During one of the worst financial crisis of our time, an anonymous cryptographer decided enough was enough with the corruption in wall street and existing central banking system.
In 2008, the now famous and still unknown, Satoshi Nakamoto released Bitcoin as an alternative method for spending and keeping wealth.
10 years later, Bitcoin and cryptocurrency have reached a tipping point with mainstream awareness and has grown to market of over 100 billion dollars with no signs of slowing down.
This article is intended to help you understand the market and make wise investment decisions for long-term gains in cryptocurrency.
DISCLAIMER: I am not a financial advisor. All the information provided here is intended for you to make an educated decision about your own investment portfolio.
What you need to know about cryptocurrency
You might be wondering how safe it is to invest in something so new and so risky.
Check out the volatility of Bitcoin versus gold and EUR/USD
It’s still a relatively small market so the price swings are real.
I can pinpoint a few main reasons for price fluctuations:
- Breaking news that either excites people or scares them away. and/or large quantities of coins being bought or sold within a short time.
- Institutes buying or selling large quantities in a short period of time.
These can be a concern if you’re looking to do short-term trades, but for long-term investors, the day to day price won’t matter as much. The use of cryptocurrency is becoming more and more widespread so over time the prices will continue to grow as a reflection of their use.
To help you invest with more confidence, I will cover some of the biggest fears most people have with investing in cryptocurrency.
What are the biggest fears with cryptocurrency?
This is a bubble that will not last.
It’s a bubble bonanza!
Every day there’s someone out trying to cry BUBBLE!.
What these people don’t understand is how cryptocurrency works and what gives it its value.
Before investing, you MUST understand as much as possible what a blockchain is and what bitcoin is.
These are my favorite videos that explain it best. I’ll give you my summary below but please watch these videos in their entirety.
What is Bitcoin:
What is Blockchain:
Bitcoin is a means of exchange and a store of value that relies purely on a trustless system (decentralized) to record every transaction made while preventing anyone from double spending their balance.
Bitcoin was the first cryptocurrency. There are many other cryptocurrencies on the market today, and many of them have uses beyond just money.
A blockchain consists of nodes (computers with CPUs) on a network that keep copies of the ledger (with those transactions recorded) so that anyone wanting to exchange a Bitcoin has to check with at least 6 other nodes before having the transaction confirmed. This is how Bitcoin prevents double spending and hackers from tampering with balances.
At the time of writing this article, there are approximately 9000+ nodes on the network keeping a copy of the ledger. There are also hundreds of millions of Bitcoin wallets in the world with balances.
The chances of every single node coming offline are hardly feasible. For that to happen, everyone would have to be blocked from using the internet and that would be a much bigger problem than just Bitcoin.
People often call this a bubble because of skyrocketing prices. At times, the market can be overpriced due to speculation and mainstream publicity. It’s usually during these times that people jump in looking for a quick buck, then end up losing everything because the market crashes. Then they go on about how it was a bubble and everyone should avoid it.
Don’t listen to these shortsighted people.
Since 2008, Bitcoin has proven to be much more serious than gamer’s computer money. It’s proven to be a viable store of wealth that can be easily accessed anywhere in the world.
Just have a look at all the companies, brokerages, and countries who’ve jumped on board.
- Fidelity Investments – America’s largest brokerage company supports bitcoin.
- Hargreaves Lansdown – Britain’s largest investment brokerage
- Retailers in Japan have begun widely accepting Bitcoin
- Russia is heavily investing in Bitcoin and Ethereum mining
- Over 60 countries now have Bitcoin ATMs
So again, even if the prices seem crazy in the short-term, worry not. It’s going to continue to grow in usefulness as we discover its superiority over our current fiat money system.
I can get hacked and lose all of my coins
This is definitely a problem. Especially for non-tech savvy folk.
Although that is not a good reason to avoid cryptocurrency entirely.
Paper money has similar problems if you think about it.
We all know carrying thousands of dollars in your wallet isn’t smart since someone can easily steal it when you’re not looking.
Or how about forgetting to check your pockets then washing your pants and ruining your bills.
You have to be equally careful with crypto as you are with paper money.
Protect your coins by creating a paper wallet or purchasing cryptocurrency hardware for safe keeping.
You must also be careful with entering your private keys into web browsers as they can be stolen. That’s why it’s best to never enter your private keys online unless you intend to empty out your wallet and set up a new one.
Never keep your coins on an exchange as there have been plenty of times hackers have gotten into an exchange to steal coins, so always take it out and put it into a paper wallet ideally or a wallet of your choosing.
It might be made illegal
Governments and central banks will certainly work to regulate this new market. Regulation might be a good thing in the long run. But if they seek to block it entirely, the blockchain will still exist on those thousands of nodes across the globe.
Satoshi Nakamoto created Bitcoin to avoid the negative effects a central bank and government can have on money. The current monetary system allows a few individuals in the central banks to print out unlimited amounts of cash and can use it to bail out anyone they deem worthy. This then causes everyone in the system who owns that currency to have its value drop without doing anything.
Since Bitcoin uses the internet and mathematical equations to validate all transactions to keep the records, the only way it can be stopped is if the internet itself was shut down.
Even if the government sought to block peer to peer networking, there would still be nodes out there keeping copies of the blockchain which have records of every transaction ever. When you finally do connect back to one of the network of nodes, you’ll have access to your balance so long you have your private keys in your possession.
China has started to limit cryptocurrencies, but millions of Bitcoin holders in China will still have their private keys allowing them to access their coins anywhere else. The people of China are already familiar with the use of VPNs to access websites like Google and Facebook, so this would not be any different.
Rest assured no matter what happens, as long as the internet is around to connect us all, our balances will remain safe on the decentralized blockchain.
Now that we got that out the way, let’s get to the nitty-gritty of investing in crypto for the long term!
How much should I invest in cryptocurrency?
This is a very important question to ask but ONLY YOU can answer it.
In my opinion, because this is still a very volatile market, you shouldn’t invest more than 5 – 10% of your entire investment portfolio.
Here are a few questions to ask yourself:
How much do I have to invest?
What’s in your savings account? Check your 401k. How much do you have in the stock market? How about real estate? Calculate how much money you have liquid.
Take 5-10% of that and that’s a safe number to invest into crypto.
It’s not enough to get rekt (utterly destroyed by losing all your money), but it’s enough to make some strong gains which can increase your overall portfolio size.
You can adjust that amount depending on how much risk you can tolerate, but this is a good rule of thumb I think.
How long do I want to invest for?
How far are you from retirement? If you’re younger than 30 years old, you have more time to save and invest so you can invest closer to 10% or even higher. If you’re in your 60s, you can invest more conservatively but still have some skin in the game to ride the waves as they go up.
What is my current portfolio balance like?
It’s important to have a well-balanced portfolio for long-term gains. We’re not looking to put all our eggs into one big crypto-basket. We want to make sure protect our money while allowing it to grow. That means diversifying.
That what billionaires do. So do it!
Here is an excellent article that breaks down how to diversify your portfolio beyond just cryptocurrency. After reading that, come back here.
Which Cryptocurrencies Should I Choose?
Growing a crypto-portfolio, or cryptfolio as I call it means choosing investments that are positioned for growth as crypto becomes more widely used.
Not all cryptos are created equal though so it’s important to understand how they differ.
Know the difference between coins and tokens
A coin is a cryptocurrency that has its own blockchain and has a value that is not tied to any physical or digital asset.
A token is a cryptocurrency that depends on another blockchain or asset.
Tokens can be highly speculative and often represent a new business or idea using blockchain technology like the many ICOs created on top of Ethereum.
Know the difference between coins used as money-only and those used also as fuel for a platform
Bitcoin is money-only since the value of it comes from the free market giving it a value. You’re able to freely exchange it with anyone anywhere with no third-party moderator.
Monero is another cryptocurrency used purely as money with the added benefit of being totally anonymous in every transaction, unlike Bitcoin.
Ethereum is a platform that uses its blockchain for creating “smart contracts.” ETH is used as fuel to execute these transactions. So even though ETH can be exchanged as money, its purpose is to be used for the development of their platform.
I believe this is important to know since the usefulness of a coin will have an impact on the price of a coin.
Around the time of writing this article, China decided to shut down all ICOs which were mostly created on Ethereum and Neo. That caused the value of ETH, NEO, and all the tokens on those platforms to free fall. Although coins like Bitcoin and Litecoin have nothing to do with ICOs since they’re just money.
All the while coins like Bitcoin and Litecoin have nothing to do with ICOs since they’re just for money-only.
I suggest having a mix of coins that are money-only coins and other coins and tokens to diversify and protect yourself against losses.
Know which cryptocurrencies have a fixed supply versus a growing supply.
Some cryptocurrencies have a fixed supply of coins that can never be changed while others might have the option to increase the coin supply
Bitcoin was designed to be like gold, in that there is a finite amount that will never go over 21 million coins.
LTC also has a limited supply, while Monero will add supply at a rate of less than 1% each year.
Ethereum, on the other hand, can increase the supply at their own discretion. This means owning ETH can put you at risk for inflation so this is also something to consider.
Choosing the right balance of coins for long-term growth.
Now that you know the basics of cryptocurrency, it’s time to choose your investments.
We are still in the early days of cryptocurrency which means there is a lot of room for growth, but if you choose coins that are too new or too speculative, then they won’t grow with time.
Allow me to break down some rule of thumb I like to use in choosing coins for my own portfolio:
1. Choose a crypto in the top 20 market capitalization size
You must think like an angel investor here. Your goal is not to gamble with your money but put your money on the most secure bets. The coins that have made it to the top 20 market cap have either been around the longest or have many investors excited about the opportunity which is a good indicator further success. Of course, nothing is guaranteed in this market, but by seeking to invest in the most popular coins, you reduce your risk of losing money.
2. Choose a mix of money-only, tokens, and platform cryptos
By splitting your money between money-only coins and other tokens, you spread your risk in this already risky market.
If Ethereum’s blockchain overtaken by NEO’s technology or outdone by another company not yet started, you’ll at least have some of your funds in coins unaffected by changes in the technology.
3. Don’t spread yourself too thin.
It can be tempting to buy a little bit of everything in hopes that one your investments will skyrocket.
In the past year I’ve been investing, even though I’ve doubled my returns, I would have been far better off had I invested only in Bitcoin.
By having a variety of coins, I’m playing things safe, but I’m also missing opportunities in riding the few coins that are here to stay like Bitcoin.
I believe its best to have no more than 10 coins. Ideally, 5 of the most popular, longest running coins would be ideal.
This puts you in an advantage to have your money grow over time as cryptocurrency becomes mainstream.
Yes, you may miss out on some of the new coins that 1000% your money, but the odds are against you if you try to bet on new coins that might not pan out in the long run.
Choose coins with strong leadership behind them
Ethereum is a coin I decide to invest in because it has a strong leader behind it. Vitalik Buterin.
When I heard about Ethereum, it had the second largest market cap which meant people put their trust in it. Then I watched every YouTube video I could find of Vitalik Buterin to see who he was, what he had done, and how much he knew about blockchain technology.
It was apparent that Vitalik was not only passionate about the industry but was a brilliant young man.
I’m reminded of people like Mark Zukerberg of Facebook or Steve Jobs of Apple. Those leaders lead their companies to dominance. When a company lacks passionate leadership, they can fail like MySpace did when it was sold to News Corp.
Not all cryptos will have very notable leaders like Buterin. It can be tough to find information on the founders and developers.
Do your due diligence stalk people involved in the cryptocurrency you are looking to invest in.
Sign up to their subreddits. Follow the founders on Twitter. Search YouTube for talks, interviews an.
There are a lot of similarities to the Dot Com bubble in that many people are jumping on the blockchain bandwagon creating their own decentralized solution for whatever you can think of.
Look for coins that have been in the game the longest and for teams that have a proven track record.
That’s how you’ll find winners in the long-run.
How can I maximize my growth while reducing risk
Every quarter or so, I like to look at all of my investments and balance them out. This assures I’m not putting too much money into one or two coins and helps me take the winnings of one coin and move it to other investments I have faith in.
Use an app like Blockfolio to keep track of your investments.
If you see one your coins skyrocketing to the moon, it’s can be wise to take those winnings and move them into other coins.
Recently I made some hefty profits with a token. I decided to take some of those winnings and put them into my money-only coins like BTC and LTC.
Where can I buy cryptocurrency?
The most reputable exchange in the United States is Coinbase.
At the time of writing this article, Coinbase allows you to buy 3 coins. BTC, ETH, and LTC.
You will need to start by buying BTC or ETH because most exchanges only accept these coins to buy other cryptocurrencies.
Bittrex is also a reputable exchange based in the U.S. They offer many more coins you can’t get from Coinbase, but you’ll have to have BTC or ETH to deposit funds there.
You can also use exchanges like Kraken.com and Poloniex.com.
Remember that some exchanges don’t have some coins so choose the exchange that has the coins you want. This is why I like Bittrex since it has all the coins I want.
This is what I do to purchase all the cryptos I want to invest in.
I suggest doing this even before you’ve decided on what coins to buy because the time it takes to get approval, ID verification, and everything else will take up time. Expect a week or so. It took me about 3 weeks 😩
2. Make your first purchase of BTC or ETH using all the funds you’ve allocated for your cryptocurrency investment.
This will also take about a week or so to get access to your coins in the Coinbase wallet, so sit tight while that happens.
Ideally, by now you should have selected at least 5 coins you want in your cryptfolio. Start keeping an eye on the prices of those coins you want daily to get an idea of what they’re trading at.
3. Deposit the amount of BTC/ETH you want to invest in other coins into the wallet on Bittrex (or the exchange of your choice)
That will be the funds you use to buy up your other coins and tokens.
If you happened to buy ETH or LTC and want to buy your coins on Bittrex, you’ll have to sell your ETH and/or LTC to get either USDT (USD Tether) or BTC.
Once you have BTC available on Bittrex, you can then execute your purchase of the coins and tokens you want.
4. Take all your coins off the exchanges and store them safely
Since these are coins you intend to keep for the long-run, there is no need to have them on the exchanges unless you intend to sell or buy them soon.
Refer to these arcticles on creating a paper wallet and/or purchasing cryptocurrency hardware for safe keeping.
Hold on for dear life 😜
Knowledge is power. Remember that you’re an intelligent investor, so don’t invest in things you don’t know about. I’ve provided you with a base foundation to make wise investment decisions, but it’s ultimately up to you to make your own choices.
Do you have any other tips for those new to crypto investing?
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