You are largely correct that money that you can afford to lose could be up to 100% of your discretionary income, yet many times people do not think about their discretionary income like that, since an overwhelming majority of people (especially normal people) spend some portion of their discretionary income on things that they want, whether it is going out to a restaurant or perhaps buying name brand sneakers, or having a few drinks at a bar, or buying a bicycle for their niece, so there is some value in present consumption rather than future consumption that might not happen. There are also psychological components, so even if you have a lot of faith in bitcoin, you likely still need to take care of various psychological needs, so if you spent 2 years building up your bitcoin holdings, and maybe you are not really in profits, and then all of a sudden, the BTC price drops, 30% and you are pretty upset, and then it drops another 50% from the 30%, which then causes you to be right around 50% down, and then it drops another 40%, so then at that time, you are a total of 70% down, and you are supposed to be buying more BTC the whole time, and maybe you keep buying BTC, yet at the same time, you are feeling like you are running out of cash. Maybe you were investing around 20% of your income into bitcoin, but then once the BTC price started crashing, you started to put 25% to 30% of your income into bitcoin, so maybe you have invested the equivalent of 60% of your annual income into bitcoin.
You could even become psychologically weak from the whole situation, and some folks might have had been telling you not to invest so much in bitcoin and then now they are telling you "I told you so", and they are even telling your that you could have had 3x more bitcoin if you had not been so aggressive in buying bitcoin "at the top." Maybe it even takes 1, 2 or even 3 years before the BTC price starts to seem like it might have stopped dropping and staying flat... but you are still in the negative with how much you put in as compared with how much your BTC holdings are worth. If you can tolerate all that negative BTC price pressure, then sure maybe you have invested no more than you can afford to lose, but you are going to end up being financially and psychologically challenged if the BTC price moves against you... so you actually need to find some balance in which you are both financially and psychologically comfortable, which is also part of the reason that many people are not going to invest 100% of their discretionary income, and maybe they will find some way to be aggressive without over doing it, but maybe invest around 50% or 60% of their discretionary income into bitcoin.. so then they have the remainder of their discretionary income as a kinds of cushion.
Solid take, Liked ur perspective here, especially the way you broke down the psychological side of investing. The truth is this is something that does not get attention, and it plays a huge role in how we survive the ups and downs.
I would say while 100% of a discretionary income might be possibly “money you can afford to lose” it does not mean it is wise, at least not from a psychological side. As human beings, we are naturally emotional. We also have everyday needs and little pleasures that contribute to our mental balance, whether it is spending time out with our friends, buying something small for our loved one, or that feeling of just knowing you have a bit of money for the unexpected. These are not unnecessary expenses, they are what help us stay sane and steady. Haha..
When someone put all their discretionary income into Bitcoin, they will for sure feel confident at first. But if the price drops 30%, then 50%, then 70% like you said, it then gets real very quickly lol. And even with the fact that they believe in the long term. And also with those folks and outside noise all piled, it does not matter how the conviction is it will affect our emotion, and if your emotions are unbalanced it would not be good in the long run..
That is why balance is so important. Maybe it is 50% or 60% of your discretionary income into BTC, or something that works best for you, and the rest set aside to keep life moving. I believe this way, will help not to be emotionally or financially cornered. Can even decision to keep buying if choose to, i think it is best to be in control emotionally and all, that would help in the long run..