09/07/2021: Weekly Newsletter
The most frequently asked question I get about crypto is how to invest in it and what to do with it. This is not intended as investment, financial, tax, or legal advice. It is just a collection of thoughts on how I’ve processed investing in this space over the past 2 years. I could be completely wrong and doing this crypto investment thing the wrong way, which is why it is important to start with bullet #1...
I only invest what I am comfortable completely losing.
While I believe in the growth of blockchain (the technology that powers crypto) in the long term and the use of more crypto over time, crypto is still a new space compared to other asset classes like stocks and bonds. Bitcoin, the first cryptocurrency as we know them today, was started in 2009. That’s only 12 years--compared to the hundreds of years we’ve had stocks and bonds! It is still a very new type of asset with much less historical data available, and ergo, I have approached it with the appropriate caution.
My personal take is that it will continue to grow; however, nothing is guaranteed and therefore, I only put in what I would be comfortable going to $0. Currently I have 25% of my total assets in crypto. That is the amount that it has grown to--not the initial investment. My initial investments have been about $50 - $100 per week over the past year and a half . (During COVID, the way I thought about it was to take the money I would have spent on lunch/coffee/drinks and since I wasn’t doing any of that, I put it into crypto instead.)
2. I use small increments overtime rather than trying to time the market.
There are some people who spend all day everyday looking at crypto prices and markets. I am not one of those people. I have to actually do work during the day; therefore, I will never have a competitive advantage in trying to time the market. Instead, I have set up automatic purchases in small increments ($50 or $100) to buy a little crypto consistently every week over time. This uses the “dollar cost averaging” approach, which I use for stocks too.
One of the great advantages of crypto is that you can buy as much or as little as you want--you don’t need to buy 1 whole bitcoin @ $30,000. You can buy just $25 dollars worth at a time. Also, the markets are still very volatile--up, down, right and left. I find it too time consuming, and frankly really hard to get right, to try and figure out when to buy low and sell high. Instead, I use dollar cost averaging, where if I buy consistently now, then it doesn’t really matter if the price goes up or down within a few days, because over the long term, I will have averaged out to a general price, and then over the next 5 - 10 years, my bet is that the price will continue to grow to a much higher level. So overall, I would have bought at a much lower price than what it will grow to.
3. Currently I have invested in Bitcoin, Ethereum, and a tiny bit of some other coins.
There are a LOT of random crypto coins, and frankly, many of them are garbage (The informal industry term is “sh*t coins”). And don’t even get me started on dogecoin. The upside and downside of crypto is that it is decentralized--meaning, really anyone can start one if they want to. However, this means that many random people can come up with a coin, market it well, and lure people to invest in it. But there might not really be anything there, and then you’re left losing your entire investment. (This podcast has a great deepdive into an example of being bamboozled by this.) If you are looking for advice on how to sift through those thousands of crypto coins (yes, there are thousands) and find the diamond in the rough that can make you a millionaire...you have come to the wrong place. That just isn’t my style. (And maybe I’m wrong. But I know myself well enough to know that that sort of investment approach will never be something I’m motivated enough to do. I honestly prefer to do other things with my time than deep dive into crypto coins.)
Instead, I feel more comfortable investing in the crypto currencies that have been around the longest and have been the most well known--Bitcoin and Ethereum. I also believe they have the largest network effect around them at this point in time--they currently have the largest market caps. Money is at the heart, built on a network effect--the idea that the more people use it and trust it, the more valuable it becomes. For example, people use the US Dollar to buy things because a lot of other people use and trust it, so I have a very high confidence that if I receive US Dollars for payment today, I will be able to use that to buy something in the future without losing any value. However, if you pay me in matchsticks today...well, I’m not very confident that I can use that to pay for anything in the future because very few people trust that matchsticks will retain value in the future. So for right now, I’ve thought of crypto like the network effect of money; the more use and demand of a coin, the better probability it will be around for a while--hence, my focus on Bitcoin and Ethereum.
I will also disclose that I have started to dip my toe into some other coins like Litecoin, Ethereum Classic, and Cardano. However, they make up only ~0.5% of my total crypto portfolio and just ~0.1% of my total assets. The reason I’ve bought a little of these, is that I have been following crypto twitter/blogs, and there seems to be more and more buzz around Litecoin and Cardano, but I have to admit that I have not deep dove into the technology protocol behind them (you know that when you say that “buzz” is a reason you invested in something, that it’s not a great investment approach, hence the very very very small amounts I put into it--like $50). Ethereum Classic I wanted to purchase a little bit of because it was created as a result of a 2016 split from the current Ethereum chain, and I was curious to see what that looked like.
The thing about crypto is that I really don’t know yet which crypto currency will be the winner in the long term. It might be Bitcoin, Ethereum, a central bank digital currency, something else our society hasn't dreamt up yet, and/or all or none of them. I just don’t know yet. (And if I did know, I would be living on a beach sipping a caipirinha right now.) So in the meantime, I’m trying to spread my bets with what I am comfortable with.
And yes, I do intentionally use the word ‘bets’, because I personally don’t feel I have enough historical data to prove that crypto is as solid an investment asset class as real estate, stocks, bonds, commodities, etc. which have been around for much much much longer.
4. I use platforms/apps to buy crypto where I can actually transfer that crypto to another platform if I wanted to.
There are two types of platforms/apps out there that allow you to buy crypto. Category 1: Platforms/apps that allow you to move your crypto from that platform to another platform (these frequently include a crypto wallet). Category 2: Platforms/apps that require you to sell your crypto on that platform, then you can transfer the proceeds (i.e., US dollars, Euros, etc.) to another platform to then buy more crypto.
I have learned the hard way to use only the platforms/apps in Category 1. These include apps like: Coinbase and CashApp. Category 2 apps include apps like: Robinhood and PayPal. I previously purchased crypto on Robinhood and Paypal before realizing that I wouldn't be able to move my bitcoin and ethereum to another platform without selling it first. When you sell crypto, you have to pay taxes on that sale. Therefore, whenever I do decide I want to sell my crypto and move it out of Robinhood, I will have to sell it, pay taxes on that gain, and then buy the crypto again on another platform (unless the app changes how it works, which I wouldn't rely on). In Category 1 apps, like CashApp, I can just transfer my Bitcoin from CashApp to my Coinbase wallet because it is an asset that I own. I am not selling the asset; I am just transferring it from account to another (just like I would if I were moving US Dollars from one bank account to another bank account).
This is what has helped me when thinking through investing in this area. Again, this is not meant to be investment, financial, legal, or tax advice. (And I could be getting this crypto investment thing completely wrong) but because I get so many FAQ about how I invest in crypto, I wanted to share what I do. And so here it is.
I would appreciate any feedback or follow up questions. [I’m also sure I’ll get push back from the avid crypto crowd who will have many opinions about my crypto investment strategy…]
Money & Crypto
El Salvador begins accetping bitcoin as legal tender and government buys 200 BTC before law goes into effect
UK watchdog slams Kim Kardashian for promoting crypto (this is actually a really interesting point, as there is so much financial regulation as to how you can market financial products that will be interesting to see how regulators will react to influencers)
Shipping port jams to continue into 2022 causing supply chain slowdowns
Chinese state investors looking to invest in Didi, large ride hailing app
Tech & Science
The earth’s atmosphere to scale
Etc.
I’ve been rewatching The Wire the past few weeks, which has made me double down on my opinion that it’s the best tv show I’ve seen. It shocked me when I was looking at the credits that the show is ~20 years old, because it still feels so relevant and so visceral. Its ability to stand the test of time could be because sadly many of the issues highlighted by the show are still ongoing today, or maybe it’s because the brilliant writing and subtle but superb acting make it so much more than your typical detective/cop show.
This made it particularly sad to hear about the passing of Michael K. Williams, who brilliantly played a breakout character of the series, Omar Little. I was just as wowed by this character watching the show this time around as I was the first time. And it was a delight to relisten to some of the greatest lines of the show.
🎧Why Bridesmaids should be in the AFI top 100 films
The latest at the US Open
Disclaimer: All opinions are my own. The content on this site and on the podcast does not constitute financial, legal, accounting, tax, or investment advice.
