Investing in cryptocurrency can be life changing. It certainly has been for me. It has taken me from being an average software developer in Munich almost to complete financial freedom. That is why I talk about it so much.
But before I even get into this. Let me put a short disclaimer. This article is for beginners. If you are already a seasoned crypto investor and would only like to learn about how to get your hands on the smaller cryptocurrencies, you should read; “How to Invest in Cryptocurrencies That Can 100x”. For all others who are still here, I believe I have just the write guide for you.
If you have read “The Intelligent Investor” by Benjamin Graham, you will know that most people who try to beat the market fail. If you haven’t read that book, I highly recommend you do. Benjamin Graham makes an excellent case for investing in the S&P 500 instead of manually picking stocks. In the book he publicly shames hedge fund managers who claim to be better than the market and repeatedly lose to the overall stock market. Thus, he strongly recommends that for most people the best thing to do is to invest in the top 500 companies in the American stock market; the S&P 500. Right now the fastest growing asset is crypto. Unfortunately there is no index fund for cryptocurrency. And to be honest, even if it existed; it probably would not be a good idea to invest in it. This is because most Altcoins die.
Remember the ICO craze in 2016/2017? Now we know it was a bubble. Literally hundreds of ICO’s occurred then, and roughly fewer than 1% survived till now. That’s why most altcoins are colloquially called “sh*tcoins”. I know it doesn’t seem like that right now, because we are in a bull market and everything is pumping. But don’t foget, alts have historically lost over 95% of their value during the bear market (on average). So if you were to invest in something like the S&P 500 index equivalent of altcoins; i.e. 500 top altcoins, it would probably be not a good investment. This is because most of them would die during the bear market. Out of the ones who survive, most would do mediocre at best and a few quality projects which I believe to be only a list of few would thrive again when the bull market returns and reach all time highs of the previous bull market (like Ethereum has done now).
What about DeFi and NFT’s?
The DeFi and NFT niches within the crypto universe have really revolutionized finance, governance, community engagement and art. I am convinced that this is the future. I invest heavily in DeFi and NFT projects. Right now they are all going up because we are in a bull market. One could even argue that they’re both in a bubble because almost every NFT or DeFi coin pumps no matter what it does. This won’t last forever. Only few of these projects will survive the 2 year crypto winter/bull market that has historically come after the huge pumps we are experiencing now and last experienced in 2017.
By investing in these small DeFi and NFT projects, I am gambling on my ability to be emotionally stable, not get too greedy and time my exit on these altcoin projects. But I have already accepted that with some of these projects I will not be able to exit at the correct time because of the huge spikes in volatility they have combined with much lower liquidity than for Bitcoin or Ethereum. I have accepted that with some of these projects I may not make as much money in the long run as I would just by holding Bitcoin or Ethereum.With some I may even make huge losses if the market liquidity spikes up and disappears suddenly, like it has done before! That’s why even after being a risk-loving investor, I’ve kept 50% of my portfolio in Bitcoin and Ethereum.
Isn’t Ethereum an Altcoin?
Traditionally, most people in the cryptoverse would define Ethereum as an altcoin. I understand their argument. But there is a growing number of more crypto folks arguing that it has solidified its position and can be looked at more as a long term hold like Bitcoin rather than a get-rich-quick altcoin. For the absolute beginner, I would still argue to be as risk-averse as possible and stick to Bitcoin for the long term. Without further delay let’s get into the strategy.
Strategy for Beginners (risk-averse)
How many people do you know who have made money in the stock market or crypto? I guarantee you will know more people who lost money than made money in these markets. This is because most people think they’re special. Majority of drivers think they are above average drivers. It’s a human bias, we all believe that we can do something that 90% of people can’t do. To be honest with you, I’m not going to be a total buzzkill and say you can’t do it. You can definitely pick altcoins and beat the market. I’ve done it and I intend to keep doing this. But let me not sugarcoat this. It is hard. You need a lot of free time you are willing to sacrifice for extensive research. Additionally, learning about the technical side of cryptocurrencies and macroeconomics would be super helpful. Luckily, I’m a software engineer and I studied in Business in University, thus I my background helped me out slightly.
Picking Altcoins may not seem hard right now because we are in a bull market and literally everything is pumping, but just you wait and see. Over the next few months you will find many people who consistently buy the “top”s of several cryptocurrencies and then when the crash inevitably comes they will get depressed, emotional and in their moments of weakness may sell their cryptocurrency portfolio in huge losses. I personally know people who did this during 2017–2018. Like Benjamin Graham roughly says in his legendary book, “The Intelligent Investor”; Investing is more about EQ (Emotional Quotient) than IQ. Warren Buffett also reaffirms this from his quote, “Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential”. And here is the most rational way to make money in the long run in crypto in my experience:
1. DCA Bitcoin
DCA is Dollar Cost averaging. This refers to buying a certain US Dollar amount of Bitcoin consistently (every week or every month), no matter what the price of Bitcoin is on this day. This is a very old trick in the book and is also documented in The Intelligent Investor by Benjamin Graham. By doing this, you are providing insurance for yourself so the regular fluctuations in the price of the asset do not cause your investment to lose a lot of value in case you buy on a bad/expensive day. Bitcoin is the cryptocurrency with the longest history. It is the OG. It was conceived during the financial crisis of 2008–2009. It is here for a purpose. It wants to take away the power from Governments and Banks to selectively decide who can get access to funds and who cannot. Bitcoin aims to discredit the value of banks including a government’s central bank. And so far it has been doing that very well as:
- The value of the US Dollar is decreasing rapidly when compared to Bitcoin.
- Bitcoin is continually used to bypass sanctions set on countries such as the sanctions on Iran. Transfer of Bitcoin from USA to Iran, cannot be stopped unlike a bank transfer.
- Bitcoin has surpassed the national currency of Venezuela to become the de facto medium of exchange in Venezuela; a country where the people have lost all trust in their government.
- Bitcoin is used to fund humanitarian causes anonymously such as the #EndSARS protests in Nigeria.
- Due to it being completely decentralized, with huge mining power coming out of China, Iran, Germany, India and USA to name a few; any one country can no longer afford to try to “ban” bitcoin, because if you ban it in Bombay, it will stay alive in Zanzibar.
No other cryptocurrency in the world can boast such mass adoption. Bitcoin has now proven its mettle. With such worldwide adoption, it is obvious; it is here to stay. So buying Bitcoin at regular intervals ensures that you are part of this crypto revolution and at the same time you are not taking much risks. This is because you are investing in the OG of cryptocurrencies and you are also not trying to time the market by buying all at once, you are instead spreading your risk over several buying occasions.
There are many places you can buy Bitcoin from, such as Kraken, Coinbase, Binance etc. but the best place I’ve learnt is Swissborg. They are not paying me to do a promo for them. But I’ve experienced that they have one of the lowest fees, are completely transparent on their fees, have an easy to use mobile app and are also soon launching the ability to earn interest on your Bitcoin. You can use my link and get some free crypto here: https://join.swissborg.com/r/angadNLD2.
But the hardest part of Dollar Cost Averaging is that you must have the emotional stability to buy Bitcoin regardless of the price on that day. What you can however do is download the Crypto.com app and set up a time and day to regularly and automatically convert some of your Fiat (Euros, Dollars, whatever) to Bitcoin. Crypto.com has higher fees, that is why I prefer Swissborg but if you are the kind of person that will struggle with doing this consistently, either because you forget to buy on the day or you are suspecting you will not have the emotional stability to do this consistently, then Crypto.com is a good option. I also have a referral code for this which will give you $25 worth of free crypto: https://crypto.com/app/4j94jqpw4f. Again, I’m not being paid by them to do this; I’m speaking from my experience of using their app. Once you’ve sorted out where to buy Bitcoin, let’s move on to the next step.
2. Hold for a long time: at least 4–5 years
There are plenty of people claiming ways they can teach you how to get rich quick on the internet. There’s a reason they do that, it gets clicks, everybody wants to learn how to get rich overnight. Nobody, wants to wait years for it. But I can speak from my own experience. This is the safest “sure-shot” way of making money in crypto. I have been dollar cost averaging Bitcoin since 2018 and made some great gains, and I intend to hold it for the long term. In fact there is a portion of my Bitcoin holding that I don’t intend to sell ever. The longer you hold bitcoin, the more gains you will benefit from. Like American Billionaire Ken Fisher famously said;
“Time in the market beats timing the market — almost always”
Now why do I specifically say 4–5 years?
If you have done a little bit of reading on Bitcoin you will be aware of a phenomenon called the “halving”. Satoshi Nakamoto, the eponymous creator of Bitcoin ensured that the rate at which Bitcoin is distributed to miners as a reward for approving transactions is halved roughly every 4 years. By doing this Satoshi has effectively fortified the rate of inflation in Bitcoin. After following a halving of this inflation rate, the price of Bitcoin usually explodes after some delay. This is why holding Bitcoin for at least 4 years ensures that you are part of this explosion in Bitcoin’s price where Bitcoin historically does an at least 10x on its price, if not a 20x or 100x.
Strategy for Beginners (risk-taking)
Even after my conservative tone I am sure that some of you will remain more risk-taking. Maybe its because you have experience trading in other markets or maybe that’s just how your personality is. I don’t blame you. I am also like you. Still, assuming you are a beginner, what you should do is have at least 50% of your money in Bitcoin. Then with the rest 50% you can go for the higher market cap, “Bluechip” Altcoins that have strong fundamentals. These are the Altcoins that are leveraging trends like DeFi but also have large enough decentralized communities, so they are unlikely to completely die during the inevitable bear market. For a list of these Blue chip Altcoins, I suggest you do your own research but just to give you something to guide yourself by, let me give you my favourites:
I cannot stress this enough; altcoins are doubly risky than Bitcoin. If you are somebody that cannot suffer watching their portfolio fluctuate heavily in value, I suggest you stick to Bitcoin. Because even though Bitcoin will also fluctuate in price, it will go up in the long term; simply because it is too big to die and has the strongest fundamentals compared to any other cryptocurrency. Regardless, of whichever strategy you choose to adopt, I wish you the best of luck!
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.