Crypto

I’m not writing this piece as an expert in the field but rather as someone who has recently discovered the world of investing in cryptocurrency and who has recently gone through the hurdles of figuring out what that process looks like. This is not financial advice, but I hope that some of this information can help make the process smoother for others looking to get into the crypto world. This is a very shallow overview of crypto trading; if you have any serious interest in trading crypto currency, I recommend doing further research of your own. If any of you have expertise in crypto currency and have any feedback I would welcome it!

Crypto Currency – What is it?

By this point you’ve probably heard of Bitcoin. Even if you don’t understand how it works or what the point of it is, you are probably familiar with its rapid price increase and wild volatility. With bitcoin reaching all-time highs (ATH) and large institutions such as Square, MicroStragey, and Tesla purchasing bitcoin, bitcoin is in the public eye now more than ever before.

Bitcoin is a digital asset created by the still unknown Satoshi Nakamoto. Statoshi Nakamoto is most likely a pseudonym for a person or persons who were responsible for the creating and implementation of bitcoin back in 2009. Bitcoin is a decentralized cryptocurrency that uses cryptography to verify the creation and transaction of the digital currency. These transactions are documented and verified on a public ledger known as the blockchain. To learn more about how the blockchain works click here. New bitcoins are minted when miners solve complex algorithms using advanced computer processing.  

There are roughly 18.5 million bitcoins that have been mined out of a maximum 21 million available. This limited, unchanging supply creates a scarcity that prevents inflation. Set against a macroeconomic backdrop of world governments currently printing more money than ever before in the history of the world, bitcoin is becoming more and more attractive as a store of value and hedge against inflation.

Bitcoin, while enjoying the majority of the public spotlight, is only one player in the ever-growing financial field of crypto currency and blockchain technologies. Thousands of new crypto currencies have been developed as alternatives to bitcoin and are commonly referred to as altcoins. These coins use the peer-to-peer framework provided by bitcoin but seek to provide a variety of different services including platforms for peer to peer lending and utility transactions. These cryptocurrencies can be purchased in the same manner as bitcoin, and although they often have higher levels of risk, they also have opportunities for higher returns on your investment.

How to Buy

Bitcoin and altcoins can be purchased using exchanges. There are many exchanges to choose from depending on the crypto that you wish to purchase and where you are located. Unlike the stock market, crypto exchanges operate 24/7 so you can always be trading. Coinbase and Binance are two of the most popular exchanges, but Binance has recently stopped serving customers in the United States. I use Coinbase, and you can sign up for an account here. If you want to be able to do more than just buy and sell and wish to use more advanced trading options, make sure to set up a CoinbasePro account. It is free and gives you much more versatility in your trading.

A couple of things to note:

1. If you don’t own your keys you don’t own your coins. Many platforms such as Robinhood and SoFi allow you to trade cryptocurrencies but do not allow you to deposit or send the currencies that you purchase. Robinhood is changing their policy on this, but it is important to do your research and make sure that the exchange you are using allows you to deposit and withdraw the coins that you purchase, not just merely trade on the platform.
2. You can buy cryptocurrencies in increments. Many people look at the price of bitcoin and think that they can’t invest because the price is too high; however, you can invest any amount of money you are able to. Increments of bitcoin are called satoshis and represent one-hundred millionth, or 0.00000001of a bitcoin.
3. The cryptocurrency market can be very volatile. It is important that you have a strategy with your investments. Research your buys and know what you want to accomplish with the purchase. Trying to time the market is extremely difficult and is a good way to lose a lot of money. Crypto currencies typically publish a document called a white paper that outlines the goals of the project and any statistics and data that you need to know before you decide to invest.
4. Altcoins with low market caps often have opportunities for high returns, but they also have a much higher risk of disappearing entirely. Some of these small market cap projects aren’t available on major exchanges so you may have to use coin swapping apps such as Uniswap or PancakeSwap. I use MetaMask, which can swap cryptos by comparing rates between multiple swapping platforms. MetaMask also acts as a crypto wallet so that you can store currency that you swap or purchase. Currently fees are very high so if you choose to invest in some of these small market cap projects it is only cost effective to do so with a long-term investment in mind. You will quickly lose any profits if you are trading frequently.
5. Storing coins on exchanges is typically not recommended. If you are trading frequently this is hard to avoid, but exchanges are not insured against loss and if a data breach occurs it is very possible to lose your investment. There are many crypto wallets available and you should research which one meets your needs the best. You can also store your coins with cryptoasset service providers such as BlockFi or Celsius. These institutions pose similar levels of risk as storing you coins on exchanges but offer very competitive interest rates on the coins you store. These institutions also provide lending services using your crypto currency as collateral so that you can have access to some of the value of your crypto without losing out on the appreciating aspects of the asset. I store my bitcoin and other crypto on BlockFi and earn 6% APY. I choose to have this interest paid out monthly in the form of additional bitcoin so that if the price continues to rise, the amount I earn is significantly increased over the course of the year. You can sign up for a BlockFi account here.

Investing in cryptocurrency is an exciting way to see potentially very high rates of return on your money. There are many interesting projects to be a part of, and I recommend that you at least research and become familiar with the industry as cryptocurrency and blockchain technology become more and more common. Youtube and Twitter are great ways to stay up to date with the current market. Be wary of articles written by financial institutions as these articles quickly become outdated and are written with the goal of getting emotional responses from readers and may not portray the situation in an entirely accurate light.