I recently took the plunge into cryptocurrency savings and investments. As expected, I made some mistakes. I’ll talk about them here and hopefully you can avoid making the same ones.
To be clear about my motives, I should say that I believe that the opportunity created by cryptocurrencies is a once in a lifetime fold in the space time continuum. I don’t think I’m exaggerating to say that there has never been and there will never be another opportunity so easily accessible to the masses for everyday people to dramatically improve their financial circumstances. There was no event in mankind’s history where such an opportunity presented itself and had such a low bar for entry that so many people are able to benefit.
The list of requirements is short:
- have access to the internet
- have a little money to invest
- be capable of differentiating between scams and opportunities
- have a little patience
- or know someone who can help with all of the above
I believe the bar has never been, and will never again be, so low. In the current climate, it’s possible to invest as little as a few dollars and see returns strong enough to leave a healthy inheritance to your children. That is insane! That is why I believe this opportunity is unique in the history of our species. The game has always been and will soon again be, broken in favour of “the haves” versus “the have nots”. People who realise what’s going on have a one time only opportunity to break the mold and make a material difference to their circumstances. It won’t happen again and the window of opportunity is closing fast. I sincerely hope that as many as possible pay attention and seize the day.
Price is what you pay. Value is what you get.
-- Warren Buffet
The mechanics of the current opportunity are as follows:
- Identify a crypto currency that is undervalued and has potential
a. An undervalued currency is (very loosely speaking), anything you can buy for less than a dollar at the time you are ready to invest.
b. Potential is defined as a currency that provides some value. See Warren Buffet’s famous quote above. More on that later… - Do a lot of research on that currency. Find out who invented it. What were their motives? What did they do before? Who did they convince to join them? What problem does their currency solve? The more research you do, the less likely you are to wind up holding something worthless.
Buy as much as you can afford of several currencies that meet the criteria above. I recommend a portfolio of at least 4 but preferably 8 different crypto coins that make the cut. There is always the possibility that despite your diligent research, the currency will tank. Best to be holding a few others that don’t if that happens.
Identifying scams (spoiler: there are plenty in crypto):
- Are the real names of the people who invented the currency publicly available? If not, is there a good reason? Bitcoin was introduced to the world by a person or persons using the pseudonym Satoshi Nakamoto. My take on the reason behind the anonymity is one of two reasons:
a. The entity knew that the bitcoin idea was so disruptive as to put themselves in extreme mortal danger from both the industries they would disrupt and from those envious of the wealth they created. It’s interesting to note that the million bitcoin (worth $19 billion today) generated by Satoshi has never been moved or spent. He/they may well already be dead and the bitcoin lost forever. It’s very plausible (likely, even) that having that much money, protected by nothing more than passwords would be dangerous in the extreme.
b. The entity is actually one or some of the same evil and corrupt forces already in control of the majority of the worlds money. Their identity being known would taint peoples view that Bitcoin is the champion of the unbanked.
If you believe (a), bitcoin is still a worthy investment in spite of the anonymity of the creator. if you believe (b), then it’s probably still a safe investment, ethics notwithstanding. However bitcoin is today approaching $20k USD per coin. So you have to also believe it’ll continue to skyrocket to at least a million bucks if you’re only investing now and still hoping to turn a dollar into fifty. My own take is that ship has sailed. Congrats to the smarter folk who bought bitcoin when it was under a buck. The rest of us need to look elsewhere. - Have the people who created the currency done anything interesting in their lives before crypto? I’m sure it’s possible that someone could do great things on their first attempt but the math is actually in favour of people who’ve already proven themselves elsewhere. The same goes for exchanges. The people behind Coinbase and GDAX were already successful titans in the world of finance with great reputations. The folks behind Bitfinex are only known for operating pyramid schemes. It’s not smart to use exchanges or currencies where the creators or owners demonstrate the traits of those likely to grab and run. As a rule of thumb, if the exchange uses Tether (USDT), steer clear. That currency is a Ponzi scheme and a house of cards capable of destroying both the exchanges that touch it and everyone whose money is tied up with it. It might not happen (if its creators put the money they’re making off the scheme back into a transparent account or trust where it can be verified and monitored) but the possibility is very real. There is absolutely zero evidence that the USD that is supposed to back USDT exists. In the absence of that evidence, I have to assume it doesn’t. If it doesn’t exist and doesn’t materialise soon, it will collapse and do substantial damage to cryptocurrency in general. Yes, that’s right even currencies and exchanges that aren’t messed up with tether will devalue when USDT and Bifinex collapse, so you were warned. Take note and stay well away from both.
- Is everyone buying simply because the value is shooting up? That’s a bubble. Nothing wrong with a bubble, it’s the popping that hurts. If you think you’re smart enough to sell before it bursts, you can make a lot of money from bubbles. Just know what you’re getting into and be prepared for a lot of small violin jokes when you’re looking for sympathy after the big pop. Also, just look at any cryptocurrency graph where the price has shot up really fast. See that big drop that follows the big spike? That’s showing you how much you will lose when you buy too late in a bubble frenzy.
- Does the offering contain a bunch of marketing about how much money you’re going to make (hint: it probably also has “connect” in it’s name. See bitconnect.com for an example of a blatantly obvious crypto Ponzi scheme). Lots of scams like to talk about returns of 100% in some short period of time. Those are scams. Yes, it’s totally possible to get those sort of returns but it’s not possible to promise them without being able to see the future. Anyone prepared to make promises like that is talking out of their ass. They might even be brilliant, well intentioned, nice assholes, but their still full of hot air. eToro likes to promote their copy trade feature where you copy a “successful” traders trades for profits of between 20 and 200 percent over six months. Just compare that profit to what bitcoin did on its own for the same six months and you’ll see that if those guys had not traded and simply held bitcoin for the same period of time, they would have made a lot more. My point is that traders don’t have a crystal ball and they can’t actually know with any certainty when to buy or sell unless they have a way to manipulate the market. Simple. That’s why their “profits” are actually losses when compared to what they would have made just holding bitcoin and not doing any trading at all. Also anyone who needs to sell you their secret for success, isn’t successful enough to not need your money. Right?
Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.
The quote is widely attributed to Einstein but the authenticity of that providence is undetermined. In any case, it’s a great quote. Holding cryptocurrency that is increasing in value is quite similar to earning compound interest (provided you don’t dip into it).
If you sit and watch a realtime graph of a cryptocurrency exchange price, you may be tempted to try to buy some when it’s cheap, sell it when it spikes and buy it back when it drops. That’s trading. Buy low, sell high. Simple, right? Wrong. Crypto doesn’t behave the way you think it will. At least not in the short term day trading scenario. It can double its price in moments and loose it twice as fast. The usual algorithms for stock trading don’t really work. Candles that make sense for markets that close every day at 5pm can’t tell you much about exchanges that are open 24/7. Crypto markets are also very small compared to traditional exchanges. This translates to more volatility and makes them susceptible to manipulation by people who hold disproportionate amounts of money on the exchange. If you could predict what it’s going to do next, you wouldn’t be reading this article. You’d be off on your private island somewhere enjoying a pina colada in the hot tub. Anyway, that sort of trading takes a special sort of smart. It’s stressful and very tiring. I don’t recommend it. Probably because I tried that and found it was a great way to demonstrate that I’m wrong often enough to warrant a grain of salt. My experience is that it’s a lot easier to simply hold a coin that you’ve thoroughly researched. In my case it’s also much more profitable than trying to second guess the market on a moment by moment basis. If you’re plugged in to a few people who know what to look for, it makes sense to have a little money on an exchange and be ready to take advantage of bull runs when you get a tip about a currency that’s about to rocket. It happens frequently in crypto and it’s a buzz to be on the fun side of it.