Investing in Crypto – The Overview
This website was started to help people get into the Crypto space as easily as possible. We’ve covered everything from how to earn Crypto for free from games to how to get set up with a wallet. But now, we want to help you to start with what may be one of the most important financial decisions you may ever make – Investing in Crypto.
A quick disclaimer before we start – this is not professional financial advice. While we feel very strongly that Crypto is a once-in-a-lifetime investment opportunity, please do your own research before investing any of your hard-earned money.
Why Should I Invest in Crypto?
A quick note to say – if you aren’t already saving and investing money, you absolutely need to start. Even if it is only small amounts at first, $20 a month into Bitcoin now could potentially be thousands of dollars in a few years’ time. If you’re not sure where to start, some of our favorite resources are Mr. Money Moustache and Paul Merriman.
If you have started investing but aren’t investing in Crypto, you may be in one of the following categories:
- Putting money into a cash savings account – STOP THIS NOW! You are losing money by only getting a minuscule interest rate. You need cash on hand for emergencies, but you need to be investing in other areas far more aggressively.
- Emergency fund built up, Investing into ETFs and Index Funds – This is a great strategy for most people, but it is still quite conservative. You may try reading up on the Capital Asset Pricing Model – basically, you should be incorporating some percentage of riskier, higher-returning investmentsinto your portfolio.
We know that we need some exposure to risky assets, but which ones to choose? Options trading can be profitable, but it is very time-intensive. Junk Bonds can pay well, but run a high-risk of default. Cryptocurrencies are the perfect low-involvement, higher-risk and high-return asset.
Before you start investing in Crypto, you need to figure out your Risk Tolerance. This topic is covered in-depth on plenty of other blogs and sites, so we’ll just give you our recommendations for different risk levels.
- Very Low Tolerance – 5% of your portfolio into Crypto
- Low Tolerance – 10-15% of your portfolio in Crypto
- Medium Tolerance – 30-40% of your portfolio in Crypto
- High Tolerance – Over 50% of your portfolio in Crypto
Obviously different Cryptocurrencies have different levels of risk (e.g. the coin USDC will always be worth $1 – there is almost no risk in holding it), so these levels are approximations and are also flexible depending on the Cryptos you decide to invest in.
How To Invest In Crypto?
When you break it down, there are really two categories of investing – Passive and Active. For the vast majority of people, passive investing strategies (e.g. buy stock, hold onto it for a long time) are the best strategy. Active strategies can be extremely profitable but are also riskier, i.e. you can lose money more easily.
While we will spend some time talking about strategies, it’s also worth learning about the different Cryptocurrencies that are out there for investing in. Check out our post over here on some of the best Cryptos for investing (the short version – Bitcoin, Ethereum, and Link are easy choices).
We will now give an overview of some Crypto investment strategies, starting with lower-risk and moving down into progressively higher-risk strategies.
1. Grayscale Shares
Think about Grayscale as Index Funds for Crypto – you never have to worry about setting up a wallet, KYC on exchanges, or any technical details. You can buy shares directly through most brokers (we recommend Interactive Brokers or Schwab). Just search the ticker symbol (e.g. GBTC, ETHE) and then purchase shares directly through your broker.
Grayscale offers Trust funds for several Cryptocurrencies (e.g. Bitcoin, Ethereum, Stellar Lumens) and also has a multi-asset fund. While buying shares like this through a traditional broker is easy, you do pay a price – 2% management fees, which are several times higher than most index funds on the market.
Positives – Simple, no technical know-how needed
Negatives – High management fees (2%)
2. Buy and Hold
In this strategy, all you do is buy Crypto and hold onto it for the long-term. You will need to be registered with an exchange to be able to purchase Crypto with Fiat (we recommend Voyager or Crypto.com), and you will also want to set up a wallet to hold your assets securely (our top choice is Ledger).
Once you are set up on an exchange and have your wallet, this strategy is basically Dollar-Cost-Averaging, but with Crypto. All you need to do is buy the same “basket” of Crypto on a repeating basis.
The details of your plan will be different from person to person. You need to decide 1) what percentage of your income to invest and 2) which Cryptocurrencies you want to buy and hold. A sample strategy may be:
Invest 30% of investable cash every month into 60% Bitcoin, 30% Ethereum, and 10% LINK.
Positives – Simple to execute after initial setup; You own and control all of your Crypto; Easy to adjust in the future
Negatives – Some technical know-how needed; Not as easy to exit positions quickly if you store on your own wallet
3. Decentralized Finance (DeFi)
Decentralized Finance, also known as DeFi, has emerged as a major force in Crypto over the past year. Primarily running on the Ethereum network, DeFi is a broad set of platforms that seek to emulate, replace, and innovate on traditional Finance institutions. Just a few examples:
- Maker allows you to instantly take out a loan using other Crypto as collateral
- Uniswap allows you to trade between thousands of different Cryptos while maintaining full control of the assets in your wallet
- Compound allows to you earn interest on your Crypto by loaning it out to others (as well as the flip-side – you can take out loans if you have collateral on Compound as well)
- dYdX is a decentralized exchange that allows for margin trading and derivatives (futures, perpetual contracts)
And these are just 4 of the largest projects in DeFi – there are hundreds of other projects, with new ones popping up every day. Some other notable projects are:
- yearn.finance (YFI) started as platform that will automatically switch your assets between different platforms to take advantage of changing interest rates, but has since evolved into a massive, multi-million dollar organization. The platform has a “governance token”, which works like shares in a company – one coin = one vote – and this token has been worth as much as $43,678 (!!!)
- YFLink started as a clone of YFI, but has since evolved into a decentralized organization that is putting out new DeFi projects every few weeks.
- Pickle.finance has grown to become a rival of YFI, and the two will be merging in the near future
So how would you invest in DeFi? There are literally hundreds of ways, so expect more detailed articles soon. A few of the most common strategies are below, in order from least to most risky.
- Earning interest for lending your Crypto – This will normally net you between 2% and 10% APY; not shabby at all!
- Provide Liquidity – This one is a bit tricky at first, but once you have found good projects, you can make between 5% and 10% APY. Decentralized Exchanges (DEXs) like Uniswap work by automatically balancing a pool of two tokens, and to incentivize people to supply those tokens, a small percentage of every trade (0.3% on Uniswap) is rewarded to Liquidity Providers (LPs). Other platforms that are popular for this are Curve, Balancer, and Sushiswap (among many, many others).
- Earn Rewards as a Liquidity Provider – This one is a bit tricky at first, but once you have found good projects, you can make between 30% and 200% APY. Essentially, a project rewards you in their token for providing liquidity on an exchange like Uniswap. This can be risky though – there have been many scams over the past year, so be sure that you do your research and only act as an LP for projects that are legitimate.
There are lots of other great projects going on right now, so look for more articles coming out soon. We think DeFi is going to continue to be huge in the coming years, so it’s certainly worth a strong look at.
Positives – Huge potential upsides; Maintain full control of your assets; Wide variety of different projects to invest in
Negatives – High volatility; Ethererum transaction costs are extremely high currently; Potential for scam projects
4. Active Trading
This is possibly one of the riskiest ventures in any kind of investing – Active or Day Trading. Here, the investor seeks to profit off of changes in the price of something. Put simply, you are trying to Buy Low and Sell High many times over.
While Day Trading can be exciting, the vast majority of people end up losing money. The amount of time you need to invest in research alone is enough to make this strategy not viable for most investors. If you do decide to take the dive and Day Trade in crypto, we highly recommend doing it with a small portion of your total portfolio; Buy and Hold with ~75% and use the other ~25% for Day Trading.
Positives – Potentially huge (100% gain) upsides in a short period of time
Negatives – Very high risk; Possible to lose huge amounts in a short time
Conclusion – Start Investing in Crypto NOW
More articles about investing in Crypto will be coming soon. We hope this overview of Crypto investing has convinced you to get started today or try out some new strategies if you already were.
Investing in anything can be intimidating, and Crypto is no exception. We want to help you get started on your journey, so leave a comment below with any questions and we will get back as soon as possible. As always – Happy Cryptoing!