People form emergency funds when they see that a bad situation will arise. Because in the present time, people do not want to expose their investments to any danger, so they give the most importance to prudent income and emergency funds and follow the DCA method every week. As a result of regular Bitcoin purchases, they are ready to earn more financially so that they can make more money with Bitcoin investments. An investor never neglects his investment, because Bitcoin investment is long-term, so it is most important to form an emergency fund to manage it.
Speaking of emergency funds, what's the best way to make sure I don't spend my Bitcoin prematurely?
My idea is to diversify my savings. I shouldn't invest all my money into Bitcoin. I can put some funds into other profitable investments that aren't as strictly a "hold" as BTC. If I use this strategy, I might not need a dedicated emergency fund because I'll have other readily available assets. This means I can use these other funds instead of touching my Bitcoin.
Many people think about back up funds in terms of liquidity and volatility.. so you could have troubles if you keep back up funds (such as emergency funds) in other assets.. but sure the choice is yours regarding how to deal with matters that might come up, since surely bitcoin is very liquid and if you have some situation where you really need money quickly are you going to be sufficiently prepared or have to sell some of your bitcoin at a time that is not of your own choosing.
One more point is that when you choose to diversify rather than focusing on bitcoin and cash, you are diluting your emphasis on bitcoin, and sure, it is your choice in regards to how much to prioritize bitcoin and/or how aggressive you choose to be in regards to bitcoin as compared with putting your money in various inferior assets for the mere sake of it (perhaps your lack of focus? - another member (liasbaa) mentioned that you failed to specify your diversification, and so it is quite likely you are thinking about shitcoins as a way to diversify, which may well be close to retarded, if you are thinking like that... but hey whatever, you can do whatever you like, even dumb shit.
Frequently there are needs to not get too smart for your own good, even though of course, you are in the best position to assess your particulars.
You’re spot on Sir JayJuanGee. A backup fund is specifically for security and so should be pretty much accessible at all time, not for growth, and this is the main reason why most people prefer to use fiat cash or a more stable and liquid asset that’s not very volatile. And it’s not really because they love having a bunch of cash lying around, but because in the face of an actual emergency like paying a hospital bill, job loss etc, they can easily access their backup funds and not be in the mercy of the volatile market. Let’s say you decide to leave your emergency funds in BTC with hopes that it will grow for you, and maybe you happen to need cash when Bitcoin has dropped by 20% or 30%, that emergency will definitely cost you way more.
Now coming down to diversification, I really don’t see it as a distraction or lack of focus as long as the investor has a good risk management strategy and is not relatively new in his accumulation journey, perhaps must’ve experienced at least 2 to 3 cycles. Inasmuch as Having all one’s funds in Bitcoin might feel like conviction, it kinda also narrows down your risk in a particular volatile asset, which isn’t 100% smart. But this still isn’t a green light that one on the course of attempting to diversify their investment should fill their bag with all sorts of shitcoin, that’s even way worse. I fact that’s more of gambling than diversification. My own definition of diversification would be balancing Bitcoin with cash, maybe a some traditional assets, depending on the investor’s comfort level.
I completely agree with you on the part that people sometimes over complicate things by attempting to get too smart or clever, it’s crucial to just keep things very simple. Bitcoin as your long term investment and cash or stablecoins as your backup funds, this way you won’t be forced to sell your bitcoin in time of emergency in order to sort it out.