Monday, October 10, 2016

Investing in Cryptocurrencies: How I do it

One of the questions I get a lot is: "How do you decide which cryptocurrencies to invest in and how much?"

Also, "where do I get started?"

Disclaimer: Before I begin, let me state unequivocally (or else our lawyers will kill me), I should say that this is in no way a solicitation, advice, or anything that could be construed in any way as investment advice.  You're on your own. Caveat emptor.

Ok, now on with it.

There are two ways to get into cryptocurrencies.
  1. Mining
  2. Outright purchasing

Without going into all the specifics of mining, suffice it to say that "mining" is the way that coins are minted. Just like digging for gold.  It's an investment in companies that verify the transactions on the blockchains of different currencies.

I bought a contract with Genesis Mining (you can use my affiliate code [xcUN4Q] for a discount. Full disclosure: I get a small commission]  which I found to be the easiest and my research suggests to be the most trustworthy.

Essentially, you put in however much money you want (i.e. you can afford to lose) and then you point your dividends to your cryptocurrency wallet(s) in whatever allocation you want.

Note: you will need to set up a wallet for this. BitGo, Xapo, Coinbase.

This is how I got started.  Then, you let the miners start sending you  cryptocurrencies. Keep in mind, your returns won't be huge on day 1.

Outright Purchasing

Being the motherlode of all altcoins, Bitcoin is kind of like the reserve currency of the crypto world. So, if you want to buy pretty much any other type of coin (and there are hundreds), getting some Bitcoin is the best way to go.

The most user friendly site is Coinbase. You'll figure it out. Connect your bank account and just click "Buy." It's backed by very reputable investors so I'm personally comfortable.

Oh...and remember to turn on 2-factor authentication!

Another site that allows you to transfer USD to Bitcoin is Kraken.  Nowhere near as user-friendly, but it works and the primary advantage of it and Bittrex, another site where I hold digital currencies is that wide variety of coins they support.  Kraken can also send you encrypted email directly, which is a nice touch.

Coinbase only supports Bitcoin and Ether which are the 2 biggest and (relatively) safest in which to invest, but if you are looking for broad support, they are more like gateway drugs to the cryptocurrency world.

Anyway, once you have Bitcoin, you can send it from one wallet to a wallet at another exchange and then use that to buy other currencies, which I have done.

Probably the best (and cheapest) way to do this is  You'll still need a wallet address for EACH different currency you want to buy though.

Currencies I hold

Here's what I currently own.
  • Bitcoin
  • Ether
  • AMP
  • Steem
  • Dash
  • Lisk
  • Storjcoin X
  • Ripple XRP
  • Stellar XLM
  • Bitcoin Dark
  • Ethereum Classic
How I decide

I suppose there are 3 stages.
  1. I read the blog feed of CoinDesk which is sort of the industry rag. There's a lot of noise and you have to be careful because they allow sponsored posts which are not always inherently obvious that they are sponsored, but it's a good way to stay "in the know."  I would never make a decision off of CoinDesk alone.
  2. Read the blog posts and whitepapers of the site. See if it even makes sense. I don't know enough technically, but I ask myself "is this a problem that could be solved through decentralization?" Synereo is a good example of this one where I said (again, no endorsement) to myself "yes, I think it could be." Storj is another one as is Ripple.
  3. Look to see if they have any reputable investors, VCs, board members. That's kind of a gut thing, but it helps.
  4. Never invest more than I am prepared to lose.
  5. Make a small bet and follow what happens. Like any investment.
Now, this can obviously be time consuming and it's not my full-time gig, but it's critical for me to understand how things might evolve.

Again, the big question I always ask myself: is this a real-world problem that could be solved efficiently with crypto-currency?

The resurgent PotCoin is one such example (I don't own any)...with legalizing marijuana at the state level and people concerned about their privacy, you could see how this might get some traction.

Advisory Sites

I haven't really watched the evolution of the altfolio advisory market though I know it's here and growing or the complementary altfolio advisory sites.  Recently, I was introduced to the CEO of Metastable Capital, author of the  who covers a lot of this stuff. He had a great write-up (link coming), much more in-depth than I ever could so that's another area to watch.

Bottom Line

Remember-- I am not giving any advice of an investment nature. I do foresee the day where crypto-currencies are a part of a diversified portfolio for the average investor. Today isn't that day, but it's coming.

To me, the way to understand them is to play around with a bit of money and "pay to learn."

To be clear, for the most part, it's speculation at this time, but hopefully this gives you a bit of insight into how I do it.

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