Beginner's Guide to Crypto Asset Investing
I wrote the following simple guide to investing in Bitcoin and Crypto Assets back in Jan '17. After publishing version 3 of my strategy I felt a need to review and update to reflect any changes in my approach, but upon review, I found very little I needed to change. If you are new to Crypto, take your time to read this and the strategy, if you have any questions then feel free to get in touch, and I will do my best to get back to you.
Please note that: the information on this website is not investment advice. I am not a professional trader; I am just sharing my experience. Do not take anything I say as investment advice. Crypto markets are highly volatile, and you invest at your own risk.
I have a fundamental belief in both Cryptocurrencies as a store of value and medium of exchange, and the blockchain technology behind it. I wrote this guide and put together this website to help others entering the space, a few warnings though:
- There are people out there who know more than me. I don’t claim to be an expert; I am just sharing my experience. Please do your research too and do not invest in anything you do not understand. I have created a couple of lists on my Twitter account where you can find those I have been learning from.
- Do not invest anything you can’t afford to lose. Please don’t gamble your future away; I don’t want to be responsible for this. I have a significant portfolio myself now, but this has been in baby steps.
- If there is anything you do not understand, please feel free to ask.
- Sometimes I will flip between calling it a coin or a cryptocurrency; it is the same thing.
- Sometimes I will flip between £ Pound and $ Dollar references, the pound is my local currency and used for understanding value for me whereas the dollar is used as a market measurement.
What is a Crypto Asset?
A Crypto Asset is a digital asset which is traded and transferred online. It isn’t one thing but shares properties with other financial instruments:
- Money: you can spend the currency with retailers who accept it
- Stocks/shares/forex: the value of the coin can change, so people use it as an investment
- Gold: in can act as a reserve for long-term investments similar to gold
The most well-known Cryptocurrency is Bitcoin, which is the leading coin by market cap and has received the most press and coverage. Market cap is the total market value of a coin; you can see the market cap of all the leading coins on www.coinmarketcap.com. Bitcoin’s market cap is over $164bn now, and the entire market is over $465bn (15th Feb '18).
There are hundreds of Crypto Assets, some of which are growing in value and awareness and others which are potential scams or a waste of money. Coins which are not Bitcoin are called altcoins; the most notable of these are Monero, Dash, Litecoin and Ethereum.
Why I Invest in Crypto Assets?
For me it is simple. Initially I was using Crypto Assets as a long-term investment for my retirement. My intention was to create a personal fund for myself later in life. I do not have a pension worth thinking about, so this was my original goal. Over the past year, I have come to understand the tech, its potential and learn how to invest profitably. I have now quit my job to trade full-time.
Please note though, I may have been lucky, or I may be smart, only in the long-term will I be able to see how this plays out.
Why Are Crypto Assets Important?
The technology which drives Crypto Assets is called the Blockchain, which validates payments and balances. It is leading a new wave of Internet application development, which I believe will ultimately form the backbone of a large proportion of the Internet over the coming years. I suggest you spend some time reading up on and understanding the blockchain. These applications tend to be decentralised, which means there is no single point of attack or ownership.
I won’t share my actual numbers, but my portfolio is up +4,221% in 12 months (as of 15th Feb, '18). I do not promise you the same returns; I am merely highlighting the potential. If you choose to invest in crypto, then you do this at your own risk, and if you hit the market at the wrong time, you could easily lose money. Some people made millions in 2013, and some lost millions, it all came down to how they timed the market or how lucky/unlucky or smart/stupid they were. The market could crash again at any time.
Where to Start
To get started I recommend two things:
- Read as much as you can to build your knowledge. Read about the history of Bitcoin, how it works, how people use it, where the market has gone up and down and so on, here are some things to get you going:
- There is a great booked by Chris Burniske called Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond, I suggest buying it and reading it.
- Watch the film Banking on Bitcoin which is a really good introduction to where Bitcoin came from and why it is so important, it is available on Netflix and YouTube.
- If you are really brave, you can read the original white paper written by the unknown creator of Bitcoin, Satoshi Nakomoto.
- Make your first investment, just a small amount as this will help you build your knowledge quicker.
There are many ways to buy Crypto Assets, from specific websites to exchanges. I believe the best starting point is a website called Coinbase where you can buy Bitcoin, Bitcoin Cash, Ethereum and Litecoin. It is one of the largest sites for these coins with millions of customers, it is US-based and regulated. I have no affiliation with Coinbase, I just like their usability, both on the website and with the app.
You can buy on their website either using a debit/credit card or by making a bank transfer. My first initial purchases were with my card, but I moved to bank transfers as the fees are much lower.
When buying coins, and especially with Bitcoin, you will notice that your purchase is in decimal. A Bitcoin itself is relatively expensive, around $10,000 at the moment (as of 15th Feb '18). If you were to purchase say $5,000 of Bitcoin, you would at today's rate be purchasing around 0.5 of Bitcoin. Do not ever worry about this; Bitcoin operates at eight decimals places. You do not need to own a whole Bitcoin or any coin for that matter. Consider it like pence in the pound or cents in the dollar, but with more decimal places.
When you have purchased your Bitcoin or Ethereum, they are stored in something called your wallet. You have a separate wallet for each type of coin within Coinbase. They also have something called a Vault too, which is for long-term storage. Do not worry too much about that now.
I would suggest a simple starting point of say £100/$100. Buy a mix of Bitcoin, Bitcoin Cash, Ethereum and Litecoin, see how it works, see the coins in your account and get a feel for how your wallet works.
There are lots of different types of wallets: online, mobile and even paper wallets. A wallet is a string of characters which tells the blockchain how much of the coin you own. Make sure you research and understand what a wallet is.
IMPORTANT POINT: the markets are volatile, this is something you need to get used to. Big jumps and falls are possible on a daily basis. You will need to get emotionally used to this. If you make a small investment and there is a significant change in the coming days do not worry, be patient. You have only lost money when you sell.
I store the majority of my coins in something called a Nano S, which is like a USB stick and known as a hardware wallet. I highly recommend you buy one of these and keep your coins on one, I usually tell people to get two, one as a backup. You can read about them here:
When you are comfortable with both Bitcoin, Bitcoin Cash, Ethereum and Litecoin, you may wish to diversify and invest in other altcoins. My strategy is to invest in different categories of coins and I segment them into six tiers. You can read about my investment strategy here and see my portfolio here. You can also see all the investments I have closed here.
Note that some of the coins, are considered ‘scam’ coins, and there is no real high-quality development behind them. You can always read about each coin on Reddit too.
Some coins are subject to what is called a 'pump and dump', this where a significant group of people start investing in a coin to drive up the price and then exit while others are getting involved. Avoid pumps and dumps. Ignore them; a solid strategy can cut through these and will not affect your long-term portfolio growth.
If you choose to diversify your portfolio then you may wish to use the following:
- Shapeshift.io - a website where you can swap one coin for another.
- Poloniex.com - a website where you can trade altcoins on an exchange, be careful with Poloniex though as there are some concerns with how the exchange has managed to scale its significant growth in users. Personally, I am not worried about the liquidity of the business, I just think they are struggling with such rapid growth.
- Bittrex.com - another website where you can trade altcoins on an exchange.
- Binance - a newer website where you can trade altcoins, people seem to like this site a lot.
- Liqui.io - another website where you can trade coins, but they focus on Ethereum tokens.
- Cryptopia - a great website for buying micro-cap coins.
- EtherDelta - a website for Ethereum tokens, be careful though, they have been the victim of a DNS attack recently.
IMPORTANT POINT: research the different websites and exchanges, these are just my favourites.
Consider Bitcoin as the base layer coin for the market as many of the exchanges price their altcoins against Bitcoin. Also, Bitcoin is often used as your base currency to get started with an exchange. What I mean by this is you will not be able to buy with your regular credit card, you will need to transfer in your Bitcoin and use that as the currency to purchase.
Security should be your highest priority. Digital coins can be easily hacked, so it is important you read up on and understand how and where to store them. As mentioned previously I store most of my coins on a Nano S, but this does not support all coins. Some of my coins are stored on exchanges, some in paper wallets and some on computer wallets.
If you choose to keep some stored on an exchange or a website such as Coinbase, then ensure you complete a full security setup and ALWAYS setup Two Factor Authentication, I recommend using Google Authenticator for this and not SMS Two Factor Authentication as your phone can be compromised by hackers. Google Authenticator creates a random number string each time you log in to protect yourself in case someone can get hold of your username and password.
IMPORTANT POINT: always use a solid, high-quality password, a random collection of characters, numbers and cases. NEVER use the same password for more than one website.
When setting up on your computer, I would always ensure that you have a high-quality security programme running and clean your machine before any purchase, something like Bitdefender.
I would also encourage you to have a secure place to keep your passwords, maybe written down in a couple of locations or stored in a password manager, just create something which works for you. Also, keep a copy of your private key for each wallet. If you lose your access and lose your keys, then you lose your coins. Don't worry; this is not necessary with every wallet, for example Coinbase and a Nano S will manage your private keys for you, this will all start to make sense once you start.
So my strategy. There are two types of strategy to consider:
- Investing (in the community this is often called Hodling)
Trading is high risk and scary, I would not recommend this until you are highly confident with what you are doing, and even then be careful. When trading you are up against automated bots, market movements you can’t predict and large trading groups who can pump and dump coins.
I buy and hold, though I rebalance my portfolio regularly to take advantage of market movements. You can read about my strategy in more detail here.
My core strategy is simple and is as follows:
- I believe in the technology and believe it will continue to be adopted for real-world business use and as such the coins will support this driving natural supply and demand economics.
- I believe in the technology as a way of spending and transferring funds outside of banks, and thus consumer adoption will continue to grow.
- THEREFORE: I believe the entire market will continue to grow.
- I can’t predict which coins will and won’t grow, so I invest in the market as a whole and have a diverse portfolio.
I just want to be clear on this; I have a diverse portfolio across all the major coins I believe in. If the market grows then so will my investment. I am also not at risk for a single coin failure.
As such: I recommend just buying, holding and sitting on your hands. The markets can be quite volatile at times; you can see movements of 25% with major coins in a day of big news either way and up to 100% or higher on smaller altcoins.
Do not get too emotional about big market movements. Don’t get too excited by a big move up because it can easily come down, don’t get too upset by a big move down as it can always come back. Invest in the long-term growth if you believe in the market.
My investment is in tiers which you can read about here.
This is not a get rich quick scheme. While my returns have been great this year, I also had a six-week period of stagnation and also seen 5 +30% market dips. Whenever you enter the market, it could be on the rise, in a drop or be stagnating. I have also had days and weeks where I have seen a significant decline in my portfolio. I can't predict what the market will do when you enter. Please invest for the long term. This is much more volatile and risky than the stock market.
Spend time researching the market and the history. Take a look at what happened with the exponential growth of Bitcoin in 2013 and the following crash. I recommend reading Digital Gold, about the history of Bitcoin and key players.
Do not invest anything you can’t afford to lose. Just start with a small amount, £100, £1,000, whatever you are happy to attempt with.
Sometimes it is also easy to get sucked into a coin on the move and buy at the top; it is also just as easy to panic when a coin moves down and sell at the bottom. Be patient and be sensible.
It does not matter at what point you enter the market for a coin if you believe in the long-term. Bitcoin was once expensive at $1; it was then expensive at $10; people could not believe it when it hit $100; people could not believe it when it hit $1,000 and when it hit $10,000 they called it a bubble. It could be $25,000 early next year. My only advice here is not to chase something during a parabolic upwards move because it will almost certainly come back down.
Some Crypto Assets are deflationary by nature, and this is good for any investment.
My Top Ten Tips for New Crypto Investors
- Start simple with a Coinbase account, register, set up your security and buy a small amount of Bitcoin, Bitcoin Cash, Ethereum and Litecoin.
- Start researching the market, follow the news on these and other coins and get a feel for what is happening.
- Spend some time understand the technology and security, so you understand what you have invested in.
- Buy a hardware wallet, such as a Nano S and transfer your coins to this, this will protect the security of your coins but also show you how coins move.
- Do not get emotional with moves up or down. When you get emotional, you may make bad decisions.
- Do not get sucked into opinions on websites, you may read about a coin dying or a coin being the next big thing. These are personal opinions, ignore them.
- Invest for the long term, buy, hold and then ignore.
- Create a Reddit account and then subscribe to the sub-Reddit for each coin you are interested in. Follow the news but ignore idiots with personal opinions.
- Download the Blockfolio app and add your coins for tracking.
- Create a spreadsheet and keep good records of what you buy and sell, the current rates and what you have made. Only with good records will you know what you are doing.
- DO NOT INVEST WHAT YOU CAN'T AFFORD TO LOSE. When you risk money, then you will likely make emotional decisions, and this will probably end badly. This could all blow up at any point.
If you have any questions, then please get in touch, I answer every email.