, an individual with a family and university bills (sorry!) who is close to retirement may need to think differently.