This information was included in my weekly newsletter, Flarnchain on April 14, 2021.
Big News - Coinbase IPO
Today marks an important day in crypto-currency history. Coinbase has filed with the Security and Exchange Commission that they will perform a direct listing of their company shares on the NASDAQ stock exchange, today on April 14, 2021. This is called an Initial Public Offering or IPO, because it is the first offering of their shares to be purchased by anyone in the public.
The stock ticker symbol for Coinbase is COIN. The price per share was expected to start at $250 per share. By the time I started writing this newsletter, Coinbase actually issued their IPO on the NASDAQ stock exchange. The price it listed at was $250 per share. The price it opened at was $388 per share, and the current price is around $320 per share.
By purchasing shares of Coinbase stock, an investor effectively owns a small percent of the company.
Think about this for a minute. A crypto-currency exchange (Coinbase) is listing on a stock exchange (NASDAQ). This gives people the opportunity to have broad exposure to the crypto-currency market, without actually buying any crypto-currency.
This has major implications for the crypto-currency market at large, as it creates an opportunity for mainstream investors in the stock market, to buy shares of a company that is part of the infrastructure of the crypto-market.
How to buy Coinbase Stock?
If you want to buy shares of Coinbase, you will need to go to a brokerage account like E-Trade or TD Ameritrade or even a discount brokerage like Robinhood. You create an account, fund that account with money from your bank, and then just search for the ticker COIN and buy some shares.
You can buy fractional shares if you don't have $300-400 to spare, and you can even set up a buying program where you buy a certain amount of the stock over a consistent number of time intervals. This is called "Dollar-Cost Averaging" or DCAing. You could, for example, buy $25 of Coinbase stock every month. Over time, you can accumulate shares of a stock through this approach.
What is Coinbase?
Coinbase is the largest and most user friendly crypto-currency exchange in the United States. Coinbase has no formal corporate headquarters after going "remote-first" for their employees due to the COVID-19 pandemic in March 2020. Coinbase is basically the most straightforward on-ramp for crypto-currency. What do I mean by on-ramp?
Basically, you take your fiat currency (in this case US Dollars), you bring it to Coinbase, and you convert it to crypto-currencies. Currently, Coinbase allows you to convert USD into 53 different crypto-currencies, including the most popular crypto-currency: Bitcoin.
- Once you have converted your US Dollars to crypto-currency, you can send those currencies to anyone in the world, as long as they have set up an address to receive the specific type of crypto-currency.
- There are merchants where you can buy stuff with your crypto-currencies.
- You can also keep your crypto-currencies on Coinbase.
- With some of those crypto-currencies, such as Cosmos (symbol = ATOM), you earn staking rewards, which is sort of like a dividend payment or interest on the crypto-currency.
- Last you can convert your crypto-currency back to US Dollars and send it back to your bank account.
How to Use Coinbase?
First you need to set up an account. If you are interested in participating in this crazy new world, consider setting up an account via my referral link: https://www.coinbase.com/join/reifen_i
By using the above referral link to sign up for an account, you'll earn $10 worth of Bitcoin. Right now that means that you will receive 0.00016019736315140253 Bitcoin for signing up to Coinbase. That may not sound like a lot, but as I mentioned in a previous Flarnchain episode, 1 Bitcoin can be broken down into 100 million Satoshis. A Satoshi is a unit of measure that represents the base unit of the Bitcoin currency.
Satoshis, a recap:
- 1 Satoshi equals 0.00000001 Bitcoin
- 1 Bitcoin equals 100,000,000 Satoshis
If you receive $10 worth of Bitcoin, at the current price, you would receive around 16,000 Satoshis. Theoretically, there is no upper limit to the price of Bitcoin as compared to the US Dollar, thus 16,000 Satoshis could be worth a significant amount of money some day.
So, you set up your account, you got $10 worth of Bitcoin, or about 16,000 Satoshis for free. Now what you do you do? Well you could link your bank account up with Coinbase to allow transfers of USD to the Coinbase trading platform. The process is fairly user friendly and the website will walk you through the prompts.
Once you have connected Coinbase to your bank account, you can choose to transfer US Dollars over to the Coinbase platform. You can then buy various types of Crypto Currencies with those US Dollars. This is not investment advice, but a general strategy would be as follows:
Never invest more than you can afford to lose. For example, you should be able to see the value of your investment decrease by 50%, 60%, 80% (even 100%) and not feel worried about any financial obligations, because you did not invest more than you could afford to lose.
Invest consistently, on regular intervals. For example, invest $25 per month. Or $100 per month. Or $1,000 per month. What happens here should be based on #1 above.
Crypto-currency investments should be a small portion of your overall investment portfolio. I see recommendations as low as 1% of your net worth, to as high as 10% or even 25%. Regardless of where you fall on that spectrum, crypto-currencies carry significant risk, so start small.
Allocate a majority of your crypto-currency investments to Bitcoin. Bitcoin is the granddaddy of all crypto-currencies. It is the most stable, has the largest network effect, and has the largest amount of institutional investors. Bitcoin also has consistently outperformed all other asset classes over the past 10 years. There is no certainty that this will continue, but there are many logical value propositions that ultimately lead to the conclusion that Bitcoin will outperform all other investment classes deep into the future.
If you did not allocate all 100% into Bitcoin, you should probably allocate some potion to Ethereum. I like to think of Ethereum as Bitcoin's little brother. Younger, but wayyyyy smarter. People compare Bitcoin to digital gold and Ethereum to digital oil. Gold is a store of value. Oil is actually used to do stuff.
If you still have some left over to allocate, I would suggest learning about some of the crypto currencies and investing in them if you understood what they are being used for. For example, Chainlink (LINK) is in a class of cryptocurrencies known as "Oracles". Oracles are structured to link information from the outside world up to crypto-currencies. They are super important for aggregating the data necessary for the entire crypto-currency ecosystem. Chain Link is sort of like infrastructure, but it's built as a crypto-currency using blockchain technology rather than as a traditional business. Another interesting project to look at is Cosmos (ATOM). Cosmos is another infrastructure type blockchain project, that is building the necessary infrastructure to connect all of these blockchains to make a more cohesive crypto-currency economy.
If you are looking to gamble, be sure to take a look at the market capitalization first. If you are hoping to pick a coin that will increase 10 times or 100 times in value over a very short period of time, make sure to look at the market capitalization of that coin. For example, Bitcoin has a market capitalization of $1.2 trillion. Bitcoin is not going to 10x any time soon, because that would mean Bitcoin's market capitalization would need to increase to $12 trillion for you to increase your investment by 10 times. Bitcoin is a long term investment. A smaller market capitalization means more chance for massive gains, but also more chance for 100% losses. As stated.... this if you are looking to GAMBLE, not invest. I personally like gambling, but I do it in a measured way.
Don't be afraid to take profits, and if you are in this for the long haul, take your profits and reinvest them back into Bitcoin (this is known as stacking sats). You don't need to take 100% profits to take profits. Let's say you invest $100 in Flarncoin (not a real thing yet). If Flarncoin goes up by 50% in a really short period of time, it might be a good idea to sell some of your Flarncoin and invest that money back into Bitcoin. Think of Bitcoin as like your crypto-currency bank account.
There are other general rules that I try to follow, but I'm realizing that the above thoughts have likely far surpassed the point of information saturation.
Okay.. So I wrote a lot of words. Don't worry if my words didn't make any sense. Sometimes I struggle to explain things, so if it's confusing... well remember that this stuff is really confusing, and that I barely know what I'm talking about.
Thanks for reading!