Investing in Cryptocurrency

How to invest in cryptocurrency, how to make money from crypto defi.

How to make money with cryptocurrency

Tara Investing in Cryptocurrency
make money with cryptocurrency

With real estate prices gaining 25% in 2021, if you’re not already a property owner you’re probably feeling priced out of the market. A 10% or 20% downpayment is suddenly now out of reach. So what assets can you actually afford to invest in? Cryptocurrency is filling this gap for many younger home buyers looking to grow their savings into a home deposit. If that’s you, then keep reading because in this post we share 12 different ways that you can make money with cryptocurrency. We rank each money making method from beginner to advanced based on our knowledge and experience.

If you are new to crypto and ready to take the plunge, this post will help decide just where to allocate your time.

For all of these methods, you can start with $100 or $1M. Crypto doesn’t differentiate – there are opportunities for anyone, no matter your finances.

Contents

  1. Test your crypto savvy first!
  2. 12 ways to make money with cryptocurrency
  3. Where to start with cryptocurrency investing
  4. 3 beginner tips to manage risk early
  5. How to protect your crypto wealth

Test your crypto savvy first!

Before we get on with making moolah, let’s find out how crypto savvy you are so that you can work out which strategies might suit you best.

Beginner

You’re a beginner if don’t have any crypto or digital assets but want to get started. Answer these 5 questions to find out if this is you:

  1. Have you set up a crypto wallet like MetaMask and do you know know how to keep it as secure as possible?
  2. Do you have an account with a large exchange like Binance?
  3. Do you have a basic knowledge of how the crypto market works?
  4. Can you buy, send, and receive crypto from an exchange to your crypto wallet, including on different networks?
  5. Can you connect your crypto wallet to a DeFi protocol, deposit your coins and then disconnect your wallet and all approvals?.

If you answered yes to all of these questions – congratulations! 🙂 7 of our 12 money making strategies are out there waiting for you.

If you’re not at this level yet, download our Quickstep Guide in the right menu ->.

Then follow the ‘4 steps to get started’ and ‘3 tips for beginners’ at the bottom of this post. This will get you sorted to Beginner level and answering yes to all of those questions!

Competent

A competent investor is someone who has been around crypto for at least 12 months and is building a digital asset portfolio. If you can answer yes to these questions, consider yourself (at least) a competent investor:

  1. Are you semi-active in managing your crypto asset?
  2. Can you confidently navigate the DeFi ecosystem – how to buy, sell and send crypto?
  3. Have you already staked coins and earned interest through lending?
  4. Do you use MetaMask and other wallets regularly?
  5. Do you know what a blockchain explorer is and how and when to use it?
  6. Are you clear on what moves prices up and down in crypto markets?
  7. Do you know the risks involved in different types of DeFi products and crypto?
  8. Have you bought and set up a hardware wallet to protect your crypto wealth?

If you answered yes to all of these questions – huzzah! We have 9 of 12 money making strategies that you can take advantage of (some you already are).

If you’re not quite there yet – stick with beginner level methods. Double down on your crypto research and focus on execution! Becoming an expert in one or two beginner strategies can still make you a whole lot of money!

Advanced

You have already built a material digital asset portfolio. You are advanced if you can answer yes to these questions:

  1. Do you actively manage your crypto assets on a day to day basis?
  2. Do you have a high risk tolerance?
  3. Are you across complex crypto products like Automatic Market Makers and impermanent loss?
  4. Can you interpret and use price charts, trading indicators, trading patterns, and market trends?
  5. Do you know where and how to find alpha in the crypto market?
  6. Do you regularly use decentralised exchanges and more complex and risky DeFI products like bonding and borrowing to compound returns?
  7. Do you know and implement risk management strategies to protect your capital and avoid liquidation?

Congrats if you’re a total crypto gun! We might not be able to teach you much, but it’s worth having a read through to see if there’s anything new here you might have missed!

12 ways to make money with cryptocurrency

Just remember, none of this is financial advice. Crypto is a risky investment. It’s a hedge against a tanking global money and financial systems and a new technology. Treat it as such. Allocate a small amount of your investment portfolio. And never put in more than you can afford to lose.

Ok, time for the big reveal! 🙂 Here are 12 ways to make money with cryptocurrency, ranked from ‘beginner’ to ‘advanced’:

  1. Learn to earn – you earn small amounts of crypto to learn about crypto and by upvoting and posting on sites like reddit
  2. Hodl – buy and hold coins and tokens long term
  3. Lend – lend your crypto to others and earn interest
  4. Stake – contribute to a staking pool and get rewarded
  5. Compound – hybrid hodl and stake strategy
  6. Referral rewards – refer friends to crypto exchanges, get free crypto
  7. Airdrops – free magic internet money appears in your crypto wallet.
  1. Spot trade – trading price action on price charts
  2. Metaverse digital assets – you play online games or run a business in the metaverse and earn crypto as you go
  1. Nodes – its complicated, keep reading!
  2. Options & margin trades – complex trading products and strategies like leverage
  3. Yield farm – exactly what it sounds like – farming for yield

Next, we’ll run through each of these in detail.

1. Learn to earn

(Investing level: Beginner)

Did you know that Coinbase and Coin Market Cap will pay you in crypto to watch videos about crypto and fill out quizzes at the end? On Coinbase, you can earn between $3 and $10 to watch a video that teaches you about different cryptocurrencies. If you’re trying to learn about crypto anyway, who doesn’t love a bit of free money? The crypto is paid into your Coinbase account, so set this up first. You’ll need to have your ID verified on Coinbase.

You can also hang out on crypto reddit, learn heaps (it’s where all the tech nerds are 🙂 ) and get paid in a crypto called Moon. All you have to do is upvote posts and post on your own. Once you have some Reddit Moons saved up, you can swap them into money IRL. Here’s a handy guide for how to get your Moons into $$.

2. Hodl

(Investing level: Beginner)

“Hodling’ is crypto lingo for buying and ‘holding’ cryptocurrency assets over the long term (even when the price dips 50%). Hodling is generally for capital growth over multi-year timeframes. Hodlers are taking a long term view that digital assets are here to stay and in the future will make up more than their current 0.05% of to the total market cap of global assets ($2T/$400T).

Why hodl?

Ever heard of the saying ‘when in doubt, zoom out’?

It just means zoom out on the price chart, look at the long term price action, and hodl your crypto bags!

Hodlers look at things like ‘rainbow charts’ which aim to map out where the price action might range in the future, over the longer term. Rainbow charts apply logarithmic regression techniques to price history. Here is a recent BTC logarithmic chart posted to Crypto Twitter. BTC hodlers will point to the long term upward trend on this chart and keep hodling if the price action stays within the upper and lower bounds of the rainbow band.

Logarithmic regression Bitcoin price chart

We hodl cryptocurrencies that we consider to be ‘blue chip’ plays. If you take a look at this post about the best crypto for exponential growth, you’ll get an idea of some of our ‘hodl’ bags.

3. Lend (earn)

(Investing level: Beginner)

make money with cryptocurrency

Lending is how you earn interest in crypto. Who doesn’t love a little passive income?

It’s similar to the traditional high yield savings bank account where you let the bank use your money and in return they pay you interest. But.. .in crypto you’re not lending your money to the bank. There are a couple of different lending models:

a) Decentralised lending – you lend to other people (P2P lending) via a ‘lending pool’

Here is an example of how P2P lending works. In this example, we lend US Terra stablecoin into a lending pool governed by the Anchor Protocol. Anchor pays us 19.5% interest at the moment. You can even take out insurance on your deposit in the Anchor smart contract. Check out our post on how to use Anchor Protocol here.

There are heaps of P2P lending pools in DeFi. You need to make sure you DYOR before your put your hard earned money in as you don’t want to get rugged!

b) Centralised lending – you lend to a company

You can also lend your crypto to a company (like Celsius or BlockFi). They use your crypto to engage in various crypto investing and lending activities, and pay you a cut of their profits.

The Celsius interest rate on Stablecoins like USDC and USDT is around 8%. If you want to join Celsius, use our link and you’ll get $50 in Bitcoin. All you have to do is set up an account, transfer $400 worth of crypto in and hold it there for 30 days. You will pay network fees (gas) to transfer your coins into Celsius so we’d recommend starting with at least $2000 worth to make sure you’re in the money. The free Bitcoin should help with gas fees also.

Celsius is currently open to deposits for US citizens. BlockFi has been stopped by regulators in some US states from operating its yield earning product (for new users) because of financial product licensing. Here’s a post that delves into the issues a bit more.

It’s important to know that no-one has lost their money because of the regulators bans – existing customers are grandfathered.

4. Stake

(Investing level: Beginner)

Staking is like lending because you do it to earn interest or rewards. But with staking, you are rewarded for contributing your crypto to a ‘staking pool’ run by a blockchain node operator.

Blockchains rely on decentralised nodes to operate and validate (as correct) each block (group of records) in the chain (ledger). The act of validating blocks is rewarded with native coins that come from the fees users pay to use the blockchain.

Proof of Stake blockchains generally require node operators to stake a bunch of native coins to run a node. Staking pools are akin to node operators crowd sourcing these coins. The more coins node operators have in their pool, the more likely they will be selected (by the blockchain software) to validate blocks on the network. For each block they validate, a node operator is rewarded in native coins. They then share their rewards with everyone that stakes in their staking pool.

The easiest place to start staking

It sounds complicated, but it’s really not.

If you have coins on Binance its literally two button clicks to stake your coins and earn rewards. The APY returns can be in the double digits – some of our coins are earning more than 20% APY on Binance. There are also triple digit returns (for riskier coins).

The thing to know about staking is that there is flexible and locked staking. Locked staking usually pays more. But you’re locking your coins up in the pool for a period of time – usually 30, 60 or 90 days. If you redeem your coins before the end date, you forfeit your rewards.

Also, the higher the APY, the riskier (more volatile) the coin or project. You can buy a coin and stake it, and earn 2500% APY. But with it there is a good chance the underlying value of the coin goes to zero or close to it. 2500% interest on $0 is … $0. Manage your risk accordingly.

We stake on Binance because it’s just super convenient between trades. You can start on Binance with this link. We get a small commission on your trading fees if you do. It’s a nice way to thank us for the post, don’t you think?

5. Compound

(Investing level: Beginner)

Compound strategies are when you hodl strong performing cryptocurrencies and stake them or lend them out at the same time. Here’s an example:

We are investors in LUNA, which is a Layer 1 cryptocurrency blockchain. LUNA has provided us with some good capital gains and we think it’s a strong and growing ecosystem. We’re going to be holding it for some time. So while we hodl LUNA, we stake it. We have some of it staked in Binance and some in different LUNA dApps. We get exposure to LUNA’s price growth over time and while we hodl it, we’re getting around 10% to 25% interest.

What blue chip stock do you know that returns a 10% to 25% APY dividend? Welcome to crypto! 🙂

The easiest way to deploy this strategy is using Binance. Remember to join Binance with our link, so you save on transaction fees when you buy and sell coins.

6. Referral rewards

(Investing level: Beginner)

Referrals aren’t going to make you rich in crypto, but it’s a nice passive way to earn some coins, which you can then compound in to more coins. Huzzah!

A lot of crypto exchanges will offer you a referral fee if you bring them new sign ups. The way it works is, you sign up with our referral fee to get a bonus. You then offer the same referral program to your friends and family to sign up, and you get the referral fee.

You can get anywhere from $10 to $50 BTC for referring new customers. Free money for doing not much at all!

Here’s a list of crypto exchanges or products that have referral rewards, and our referral links to set up an account with them! Muchos Gracias financial freedom seekers!

7. Airdrops

(Investing level: Beginner)

This is basically when a crypto project or exchange sends free crypto coins or tokens into your crypto account or wallet. Sounds pretty fly, right?

Airdrops of kind of like a shareholder dividend in traditional markets – a premium payment for holding a particular coin.

Airdrops are used by projects as a way to coax investors to invest in their project and buy their coins. Airdrop announcements can push the price of a coin or token up in the lead up to the Airdrop.

Sometimes you have to take some kind of action to qualify for an Airdrop, so pay attention to the Airdrop instructions. Here is one example of how an Airdrop might work: Binance will announce an Airdrop with instructions in their App. The instructions say that they will take a snapshot of all Binance accounts on a certain date at a certain time. Any holders of a specific coin (Coin A) captured in the snapshot get airdropped free tokens (Token B) into their account.

Other times you need to connect your crypto wallet up to a specific project website at a certain time to be captured in the snapshot and receive the Airdrop.

Airdropped coins and tokens aren’t usually worth a lot of money at the time of the drop. But they can grow in value (some significantly) over time.

8. Spot trade

(Investing level: Competent)

This is just trading the price charts like you might in traditional markets. The main difference with spot trading crypto is the wild swings, both up and down, that traders can take advantage of. These wild swings of 20% in a single day mean that you can make good money with just a few solid trading techniques provided you know them well. You don’t need to be a professional trader necessarily.

You DO need some good risk management trading skills so that you don’t lose your undies because of these price swings. This is why overall we have it ranked trading as ‘Intermediate’. If you don’t know how to read a price chart, identify a trading pattern, set a buy, sell, take profit or stop loss order – stay away!

9. Metaverse digital assets

(Investing level: Competent)

make money with cryptocurrency

Don’t click away yet just because you read the word metaverse! I know, I know the very thought of a virtual reality world has some people’s eyes glazing over. But just hear me out. Because before long we’re going to see mainstream media introducing the first Metaverse millionaires. Do you want to be one?

Some Metaverses come with virtual economies where you can buy digital assets just like you can IRL, and use them to generate revenue. You purchase the digital items as NFTs and can deploy them in that native metaverse. For example you can buy NFT petrol stations, shops, cars, stadiums – and use them to generate income like a real business might.

Polkacity metaverse

Right now you can buy a taxi in the Metaverse ‘Polkacity” for 1ETH (around $2000). You then use this taxi to ferry people around in the Polkacity Metaverse and earn their native token POLC. You can sell your digital assets to others and you can swap the POLC you earn for other crypto, like Ethereum, and then into dollars. So Metaverse money turns into real money.

There are a few things to know about Metaverse earning.

  • You have to purchase the assets – so you’re investing in the game and its future. You only make money from your asset if other people are in the Metaverse!
  • You earn in native coins that can go up or down in value. The coin price can significantly impact your ROI, especially if the price tanks. You may get rich, or you may never get your investment back.
  • Most of these VR worlds are early stage, some of them still in beta. Which ones catch on and which die a tragic death is uncertain.

This all means that it is risky to buy in. Game makers have been successful enticing early participants into their virtual worlds by paying high interest rates (in native coins) for holding their NFTs. APYs in the hundreds of percent are not unusual to attract users.

10. Nodes

(Investing level: Advanced)

The jury is still out on whether nodes provide a sustainable and long lasting passive income stream. Let’s take a look at node income starting with the basics.

What are Nodes?

Nodes are decentralised points in a blockchain network that help run the blockchain by validating transactions (validator nodes) and storing data (full nodes). Essentially, nodes help carry out certain functions and help the performance of the blockchain.

make money with cryptocurrency

Sometimes, depending on the type of node and the network, a node is deployed via a piece of hardware that looks like a hard drive, and supporting software and server set up.

Other times nodes are deployed in the Cloud. Cloud-based nodes are often referred to as Nodes as a Service (NaaS). NaaS support Blockchain as a Service (BaaS) – which is private blockchains for companies, run by BaaS providers in the cloud. BaaS is a new and fast growing market. Think of Software as a Service and you’ll start to get the idea.

How do nodes generate passive income?

The concept is that nodes are paid for helping the blockchain operate. But where does the money come from? The answer is, it varies by node type.

Validator nodes

For validator nodes, their revenue generally comes from the fees that users pay to use the network. To run a validator node isn’t easy. You need specific technical knowledge and hardware to do it. If you invest in validator nodes (as with staking in proof of stake protocols), you share a portion of the node revenue.

Full nodes

BUT… full nodes are currently not paid in this same way. Many are still in the ‘proof of concept’ phase in terms of proving their value to blockchain providers. This is a catch 22 because NaaS providers need full nodes up and running to prove their worth. But running full nodes costs money. So to get nodes up and going, NaaS providers need investors to pay the full nodes.

Rewards pools for full node investors

Without a revenue source to draw from, the solution has been to reward full node contributors via a rewards pool funded by project tokenomics. That is, investor returns come from a pool of money provided by other investors and any side revenue streams. A portion of the funds provided by new investors goes to sustaining the rewards pool. If the investors dry up, the rewards dry up. Sounds like a Ponzi scheme, but real revenue may also be just over the horizon…

This is why full nodes, as a form of passive income, are both risky but have lots of potential. If investors remain committed to NaaS projects and the project teams can demonstrate their use case, NaaS will grow alongside BaaS. But then again, this might not happen.

We currently run a full node for the ETH blockchain and earn passive income from it. We will report back soon on how that investment is going. Stay tuned!

11. Trading options and margins

(Investing level: Advanced)

As with stocks, these products are for more advanced traders. Options allow you to ‘short’ coins and make money if the price goes down. Margin allows you to leverage other peoples money to trade, which amplifies both gains and losses.You can get access to these products on centralised exchanges like Binance and Kucoin.

We don’t use these strategies as we’re not professional traders. Only head for these options and margin trading if you’re willing to learn them in detail and take very large risks.

12. Yield farm

(Investing level: Advanced)

Yield farming is a way of generating two interest payments on the one investment. Sounds too good to be true and sometimes it is. Here’s an overview of how it works:

  • Decentralised exchanges and protocols need liquidity so that their users can swap different coins on their platform
  • You can become a Liquidity Provider (LP) for these exchanges by contributing your crypto into a liquidity pool. You usually contribute two different coins or tokens at a specific ratio. For example, you might provide liquidity into a DAI/ETH pool by transferring both ETH and DAI into that pool. The pool will determine the ratio of the coins you contribute – for example 1:1.
  • In return for providing liquidity into the pool, you’re given LP tokens equal to your liquidity deposit.
  • You earn two interest payments by:
    1. providing the liquidity into the pool (so that others can use that liquidity to trade) in the first place. You get a small percentage of the trading fees, and
    2. lending your LP tokens on other decentralised protocols and earning interest on them.

The important thing to know about yield farming is that it’s complex, not at all passive, and you can risk losing your money through something called ‘impermanent loss‘.

This is more advanced and there’s a bigger risk you’ll lose your pants if you don’t know what you’re doing. Yield farming is for the intrepid crypto journeymen and women. Make sure you fully understand how it works first if you decide to dive in.

Where to start with cryptocurrency investing

1. Start with our quickstep guide

If you’re back at square one, we have a free quickstep guide on how to buy, move & secure your crypto assets. Check it out right of screen ->

This guide will get you set up with online security, an account with a cryptocurrency exchange, and an idea of how to buy your first crypto. All in just 2 pages.

2. Set up an account with a crypto exchange

Binance – You can hodl, lend, stake, trade and participate in Airdrops directly using Binance. We find the Binance Wallet the easiest to use all-in-one crypto exchange. It’s a great place to start out making money with cryptocurrency. Read our Binance review if you want to know more about its best features for crypto investing.

Coinspot – We recommend Coinspot for Aussie investors as you can buy loads of coins directly with AUD. It’s also a nice easy interface. It doesn’t have any staking or interest bearing products however, so you can’t do much more than hodl.

Coinbase – If you’re from the US where there are restrictions on using Binance, you can set up a Coinbase account. We find the fees are higher on Coinbase and there are not as many coins listed or different investment products available (as Binance).

Kucoin – You can also set up a Kucoin account as a US citizen. Neither Coinbase nor Kucoin are as easy to navigate and use as the Binance app and they don’t have as many products (or money making opportunities) on offer when it comes to staking and earning from your crypto.

3. Learn about crypto

Check out our other posts on investing in cryptocurrency and making money with decentralised finance. Or read through our articles on NFTs and digital tokens. The more you know, the further you’ll go.

If you’re smart, you can even earn to learn on Coinbase or Coin Market Cap as you go!

4. Experiment with the ecosystem

Decide which strategies are right for you and give it a go!

  1. Transfer some fiat into your Binance account.
  2. Buy some coins and tokens.
  3. Use the products and services Binance has available to see how it all works.
  4. Send some coins to your MetaMask or other crypto wallet.
  5. Connect your MetaMask to a DeFI protocol and stake some coins. Unstake them.

Once you understand the basics of the crypto products you’re interested in, branch out to decentralised exchanges, dApps and even bridge to other blockchains. Experimenting will help you learn how to use the ecosystem to make money. Just beware that crypto is miles apart from the traditional financial system. There are risks and pitfalls you need to know about before you start. To help with peace of mind, here are 3 tips to manage risk when you first start dipping your toes in:

3 beginners tips to manage risk early

1. Start with small amounts

it’s not as easy to transact crypto as it is with traditional finance. Why? Here’s just a few examples:

  • Denominations are not in USD or AUD (for example BTC denominations are called ‘Satoshis’),
  • you have to get the hang of using wallets, blockchain networks and public and private addresses.
  • You also have to custody your own coins. There is no one there to call if you send your coins to a wallet and they don’t arrive.

With all of these things to learn its pretty easy to make a mistake and lose your coins. So start small! Small transactions are best until you’re confident you can use crypto infrastructure well.

2. You don’t have to start on the Ethereum blockchain

A lot of people start on the Ethereum network because it has the largest volume of dApps and protocols built on it. But it’s very expensive to use and can make experimenting costly. Ethereum really only makes good financial sense if you’re investing thousands of dollars at once. Alternative blockchain networks that you can use to start exploring crypto and DeFi are LUNA, AVAX and Binance.

3. Learn how to read blockchain explorers

Etherscan, Polygonscan and other blockchain explorers are websites that provide public access to all of the transactions that occur on a specific blockchain. You can use transaction IDs to look up and trace any transactions you make. This helps you learn about how the blockchain works. Importantly, you can also use it to find out if a transaction you made on the blockchain was successful and whether your coins will make it to their intended location!

4. Start with a focus on managing risk.

Crypto is highly volatile and speculative. But there are things you can do to manage your risks. If you want to know more, have a read of our post about how to manage the risks of investing in crypto for beginners.

Risk management should be your focus starting out. Learn risk management practices and apply them from the beginning. Focus on protecting your capital early rather than aggressively growing your investments. You’ll thank us later!

How to protect your crypto wealth

As you build your crypto portfolio you’re going to need to secure your wealth. Crypto is a self-custody asset – there are no banks to keep your coins safe for you. But exactly how do you keep your crypto assets secure from theft and loss? Here is a quick run down of the minimum security measures you MUST take to protect your coins as you build your crypto nest egg:

1. Device security

Device security is your first like of defence. Set up security for your phone or computer as this is where you’ll interact with cryptocurrency.

Firstly, you should set up up a password protector or manager for your various crypto accounts and online passwords (how many times have your passwords been exposed in a data leak?). Something like LastPass is free and effective. Then set up two factor authenticator in your device settings and download a 2FA app like Google Authenticator.

2. Hardware security

Next, buy and set up your cryptocurrency hardware wallet.

To really protect your cryptocurrency you need to keep your coins offline where they are not exposed to cyber hack. Online wallets and exchange accounts are not the safest place for your nest egg. A hardware wallet will allow you to sign transactions from your wallet but keep your private keys offline. This protects your crypto from being hacked and stolen.

We recommend getting hold of the Ledger Nano X or the Trezor Model T hardware wallets. Using a hardware wallet is simply the only way to really protect your digital wealth.

You can check out the Ledger website and purchase the Ledger Nano X here.

If you’re interest in the Trezor, we buy from the authorised reseller Privacy Pros.

3. Safety back up

While your hardware wallet will safely store your private keys and keep your coins safe, what happens if you lose your Ledger or Trezor? Y

The good news is that you can recover any lost coins.

To do this, you need the recovery phrase (seed phrase) generated when you set up the lost wallet. You can only ever recover the contents of your hardware wallet if you have this phrase. Think of this phrase as a master key for back up situations.

Some folks write their recovery phrase down but paper is a very risky medium. What if you lose it or it gets destroyed – wet, ripped up or accidentally tossed away? This is why we use seed storage wallets, otherwise known as ‘metal wallets’, to store our crypto recover phrases.

We suggest using the BillFodl metal storage wallet to store the recovery phrase to your Ledger or Trezor hardware wallet. We use it and it’s easy and pretty cool. You can buy the BillFodl direct from i’s maker Privacy Pros.

Is this the best cryptocurrency for exponential growth?

Tara Investing in Cryptocurrency , ,
best cryptocurrency

If you’re baffled by the exponential growth of certain cryptocurrencies and wondering how you might get in on the action, then this post is for you. The truth is, you won’t find the best cryptocurrency investments using conventional company and stock valuation methods. Crypto is different. You need to take a different approach to find those projects that will reward you with potential exponential growth over the longer term.

One approach to identify potential top gainers in crypto is to pinpoint those projects with strong ‘network effects’ that drive value to users and push token prices to seemingly parabolic levels. But what are ‘network effects’, where do you find them in crypto, and how do you invest? Let’s take a look…

What are network effects?

Network effects put simply are when a product, service or platform increases in value the more people use it.

Direct network effects happen in a reinforcing loop as users join a network and in doing so bring more value to existing and future users. The value of the product grows as more users join, and more users join because of this growing value. Hence the reinforcing loop. Think a telecommunications network, or a transport network.

Users also decide to participate in a network based on the level of benefits or value from ‘add on’ or complementary products or services. This describes the indirect network effects that can come into play in platform businesses that attract complementary products and services that add on to the platform and grow it indirectly. Like with Facebook. You don’t just use it to see your friends posting. There’s messenger, marketplace, advertising, FB groups and so on…

Most importantly, for investors looking for growth assets there is a point – a reaching of critical mass – when user adoption (on multiple sides) goes exponential due to the reinforcing value loops of direct and indirect network effects.

Why network effects can lead to exponential growth

1. It’s numbers game

The number of possible connections in a network like Airbnb equals the number of users on one side (the hosts) multiplied by the number of users on the other side (the guests). Its the same for all two sided networks that produce network effects.. Every user that joins the network makes it more valuable for the next user. If you have a network with 2,000 hosts and 10,000 guests, that equals a network of 20 million possible connections between users.

The number of connections in a network represents the growth of the network and its utility to other users, as well as its value.

2. Network effects are hard to displace

A network effect, once created, is hard to displace. Why doesn’t Facebook have any real competition? Its network effects have established its incumbency – by virtue of its sheer size, reach, reinforcing value loops and sometimes built-in infrastructure. This incumbency means Facebook as a competitor is very difficult to overcome.

Another important point for investors is that incumbents with network effects enjoy large, entrenched advantages due to their existing customer base. Why is that though? According to this Harvard Business Review paper on why some networks thrive over others, an Airbnb competitor would have to enter the market on an international scale—building its brand around the world to attract travellers and hosts.

To achieve that, the competitor can’t just be a little bit better, or even twice as good as Airbnb; it has to be a quantum leap better to convince a critical mass of guests and hosts to move to it.

This is why when platforms or businesses with network effects establish incumbency they’re very tough to disrupt.

So what does this mean for your crypto investments?

Firstly, projects that enjoy network effects (with incumbency) may be around for a longer time because they are hard to disrupt.

Secondly, if you are an early investor, the gains can be exponential due to the effect itself.

Lastly, because of their levels of growth and incumbency, the stock can continue to outperform over the longer term.

Identifying network effects in crypto

One strategy for investors might be find the crypto projects greatest network effects and (potential) incumbency.

The second one – incumbency – is important and hard to nail down. Crypto is new and very few projects have achieved sufficient size or growth to establish true and authoritative incumbency over the competition.

How to identify crypto projects with network effects?

So what factors might determine whether the a particular project has the potential for network effects? What metrics will tell you that a project is being actively used, rapidly built-out and adopted at a rate of knots? Lets take a look at 5 such indicators:

  1. Network users & nodes – the first sign network effects may be at play is the number of project users or nodes growing quickly. Nodes are found on blockchains. Their main purpose is to verify each batch of network transactions, or blocks. They’re necessary for the blockchain to both function and expand.
  2. Unique addresses – the number of wallet or payment addresses for the platform token that have more than a zero balance. For example, the number of individual ETH wallet addresses. It can be used as a proxy for the number of network users. When the network is popular and people are using it, there are more unique addresses. But that’s not completely accurate as one user can have multiple addresses.
  3. Total value locked – or ‘TVL’ shows how much is ‘locked up’ in decentralised finance products on the network (or in the Smart Contract platform). It’s an indicator of DeFi use on the platform.
  4. Daily transaction volume – this is the number of transactions associated with the crypto each day. Transactions volume shows the level of user engagement with the product or platform. For network effects, the trend should be sharply upwards.
  5. Developer activity – if new layers, applications and protocols being built on top of it or alongside and integrating with it this demonstrates indirect network effects that in turn bring more users and more developers. Developer activity indicates confidence in the ecosystem, roadmap and underlying technology.

The best cryptocurrency for exponential growth

So, if a network effects occur in platforms or networks where each user brings additional value and more users in a reinforcing loop, where in the crypto ecosystem might this occur?

The answer: Layer 1 blockchains.

What are Layer 1 blockchains?

‘Layer 1s’ are the blockchain ‘networks’ that form the ‘base layer’ of the crypto ecosystem. They are the networks on which everything else in crypto is built!

The digital asset ecosystem requires robust, secure and distributed blockchain networks to operate on and to ensure asset immutability. Layer 1s meet this need. They are the foundational tech of that digital asset ecosystem.

Blockchain-based digital assets, such as NFTs and stablecoins, are all built and issued on top of Layer 1 platforms.

Layer 1 cryptocurrencies

Tokens native to these Layer 1 networks (such as ETH to the Ethereum network) play a role in securing the networks. Holders that stake their native tokens to support the network operating are rewarded for doing so. Tokens are also used to pay transaction fees on the network (with fees going towards rewards). In some cases, tokens also give holders a say in network decision making.

Buying these tokens are how investors can gain exposure to the Layer 1 project.

Layer 1 projects have been a strong performing crypto category since the May 2021 market correction. With crypto still in the early adopter stage and just a few hundred million users world wide, some argue the exponential growth curve for successful layer 1 blockchains has not yet begun.

There are over 100 Layer 1 blockchains in the crypto ecosystem so next we sort the wheat from the chaff in Layer 1 blockchains that we invest in for their potential network effects. Let’s look at ‘The Leaders”, “The Contenders” and “The Challengers.

How do investors in Layer 1 crypto benefit from network effects?

When you own the native token of a Layer 1 blockchain, you own a share of the future value of transactions on that blockchain. As network effects grow demand for the blockchain and expand the on-chain economy, your share of future value grows too.

Layer 1 cryptocurrencies we hold

“The Leaders”

Bitcoin

Bitcoin is the grandaddy of cryptocurrencies. Lyn Alden gives a great synopsis of the network effects of Bitcoin. We’re not going to go over the arguments here, but we invest in Bitcoin as a store of value, border-less medium of exchange, and an instantaneous and low cost worldwide payment system (think about the avoided remittance fees globally).

Bitcoin is also the OG incumbent. Its total market cap makes up anywhere between 40% and 60% of the total crypto market cap these days. Nothing else comes close in terms leading the crypto market or influencing crypto price trends.

Network effects – tick

Incumbency – tick.

For these reasons, we hold Bitcoin in our crypto portfolio. We think its network effects will continue to play out as more countries like El Salvador recognise the potential value to local economies and to raising their citizens out of poverty. We also see regulators in more countries (like Australia and eventually the US) normalising Bitcoin investment vehicles, which will help on-ramp more users into the network.

Ethereum (ETH)

Ethereum is like a super computer base layer for smart contracts. Critically, Ethereum also has first mover advantage when it comes to Layer 1 projects in crypto, which has given it serious incumbency over the competition. Ethereum is the Top Layer 1 smart contract blockchain by market cap, with daylight second.

Fun facts for ETH investors:
  • Ethereum dominates the DeFi (decentralised finance) and NFT (non-fungible token) space. It has the most protocols and decentralised apps built upon it of any Layer 1 blockchain network.
  • TVL in the Ethereum network is $172 billion. The next largest Layer 1 by Total Value Locked sits at $20 billion. That’s daylight in between peeps.
  • The Ethereum ecosystem is gigantic. The biggest there is in crypto. Indirect network effects – tick.
  • Daily transaction volume on the ETH network has recently surpassed the Bitcoin network, which some suggest means that ETH will ‘flippen’ (overtake) BTC on the Layer 1 leaderboard sometime in the near future.
  • Other Layer 1 platforms are uniformly bridging into ETH. This cements Ethereum’s incumbency.
  • A recent protocol change introduced token burning so that ETH will become a deflationary asset (more tokens burned than new tokens issued). When supply tightens and demand grows, what happens to price?
  • Developer activity on platforms Github and Discord shows Ethereum development at almost double its nearest Layer 1 competitor.
  • ETH has executed and planned significant network upgrades (ETH 2.0), showing strong protocol consensus which is positive for its longevity.
ETH developer activity
best cryptocurrency
Ethereum developer activity reflects the size of its ecosystem and its growth
Eth 2.0 upgrades

Despite the hype, Ethereum suffers from one flaw that threatens its incumbency. The cost of using its network. This cost has driven hoards of users over to much cheaper Layer 1 competitors, like Solana.

Ethereum is fighting back with network upgrades (ETH 2.0) that claim to combat the gas price issues. Along with these critical upgrades, ETH also maintains its Layer 1 dominance the more it works with add on Layer 2 projects like Polygon network to extend its ecosystem reach and offer cheaper network solutions.

best cryptocurrency
Fees on leading Layer 1 blockchains. Source Coin Metrics

ETH is is a core holding in our cryptocurrency portfolio. This is not financial advice peeps – we are just sharing what we are doing. DYOR always!

Now that we’ve taken a brief look at our personal leader board, lets move on and look at some other top contenders:

“The Contenders”

‘The contenders’ are fast growing Layer 1 blockchains in crypto in terms of market cap, ex-Bitcoin and Ethereum. The two Layer 1 projects below are have been growing at pace and starting to jockey for shot at blockchain supremacy, alongside BTC and ETH in terms of market cap.

Solana (SOL)

Solana markets itself as the fastest and cheapest blockchain in the world. These two factors have catapulted its token SOL into the crypto stratosphere since January this year. Solana’s high speed and low cost features have solved the problems of the Ethereum blockchain for both crypto enthusiasts and software developers. As with all network effects, the SOL price has shot up this year as more and more users and developers are attracted to the blockchain.

Solana is building out a rich ecosystem including NFT marketplaces, DeFI protocols, as well as gaming, metaverse and Web 3 decentralised apps. Some of the most popular dApps built on Solana include Aurory and Star Atlas (gaming), Raydium and Serum (DeFi), and Solarnart and Audius (NFTs).

Fun facts for Solana investors:
  • Solana is highly scalable and can already process 700,000 transactions per second.
  • Solana developer activity comes in second to Ethereum on Discord and third behind Polkdot on Github.
  • TVL is over $13 billion which is third highest Layer 1 TVL and represents just over 5% of Total Value Locked across all blockchains.
  • Solana already has around 400 decentralised apps built on its blockchain despite only being launched in April 2020.
  • Solana has a thriving NFT marketplace that is growing in popularity due to the cheaper transactions costs of using the network compared to Ethereum.
  • The price of SOL is already up over 13,000% this year. That’s an exponential growth rate indicating network effects may already be in play.
Solana blockchain outperforms on number and growth of active user addresses. Source Coinbase Analytics

The biggest criticism of Solana is its lack of decentralisation. In crypto, decentralisation is often seen as an indicator a project is a safe bet over the longer term. Decentralisation is gauged by the number of validators on a network. Layer 1 incumbent Ethereum is highly decentralised with over 200,000 validators globally. Solana has just 1200 validators, showing its more centralised structure.

It’s worth knowing that the Solana network recently suffered a DDoS attack when bots targeted the network with 400,000 transactions causing it to reach max throughput and taking the network down for 17 hours. While it was a set back, the attack was of insufficient threat to affect the growth of this Layer 1 protocol, or our investment in it..

Polkadot (DOT)

Polkadot is different to the other Layer 1s featured in this post. It’s more than a Smart Contract Platform. Its aim is to ‘enable a completely decentralized web (3) where users are in control’. Here’s how Polkadot bills itself:

Polkadot is built to connect private and consortium chains, public and permissionless networks, oracles, and future technologies that are yet to be created. Polkadot facilitates an internet where independent blockchains can exchange information and transactions in a trustless way via the Polkadot relay chain.

In a sense, Polkadot is a Layer 0 network because it provides a framework for other Layer 1s to build on and connect to each other. Polkadot’s niche in blockchain technology is ‘interoperability’. Its aim is to build the trustless network layer that links Layer 1s together, making it seamless to move through the crypto ecosystem.

Because its vision is so large, Polkadot is probably the hardest of all of the Layer 1 networks to get your head around. It is also difficult to value using the metrics we talk about above. But the enormous vision, and the calibre of its tech founders, make Polkadot an incredibly interesting digital asset play.

Fun facts for Polkadot investors:
  • The founder of Polkadot is Ethereum Co-Founder and former Chief Technology Officer, Gavin Wood.
  • Polkadot has a $50 billion dollar market cap and is the 8th largest crypto by market value.
  • There are 142 project building inside the Polkadot ecosystem. The list includes DeFi, NFTs, DAOs, Layer 1s, Layer 2s, Metaverse projects, blockchain gaming, Oracles and so on.
  • Polkadot holders have locked over $1B in the first Polkadot ‘parachain’ auctions which will determine which bespoke blockchains get to use the Polkadot network. ‘Parachains’ are the name of the blockchains that get to built on Polkadot. The Polkadot network can support 100 of them. ACALA DeFi platform won the first Parachain auction for a slot on Polkadot.
  • Once it’s fully functional, Polkdot is expected to be able to handle 1,000,000 transactions per second. That’s faster than the fastest Layer 1 in today’s crypto ecosystem – Solana.
  • Polkadot’s token supply is inflationary, growing by 10% a year which is not great for the DOT price longer term.

Polkadot, by its very design, is the blockchain of all blockchains. However, DOT has not experienced the same level of ripping growth this year that competitor Layer 1s like Solana and Avax. We’re excited for Polkdot’s future and hold DOT in our crypto portfolio, but building this ‘blockchain of blockchains’ is going to take some pulling off.

“The Challengers”

“The Challengers are our up and coming Layer 1 blockchains. The smaller cap projects with small but growing ecosystems of platforms, tools and dApps building on top of them.

Avalanche (AVAX)

Avalanche is the new blockchain on the block this year and its concept is a lot like the Polkadot project. It bills itself as a network of blockchains with blazing fast speeds, better decentralisation (more validators) than Solana, and better scalability than Polkadot. If Avalanche becomes all of these things it could be one to add to your radar.

Fun facts for Avalanche investors:
  • Avalanche’s TVL has hit parabolic levels since August 2021, growing from a bit over $300M to $11B! 24% of that is locked in the AAVE lending protocol.
  • Avalanche’s market cap is up 85% in the last 30 days, hitting $23 billion. The price of AVAX reached all time highs this week is now in price discovery.
  • Avalanche has a fast growing ecosystem with loads of DeFi protocols and dApps, tonnes of exchanges and swaps, as well as a growing NFT dApp presence. Gaming is not as big on Avalanche as it is on Solana.
  • Avalanche recently announced $600 million in incentives to encourage development on its network. It aims to coax developers over from Ethereum.
  • AVAX token is used for network fees, capped at 720 million, and burned (on creation of blockchains, assets, subnets and payment of transaction fees). If the tokens burned exceed rewards (to validators) the tokenomics are deflationary. This is generally positive for the AVAX token price longer term.

Terra (LUNA)

Terra blockchain is all about creating programmable (private) money for the internet. It is a growing stablecoin payment system Layer 1 ecosystem. Terra is primarily a DeFi play, making it less versatile than other Layer 1s here like Solana and Polkadot. But it also has a clear niche and need. The Terra token used to pay network transaction fees is called LUNA. Terra’s most popular product by far is the Anchor lending protocol.

Fun facts for Terra investors:
  • Terra holders can stake their LUNA and earn rewards for supporting the Terra network.
  • Terra users can lend their UST (the USD pegged Terra stablecoin) on Anchor Protocol for a 20% APY with little exposure to price volatility. This one product has massively increased the popularity of Terra blockchain.
  • Terra has introduced a token burning mechanism, making it a deflationary asset.
  • TVL is just shy of $10 billion, with around 40% of that locked in Anchor protocol.
  • Terra issues stablecoins pegged to loads of different world fiat currencies – like the EURO or Korean Won. This makes it a cheap and fast global payment system. Terra stablecoins are currently widely used for retail and commerce in Korea and use in other countries is growing. Terra claims to have 2 million users of its stablecoins worldwide.
  • UST is an algorithmic stable coin. It uses an algo to maintain its peg to the USD. The algo could fail. The peg could fail. If it does, you’ll lose value in your stablecoin holdings. If the project fails, you might lose everything. So it is in crypto.
best cryptocurrency

If you want to learn more about LUNA and the Terra blockchain and ecosystem, check out our article “Why Anchor Protocol is the new high yield savings account”. Anchor is a DeFi lending protocol in the Terra ecosystem with a $7B TVL. Well worth looking at.

Constructing our digital asset portfolio

Whether it’s a multichain digital asset ecosystem future, or ‘one chain to rule them all’, we have a few Layer 1 blockchains in our digital asset portfolio.

By virtue of their role in the crypto ecosystem, Layer 1 blockchains could turn out to demonstrate network effects for exponential growth.

As we’ve already discussed, network effects + incumbency can form a potent mix for future price growth.

None of this is financial advice peeps – just sharing our opinion about what we are investing in. What is the best cryptocurrency for exponential growth? Well, do your own research and reach your own conclusion.

Is a crypto hedge fund better than buying crypto?

Tara Investing in Cryptocurrency , , 0 Comment
crypto hedge fund

Crypto hedge funds are booming. A crypto hedge fund is a managed investment fund that offers investors exposure to digital assets without actually owning the asset directly. But should you invest in a crypto hedge fund when you can just buy crypto? In this article we help you with information so you can weigh up your options. We’ll cover what crypto hedge funds are, things you should know about crypto hedge funds, and the top 5 crypto hedge funds by assets under management.

What is a crypto hedge fund?

A crypto hedge fund is a type of investment where investors pool their funds together to invest in cryptocurrency assets. Crypto hedge funds are usually operated by an experienced crypto trader or group of traders who have years of experience trading crypto. The fund manager(s) will use the capital from the crypto hedge fund to buy crypto assets, such as Bitcoin and Ethereum.

Hedge funds are known to employ more aggressive investment strategies than other types of funds (ETFs), differentiating them as an investment vehicle. There are different types of investment strategies from longing, shorting and arbitrage trading to more fundamentals based strategies like relative value or tech analysis. The chosen strategy will impact that risk profile of the fund.

The word “hedge” is used because these funds historically focused on hedging risk by buying and shorting assets concurrently, in a long-short equity strategy. They’re not called hedge funds because they protect investors from all of crypto’s investing risks however.

On top of these trading strategies, crypto hedge funds will often stake, lend and borrow coins and tokens to increase the IRR of the fund.

Crypto hedge funds don’t just hold crypto assets. They can invest in crypto adjacent assets. For example, there are funds that invest in and trade blockchain stocks. These are stocks of companies that provide Blockchain products and services.

Crypto hedge funds are different from traditional hedge funds in that they focus only on digital assets associated with cryptocurrencies.

Crypto hedge funds are booming

According to PwC, there were 150 to 200 crypto hedge funds at last count. These funds have total assets under management (AuM) in the billions.

The number of funds set up correlate directly to the price of Bitcoin which is no surprise. Because Bitcoin is booming, so is interest in these kind of more aggressive funds.

crypto hedge fund

Who is investing in them, and how much?

The funds, by their structure and the way they’re regulated, target already wealthy investors. Because they are seen as ‘risky’, the US Securities Exchange Commission (SEC) limits access to hedge funds to ‘accredited investors’. Accredited investors have a net worth of more than $1 million, not including the value of their home, or annual individual incomes over $200,000.

Basically, if you’re a US citizen but you’re not already rich you can’t invest in in any kind of hedge fund, including a crypto one (but by all means take your cash to Vegas and blow it all on black…).

It follows that around 50% of crypto hedge fund clients are high net worth individuals followed by family offices and ‘funds of funds’. The average investment in crypto hedge funds is $1.1 million.

Crypto hedge funds are traditional investment vehicles. They’re a known quantity to traditional investors and these are the investor types they will continue to attract.

3 things to know about crypto hedge funds, before investing

  1. Fees – You have to pay them and they’re high. You pay both management fees AND performance fees for the privilege of investing in these funds.
    1. Management fees – average 2.3%
    2. Performance fees – average 22.5%. Often increase with a higher IRR.
  2. Buy-in hurdles – if you don’t have at least $100k you’re NGMI – not gonna make it. You won’t meet the hurdle rate to invest. You also need to be an accredited investor in the US (see below) and prove it, which means paperwork! Meh…
  3. Redemption gates – you can’t take your investment out whenever you want. There are rules about when and how much of your funds you can access at one time. This, they say, it to prevent pricing impacts from large redemptions. So it’s there to ‘protect’ clients, but it just goes against the grain a little.

Buying crypto hedge funds or owning crypto?

The trade offs

Let’s look at the trade offs and benefits of crypto hedge funds, starting with most important part first – cost and performance.

If funds charge a 2.3% management fee on average plus a 20%+ performance fee, what does the average hedge fund performance look like, versus owning cryptocurrency outright?

According to PwC, the median performance of crypto hedge funds in 2020 across all investment strategy types was 184%. Here’s how that breaks down:

crypto hedge fund
source PwC

But don’t forget, you’re handing back 20% to 30% of that in fees.

If you had just bought and held Bitcoin your investment would have returned 305% over the same period.

And that’s Bitcoin – the largest large cap crypto of them all. Had you chosen instead to buy and hold a lower cap altcoin, like the Layer 1 protocol Fantom (FTM), your return over 2020 was 1088%.

Here’s something else to consider when it comes to crypto hedge funds. They will invest conservatively for a bunch of reasons; reputation, performance, regulatory obligations etc. In this way, crypto hedge funds are no different from traditional hedge funds.

A recent PwC survey revealed that crypto hedge funds predominantly trade the large cap ‘less risky’ coins that are slower to move and less likely to moon. 92% of crypto hedge funds traded Bitcoin ‘BTC’, followed by Ethereum ‘ETH’ (67%), Litecoin ‘LTC’ (34%), Chainlink‘LINK’ (30%), Polkadot‘DOT’ (28%) and Aave‘AAVE’ (27%).

crypto hedge fund
The coins crypto hedge funds typically trade. Source PwC

So what are you trading returns for when you invest in a crypto hedge fund? Exactly what do you get out this kind of investment (if you do meet the buy in hurdle that is).

The benefits

Time & effort saved

For the fees you pay them, fund managers will do the research for you. They will also manage the blockchain transactions for you. You don’t need to learn anything about crypto – how to use on and off-ramps from fiat, how transact on the blockchain, where to store to coins, etc. etc.

Seen as less risky than coin picking

Hedge funds use more aggressive investing strategies than other funds, but crypto hedge funds are still seen as less risky than owning crypto itself. Why is this?

Firstly, the fund managers do the due diligence for you. They research the companies, projects and code so you don’t have to worry about putting your money into something that turns out to be a rug pull or some other scam. Fraud, scams and rug pulls are a realised risk in crypto for many investors.

Secondly comes diversification. A hedge fund uses the money in the fund to buy into multiple coins, tokens and projects. The concept being, your money is diversified to help reduce single asset risk exposure and soften market volatility.

While they will help you avoid some of the risks inherent in investing in crypto (check out our article on this here), crypto hedge funds are still exposed to broader crypto market volatility. Although they actively seek to manage the impacts, it’s more to dilute than avoid them.

No asset custody worries

You might sleep better at night knowing that you are not responsible for keeping your crypto safe from cyber hack yourself. That’s because buying into one of these funds, you won’t really own any. No need for cold storage wallets, private keys, seed phrase storage, or any of that palaver.

Tax advantaged

This is a weird one. We’ve always had trouble with the concept of picking investments specifically for the tax advantages, but it can be a nice by-product. If you’re a US Citizen, hedge funds can qualify to be held in IRA and Roth IRA accounts.

Crypto hedge fund list

With over 150 crypto hedge funds in the market, it’s difficult to nail down exactly which one might be right for you. This is precisely why there’s a whole industry of brokers available to refer you to their crypto hedge fund of choice (for a commission or trailing fee of course!). To help out, here’s a list of crypto hedge funds but by no means is it exhaustive. Some of the better known and large fund managers not on the list include:

  • Grayscale Investments
  • Pantera Capital
  • Galaxy digital
  • Invictus Capital and
  • Coinshares.

Is a crypto ETF a good investment for crypto beginners?

Tara Investing in Cryptocurrency 0 Comment
crypto ETF

If only 13% of Australians own crypto, are heaps more folks about to jump in? It’s about the same in the US. Bitcoin is just off all time highs after its epic retrace in May 2021. It’s probably time for the FOMO set in. If you’re a crypto beginner and looking for ways to get involved with crypto, you might have heard about the new crypto ETF. The first Bitcoin ETF launched in the US recently. Australia and Canada have followed suit.

However, before you jump on the bandwagon, there are some things to understand about this historic cross-over of traditional and crypto markets. In this article we will review the new Bitcoin ETF, who it might be good for, and 5 reasons any crypto newbie might think twice about investing.

What is an ETF?

An ETF is an Exchange Traded Fund, which basically means that it’s a fund listed on the stock exchange.

An ETF is an investment fund that (usually) owns the underlying assets (shares of stock, bonds, oil futures or gold bars) and divides ownership of those assets into shares. These can be traded on exchanges just like individual stocks.

This differs from buying shares in companies because instead of owning fractions of businesses, you are invested into funds containing lots and lots of companies within a particular investing theme.

As the crypto market has matured, many have called for the creation of a crypto ETF or a Bitcoin ETF.

Can you invest in a crypto ETF today?

The answer to that question depends what country you’re in!

If you are in the US, you can now invest in a Bitcoin Futures ETF – an ETF based on the Bitcoin Futures market.

In the last week, US regulators have approved the first US Bitcoin Futures ETFs: ProShares’ Bitcoin Strategy ETF (Ticker BITO).

Several other fund managers, including the VanEck Bitcoin Trust, Invesco, Valkyrie, Ark Invest and Galaxy Digital Funds, have also applied to launch Bitcoin ETFs in the United States but as yet these are not approved.

The ProShares Bitcoin ETF is a futures based ETF.

The are no Bitcoin or crypto ETFs (either Futures or Spot) approved for investment in Australia, but there are several in Canada and Europe.

crypto ETF
The first Bitcoin ETF launches in the US today

Futures vs Spot Bitcoin ETF

Futures-based ETFs are different from spot market ETFs in that they track futures contracts rather than the spot price of an asset. A Bitcoin futures ETF follows Bitcoin futures contracts rather than the value of bitcoin itself. As a result, the ETF’s price will not correspond to the price of bitcoin.

A futures ETF is a ‘synthetic ETF’ because it’s based on financial derivatives (futures contracts) traded at the Chicago Mercantile Exchange (CME). The fund BITO doesn’t buy and sell any Bitcoin and you don’t actually own any Bitcoin by buying into fund!

A spot Bitcoin ETF is in the works. Word is that trust fund manager Grayscale will soon apply to regulators to have their Grayscale Bitcoin Trust fund changed to a Bitcoin ETF.

What is the difference between a Bitcoin ETF and a crypto ETF?

A Bitcoin ETF will follow the Bitcoin spot price or futures contracts. It doesn’t cover other cryptocurrencies. It’s movement up or down relates only to Bitcoin’s movement.

A crypto ETF will track a broader basket of cryptocurrencies. It’s movement / price is weighted to the fund’s allocation of this basket cryptocurrencies. It make sense that the first crypto ETFs are likely to track a basket of large cap coins or more established crypto themes, like Decentralised Finance coins or Layer 1 protocols. Although there seems to be growing support for an Ethereum ETF to launch next.

Why you may be tempted to buy shares in a crypto ETF

Exposure to a new asset class

Crypto ETFs are new. Hell, mostly they still don’t even exist. But they’re coming, and large investment houses will undoubtedly be successful selling these funds to their clients as a new ‘must have’ asset class in their portfolio. They will espouse a bunch of benefits about an ETF being less risky, easier to buy and out of, more passive – all appealing traits for new crypto investors. Will you be convinced? Let’s look at these.

Diversification

If you buy into a crypto ETF that holds a basket of cryptocurrencies, then on the surface at least your portfolio is more diversified than owning one coin and you minimise risk. How? Your investing eggs aren’t all in one basket. Also, a basket of crypto may slightly dampen the market volatility of exposure to a single coin. That said, large cap crypto and crypto asset classes can move together and move wildly, so you’re not avoiding volatility altogether.

Easy to buy and sell

Investors who want exposure to cryptocurrency without actually holding any will find it easier to purchase via an ETF than going out and buying Bitcoin directly. This makes crypto ETFs accessible to traditional investors that don’t want to go through the learning process of setting up their own crypto wallet and navigating the on and off ramps into the crypto ecosystem.

For example, you can buy shares in an ETF through a regular stock broker or on an easy to use stock app straight from your mobile. To get crypto is a bit more involved and there’s a learning curve.

Reduced investing risks

Crypto funds are still relatively new and we’ve posted extensively about the different risks of investing directly in crypto (and how to manage them).

If you really don’t want to take the plunge buying into a crypto ETF could help avoid some of these risks – like human error in navigating the block chain. Any ETF fund manager will also do the due diligence for you. They vet the coins in the basket, so your risk of things like project failure (when the coin goes to zero) and rug pulls are theoretically less. You also don’t need to think about coin custody and cyber hacks because you won’t actually ever own any cryptocurrency.

A crypto ETF is good for crypto (but is it good for you?)

A crypto ETF is expected to bring more money into the crypto asset ecosystem. Mainstream investors may see it as opening up the possibility of large gains to traditional stock market investors. A common view is crypto ETFs will bring new money, new investors and greater legitimacy into the crypto ecosystem.

This is good for crypto hodlers like us because demand for crypto assets that we own will increase.

The price of Bitcoin has already pumped more than 10% on the news of the Proshares Bitcoin Futures ETF and the ETF will not even hold any Bitcoin!

But in the end, a crypto ETF is a traditional financial instrument. That means middlemen taking their fat fees and others controlling your money. Ask yourself, is buying into a crypto ETF a good way to start your crypto investing?

Here’s 5 reasons we don’t think so..

5 reasons to think twice about buying a crypto ETF

1. You’ll pay more

There are additional fees associated with using a fund set up by institutional investors. Instead of paying more of you hard earned fiat, you can buy crypto directly and pay less for the opportunity.

2. Wall Street gets richer

ETFs involve middlemen who clip the ticket on your investment. If you’re cool fattening their pockets, then go you. But if you know about the idea behind crypto and believe in its human good, then making Wall Street richer should grate on you.

Crypto is about decentralised system of finance where opportunity isn’t controlled by Wall Street and everyone invests from a level playing field.

3. You miss out on DeFi opportunities

Owning cryptocurrency can open up the opportunity for gains other than to the underlying asset price movement. For example, holding a crypto asset might qualify you for an ‘Airdrop’ in which you’re gifted another asset by the same crypto project (for free). We’ve received many an Airdrop that has turned into sweet profits in the past. You won’t get this owning shares in an ETF.

DeFi is also an opportunity to compound any crypto investment gains. You can own a crypto, be exposed to its market price and also earn passive income from lending that crypto or staking it in a DeFi protocol. An ETF only exposes you to the price gains or losses of the underlying crypto asset.

4. Double the market risk?

ETFs are part of the stock market (fiat currency based). Irrespective the asset an ETF covers, it may be influenced by overall stock market movements and sentiment. On top of this, a crypto ETF may be influenced by crypto market movements and sentiment.

5. It’s not the future

You don’t need to learn anything new to buy a crypto ETF. This may seem like a benefit, but is it in the long term? We would argue that with digital assets and blockchain tech growing exponentially, the sooner you learn about how to use blockchain technology and transact cryptocurrency assets, the better off you’ll be in the long term.

Conclusion – invest in yourself not Proshares

None of this is financial advice peeps, be we think crypto is here to stay. Digital assets are a growing asset class and a part of our asset portfolio. The opportunities you open up from understanding the crypto ecosystem right now can be asymmetrical.

But that won’t always be.

It’s up to you. You can invest in a crypto ETF and you might get some nice gains. Or you can invest in yourself, learn crypto and use it like we have to get to financial freedom.

If you want to join the digital asset revolution and just by crypto instead, check out our starter guide to the right of screen. It’s free and it will help you buy your first crypto safely in 6 easy steps. It even has links to everything you need on the internet. -> -> ->

How to manage crypto investing risks for new investors

Tara Investing in Cryptocurrency , , ,
crypto investing risks

It seems like everyone in crypto has a war story they like to tell about the time they lost a bunch of coins because of some rookie investment move. But I think the one about UK IT Engineer James Howells who dumped 7500 Bitcoin on a hard drive back in 2013 takes the cake. He lost a measly $361 million at today’s Bitcoin price. The moral of the story for the crypto uninitiated? Losing your coins is just one of the many crypto investing risks for new investors. So before you invest your hard earned into the space, we’re here to help you get informed on what it takes to invest successfully in crypto and get to financial freedom.

Hopefully you come out the other side of this article with the know how to bag a fat stack of coins and to keep them.

What do we mean by cryptocurrency investing?

As a new crypto investor, it’s likely you’ll start off with more straight forward types of crypto assets so we’ll focus on those. By crypto investing, we mean investing in cryptocurrency projects that have associated coins and tokens.

We also mean investing in Decentralised Finance products and services to earn interest on your cryptocurrency assets.

We are not talking about complex crypto day trading, margin trading, futures trading or options trading.

Is crypto risky?

Yes it is. It’s new technology and the market is largely unregulated. Crypto assets are also non-custodial. These features can heighten crypto investing risks for new investors if you don’t understand the investing landscape.

However, we would argue it’s also risky NOT to invest in crypto!

Cryptocurrency, in its decentralised and non custodial design, aims to be an alternative to the awful global monetary and financial policy we’ve suffered since the GFC. Crypto is also about more than the coins themselves. It’s about disruptive technology that is here to stay and that we think will shake out some large industries, with finance being just one.

The point we’re making in this post is that you can still invest and manage risk. That’s why we’re sharing everything we’ve learned and do to identify and manage our crypto investment risk exposure.

Know before you invest in crypto that you are in control and that’s the way the ecosystem is designed! No-one is responsible for actively managing your assets and your investing risks but you.

Is the risk worth it? It has been for us because it’s still early stages and we argue the technology development curve is yet to hit exponential growth. But you make up your own mind, hopefully after considering the risks and how to manage them.

Why do you need to know how to manage crypto investing risks?

Because cryptocurrency is non-custodial and decentralised. There are no middle men to transact for your or look after your assets. You need to do this yourself and if you don’t understand how to manage the risk of being custodian of your own money, then it’s likely you’ll fail at that important task.

Besides, there is little to no regulation to fall back on if something happens to your coins. There are no government bank guarantees and very few consumer protections in crypto. And that’s the way the industry likes it. It’s an asset class designed around non-intervention of governments and middle men. All of this means you have to know how to take care of your assets yourself. The way it should be!

If you are a first time cryptocurrency investor, you’re probably new to crypto market idiosyncrasies. Have a read of this post about what makes cryptocurrency prices rise and fall. If the concepts are new to you then it’s super important that you learn how to manage risks because your risk profile is high as a newbie investor.


Risk comes from not knowing what you’re doing.

Warren Buffet

You also need to know how to manage crypto investing risks because as an asset class crypto is potentially one of the greatest asymmetric investment opportunities out there right now. Asymmetric investments are when you risk a small amount of capital for the opportunity to earn much larger returns. This is entirely possible in crypto – we’ve seen it ourselves.

13 crypto investing risks for new investors and how to manage them

Here are our top 13 crypto investing risks for new investors and how to manage them:

  1. Price volatility – price swings in the double digits daily
  2. Illiquidity – you buy in to an asset but can’t sell it when you need to because trading is too thin
  3. User complexity – technical complexity of blockchain transactions for new users
  4. Crypto exchange crashes – platforms go down with your crypto on them
  5. Project collapse – and the associated coin and token goes with it
  6. Hard Forks – a project splits and so does the value of the coin or token
  7. Smart contract failure or hack – hacks are rife and often unrecoverable (or at least uninsured)
  8. Regulatory risk – risk of non-regulation and new regulation
  9. Human error – goes with the technical complexity of crypto
  10. Market manipulation – whales throwing their weight around causing prices to pump or dump
  11. Theft or hack – physical or cyber, how do you protect yourself?
  12. Scams – mostly online and completely insidious, millions have been lost this year alone
  13. Rug pulls – DeFi fly by night operators absconding with your treasured coins

Now read on to learn about each risk and how you can protect your crypto assets….

1. Price volatility

The price volatility of crypto is enough to put hairs on your chest. But what is price volatility anyway? Investopedia sums it up as the range of price change a security experiences over a given period of time. Now check out this epic chart from the guys at Trading View showing Bitcoin volatility over two historic market periods – 2017 and 2021. Price corrections of between 20% and 50% are run of the mill for BTC.

It’s worth understanding in context that Bitcoin is less volatile than other small cap coins. So you get the picture – volatility is real in crypto with coins capable of moving hundreds of percent in a day. If you can’t take the heat stay outta the kitchen.

But what are the actual risks of price volatility for an investor? Good question right! The price may move up or down dramatically, but this can be as beneficial to investors as it is risky. It all depends on your entry and exit as well as your investment horizon. If you buy the dip, then price volatility can be totally fly. But if you buy the top it can crush you.

Here’s how to manage your risk

Learn how to read a price chart and charting indicators. Understand from the chart what part of the market cycle you are investing in. If you have a clear view of this, short term volatility is less draining emotionally. For example, if you’re riding a mark down phase (which would be dumb, but it happens) you’re going to be more worried about price volatility (compounding losses) than you would if you’re in a mark-up phase.

Traditional market cycle – knowing what phase you’re in can help you manage short term price volatility.

Set an investment plan before you invest. What is your aim and your timeframe? What is your break point?

Use trading tools like stop losses to avoid price crashes if you’re not investing for the long term.

If you’re an anxious investor, set your stop losses and don’t check your coins every other day! In crypto there’s ‘weak hands’ – investors that don’t have the conviction of their investment plan and sell out with price weakness, which is inevitably selling at the wrong time. There’s also ‘diamond hands’ – investors who are undeterred by large swings in price.

Which one are you?

2. Illiquidity

Crypto has a low barrier to entry which means that new projects, with their own coins and tokens, are popping up all the time. Some crypto assets, particularly the new projects with micro or small market capitalisation, are traded very thinly. If you’re looking to invest in these projects there’s not a lot of volume. This all means it can be hard to find a buyer or someone to trade with if you want to sell or swap your investment. Particularly if you’re selling at a volatile time.

Here’s how to manage your risk

When you buy a crypto asset, ask yourself “Will i be able to sell when the time comes”? “What is my exit strategy?”

Buy assets that are well traded on exchanges with large volume. This may prevent you from buying some micro caps that are only available on smaller centralised or decentralised exchanges. But that’s the risk mitigation bit in force. If you do buy thinly traded crypto you should understand how to time your exit and sell in small amounts, such as by using bots, to offload your investment. This is also good practice if you have a bag full of the asset and you don’t want to tank the price as you sell down your holdings.

3. User complexity

Crypto is still an early adopter asset. The technology is nascent. This means it’s not necessarily user-friendly to transact with. I remember the first time I sent some crypto through cyberspace I was freaked out. I only sent $100 worth because I wasn’t sure I’d done it right and didn’t trust the technology. But the crypto arrived and the rest was history.

Seriously though, if you ask any crypto investor the first time they put money into a new product, service or protocol there is always that nervousness about how to make it work. Seeing your money disappear into cyberspace when you’re not completely sure it’s going to reappear where you want it to can be heart stopping.

The thing to understand is that crypto transacting is different to bank transacting. It uses different processes and technology and you have to get used to that. Banks have had years to perfect the simplicity of their services (and many still haven’t got it right). Crypto on the other hand has been around for a couple of decades and until 2020 has been the bastion of super brainy IT nerds and tech savvy gamers. There’s been no driver until now to make it user friendly and that means in most cases it’s still involves a learning curve.

Here’s how to manage your risk

The best way to overcome user complexity is by learning the technical and market basics.

Read up on the information we have posted about how to make money with cryptocurrency here and here. Follow these tips on managing risk as you learn the ecosystem:

  • Crypto investing – Use the financial service providers you do know – like Paypal – to start investing in larger cap crypto assets like Bitcoin. Paypal provides an ‘on-ramp’ to crypto that many people will recognise and be able to use easily on first attempt. If you do use these conventional on ramps to start your investing just know that you will be paying a premium on the exchange rate from fiat currency into crypto. Think of it as the price of convenience but once you learn how to navigate the ecosystem there cheaper ways to transact.
  • Making money with DeFi – start with Stablecoin interest earning products. These are simple to understand as they’re just like bank interest. The least complex way to do this to sign up for a Celsius account and download the app on your mobile phone. If you’re worried about where to buy Stablecoins like USDC and USDT, Celsius will let you buy them directly via credit card. They will charge 3.5% fee on the transaction, which is high in crypto terms. But they do offer 8.8% interest on your USDC and USDT once you have it.

Earning interest on Stablecoins means you’re not subject to the same price volatility as other crypto because these coins are pegged to the dollar. It’s just an easy to manage way to dip your toe in the water of crypto investing, but it’s not where the real money is made.

4. Crypto exchange crashes

Exchange crashes are rare but we’ve seen them happen at the most inopportune times. One very large crypto exchange went down right in the middle of a gigantic market dump in 2020 and all anyone could do was sit back and watch. Technical issues took them a couple of hours to fix but by the time the platform was up again the market meltdown had eased. It meant at the time that we were able to buy the dip on that exchange. Luckily we had other exchange accounts with some crypto in them that we could use to transact.

Here’s how to manage your risk

Keep your crypto hodl bag (the crypto you plan on holding for the long term) in a hardware wallet. If your assets are secure in your hardware wallet it means you have full control of them at all times. You can load them onto different exchanges at any time as you need to sell or swap.

Also, set up accounts on at least three different exchanges. Pick ones that are not all based in the same country (helps to manage regulatory risk). That way you have back up accounts to transact from when one exchange goes down.

We recommend that you set up separate accounts with Binance (largest volume, loads of coins), CoinsSpot (starter exchange for Australians), and Kucoin (micro and small cap coins).

5. Project collapse

When you invest on cryptocurrency you are investing in technology projects, run by teams of talented developers, cryptographers, programmers, and so on. Just like any project, crypto projects can collapse if teams implode or important personnel leave the project. Or maybe the project was based on a dumb idea, poor tokenomics or flawed code. This article from the Fool indicates more than 2000 cryptocurrencies have failed. If a project collapses, that’s usually the end of the associated coin or token.

Here’s how you manage your risk

This is a tough one to manage. You can of course keep your investments to well known projects with substantial funding and strong tokenomics. If you do want to invest in some true speculators then your risk management options are all about early exit. Keep your ear to the ground on Twitter. Follow the project and the crypto news. You’re aiming to get any adverse news about the project before it hits mainstream and tanks the price.

6. Hard forks

Many decentralised crypto projects use consensus models to govern project development. Coin or token holders can vote on key project decisions and consensus is sought. Hard forks can occur when there is no consensus on an important project decision.and the project literally forks in two different directions. Depending on their nature, hard forks can erode the value and adoption of a project’s coin or token, causing the coin’s price to decline.

Here’s how to manage your risk

Stay up to date with project developments on the project website. Understand any upcoming forks and their timing (they can take some time to play out) and make a conscious decision about whether you will divest, and when.

7. Smart contract failure or hack

Smart contracts are automated ways to handle value exchange between two parties, without involving a middleman, such as a bank. Because they are bits of code that execute in a decentralised way, they can be buggy and suffer from vulnerabilities like any other code.

According to this article from popular crypto exchange Coinbase, smart contract are susceptible to operational risk, implementation risk and even design risk. Poorly constructed smart contracts are also susceptible to theft by hacking.

One feature of the crypto ecosystem is that project teams offer bug bounties or rewards for tech savvy internet nomads to identify bugs within smart contracts so they can be fixed. Smart contracts can also be audited independently to try to identify vulnerabilities.

The real problem occurs when vulnerabilities are not identified and smart contracts with millions of dollars invested fail or are hacked.

Here’s how to manage your risk

Smart contract risk is an all or nothing deal, so the first rule is don’t put in what you can’t afford to lose. Be as safe as possible with your investment and due your own due diligence. Only put your money into smart contracts that have been audited and where the audit results have been made public. You can also get on reddit.com and see what other developers and programmers are saying about a particular protocol or smart contract. Some projects offer insurance on their smart contracts as a way to attract new investors, although insurance products like these are new to crypto and have not been put to the test.

8. Regulatory risk

Let’s face it, regulatory risk exists with every money making venture. You never quite know which direction government policy makers will pivot to next. But in crypto regulators are a quantum leap behind the 8 ball. In the US for example, government still hasn’t ruled on some of the most fundamental matters, such as whether crypto is a security or some other type of asset. This means the regulatory risk exposure is akin to highly speculative financial products. And it’s not just in the US. Around the globe there are crypto friendly governments, and some not so friendly. So how does all this present risk for your investments?

Firstly, rumours of regulatory action can cause FUD in crypto markets – Fear, Uncertainty and Doubt. FUD is market sentiment that can move the price action of a particular asset, mostly in a downward direction.

Real regulatory action can also move the market. Sometimes regulation moves the market up (if it’s crypto friendly) because having regulation in place provides certainty for investors. Sometimes regulation can cause a sell-off and move prices down if it’s perceived as punitive or as hampering development of the space

Here’s how to manage your risk

Keep up to date on crypto regulatory news from the US (as primary market) and from your home country in particular. If there is major regulatory change afoot you will hear about it on Twitter. Follow some crypto projects and personalities like Cameron Winklevoss, Michael Saylor or Mike Novogratz. Once you know about a potential regulatory change you can make your own mind up. Will it support crypto or will it hamper growth? This knowledge will help determine what you do with your investment.

9. Human error

This one goes hand in hand with the non-custodial nature of cryptocurrency. If you lose the private key you need to transact your crypto assets, you will need to have your recovery seed phrase at hand. If you have a particularly human moment and lose your seed recovery phrase, you’re done. That’s it. Drop the mic – your crypto is gone.

Here’s how to manage your risk

This one’s simple – do not lose your seed phrase!. Here’s how to go about it…

Keep your crypto secured with a hardware wallet.

Get a metal crypto wallet for the recovery phrase that backs up your hardware wallet.

If you don’t have a hardware wallet or metal seed storage wallet then you’re exposing yourself to cyber hack. We recommend this site – cryptowalletreviewer.com to find the best hardware and metal crypto wallet. We personally have the Ledger Nano X and the Billfodl metal wallet to keep our crypto safe.

Treat both your hardware wallet and your metal seed phrase wallet as though they are little bars of pure gold. Store them securely in different locations (never together).

10. Market manipulation

Ever heard of crypto whales? Whales are large holders of particular assets, for example Bitcoin whales or Chainlink whales. Whales can and routinely do use their large holdings to manipulate price action in crypto markets. So how do they go about it?

Whales can place very large sell orders at a price below other sell positions in the market creating volatility following which prices can fall. The falling price can then cause a chain reaction as stop losses set by other traders are triggered. 

That’s just one example of how whales might use their coin bags to manipulate price in the crypto market.

Here’s how to manage your risk

Cryptocurrency blockchains are publicly viewable which means if you know how to read the data you can work out whether ownership of the coin is concentrated in the hands of the few. Coins with concentrated ownership are ripe for the picking by manipulative whales.If you don’t want to go through the laborious task of doing this analysis yourself or are not technically inclined, you can use Glassnode or CryptoQuant – blockchain analytics services.

Or you can do absolutely nothing – accept this risk as a part of crypto price volatility and move on. That’s what we do, along with not putting too much of our money into a single crypto asset.

Diversification in crypto is a foundational risk management approach – use it! Diversify across assets, across DeFi protocols, across exchanges, and platforms. Divvy up your investments into smaller bags that you could afford to lose if something goes wrong.

11. Theft or hack

There are two types of theft you need to manage risk for in crypto

  1. Cyber theft or hack – just as it sounds, this is the theft of your crypto on the internet. It can happen to your directly – where coins are stolen from your online wallet – or through a third party like a crypto exchange or DeFi protocol. Exchanges and protocols are hacked regularly, with the latest being a $600 million white hat hack of PolyNetwork.
  2. Physical theft – you might be wondering how physical theft can occur in crypto if your coins are non-physical objects. Ever heard of the “$5 wrench attack”? It’s basically where someone steals your hardware wallet and with it the private keys to your cryptocurrency.
Here’s how to manage your risk
  • Good cyber hygiene –
    • keep your apps and operating systems up to date always.
    • Use a password service like LastPass to manage your passwords.
    • Make sure you have unique passwords on your home WiFi and modum.
    • Use 2 factor authentication on websites and apps associated with crypto.
  • Use hardware wallets and metal crypto wallets – you don’t have full control over your coins if they are on an exchange. The best way to avoid theft via an exchange or protocol is to transfer your coins to a hardware wallet. If anything happens to your hardware wallet you can recover your coins with the wallet’s recovery seed phrase. This is why you also need a metal crypto wallet as well as a hardware wallet. A metal crypto wallet is an indestructible and secure place to store the recovery phrase for your hardware wallet in case you need to restore your crypto nest egg.
  • Proper physical custodianship of your hardware wallet and metal crypto wallet – keep them secure and apart. If one is stolen with the other your coins are gone and unrecoverable.

12. Scams

Scams in crypto are rife and understandably this is very off-putting to new investors. According to the US Federal Trade Commission, the most common crypto scams are:

  • Giveaway scams – members of particular online crypto communities get free coins if by send their coins to a posted wallet address
  • Bogus websites – with scam investment opportunities offering block buster returns using fake testimonials
  • Impersonators – Elon Musk impersonators have duped unsuspecting coin holders out of $2 million collectively
  • Online dating apps – used to lure people into cryptocurrency investments (yeah I know I can’t believe it either…)
Here’s how to manage your risk

Scams are a problem that you can overcome by knowing what you’re investing in and by doing your own due diligence. If you come into crypto understanding that it’s designed to be decentralised and non-custodial, you’ll appreciate that you alone are responsible for the security of your assets. If you get this, you’ll do your own due diligence and only invest in crypto with demonstrated real world use cases. You’ll accept that investing in anything else is either highly speculative or you’re at risk of being scammed.

Here are some tips to avoid getting scammed if you’re new to crypto investing:

  • NEVER send your crypto to wallet addresses sent to you in unsolicited emails, social media, group chat apps like Telegram and WhatsApp.
  • If you come across an ‘investment opportunity’ that seems too good to be true then it just is.
  • Don’t respond to unsolicited offers. If someone reaches out to you to join a crypto community or promote a killer crypto investment opportunity over social media, via email, in Youtube comments or in any message group forums it is likely a scam.
  • Make sure you have the genuine website or app. Fake websites, apps, groups or project profiles are a big issue in crypto. Type the web address in every time and don’t use autofill. Link to the project app directly from the developers website and don’t search it on Google Play or The App Store.

13. Rug pulls

A ‘rug pull’ is a phenomenon specific to decentralised finance (DeFi). A DeFi rug pull is when a team of developers disappear with all of the liquidity added by users to a particular DeFi Protocol liquidity pool. If you want to know more about DeFi lending and liquidity pools (and how to make money from them) check out our How to Invest in DeFi post.

Rug pulls and other types of DeFi exit scams are on the rise as more capital flows into the DeFi space with a reported $240M lost in just the first 5 months of 2021.

How to manage your risk
  1. Avoid new DeFi projects – early projects is where the serious money is made, but it’s also where authenticity and legitimacy are questionable. At a minimum avoid low initial liquidity projects. Just like in the fiat world, scammers find it tough to raise large bags of initial capital for new projects.
  2. Make sure there is a project whitepaper and read it. Compare it to other legitimate white papers.
  3. Watch out for social media campaigns on tokens with claims of benefits that are too good to be true. Fake hype on Telegram and Twitter is a telltale sign.
  4. Research the project – is the developer team transparent and known in the crypto community? If not, do you really want to trust them with your assets?
  5. Get on to Reddit and research the token and the project and any red flags raised by other developers.
  6. Check that there is an audit of the protocol by an independent know auditor. Audits are expensive and having one helps legitimise the project.
  7. If you are more technically savvy, check the smart contract history on Etherscan or Polygonscan.
  8. Watch the token price. If the price starts to tank, get your coins out immediately. Offload the scam token and get your valuable tokens back in to your hardware wallet!

Can you really make money with cryptocurrency?

Tara Investing in Cryptocurrency , ,
make money with cryptocurrency

When my first transaction completed on the blockchain in early 2020 I had no idea whether I’d make money with cryptocurrency.

I just new that the world had changed overnight, and I wanted a hedge. So I bought some Bitcoin at $7800 and some Ethereum at $222.

I’d wager a bet that there are many crypto curious investors out there today that want to make this same leap but haven’t. You might be one of them.

You’re worried about the volatility of crypto assets. Perhaps you’re concerned that the market has topped. Maybe you’re torn so you’re sitting on the sidelines waiting for some kind of sign that it’s safe to invest…

In this post we’ll try to help answer the one question that you and other new investors want to know before jumping in:

Can you really make money with cryptocurrency?

Spoiler alert! The answer is Yes but it’s not guaranteed of course….. Now let’s find out why.

7 legit reasons you can make money with cryptocurrency

The macro investing environment is increasingly accepting crypto as a new investment class. Are you picking up the signs? Check these 7 legit reasons you can make money investing in crypto:

  1. You’re investing in disruptive technology not cryptocurrency
  2. Institutional, corporate and venture capital investors are getting in now
  3. The technology is still early on in its adoption
  4. Monetary and fiscal policy may not help you any time soon
  5. Surveys show record numbers of retail investors plan on jumping in
  6. Profits have been strong for many early investors
  7. The barriers to investing can be overcome with good risk management

1. You’re investing in disruptive tech not cryptocurrency

Cryptographic currency really started as a way of incentivising and enabling the operation of online ledgers so that two parties could exchange value without middlemen like banks. It’s technology that automates the decentralised exchange of value. Because of this, crypto is more about the tech than it is about the coins and the tokens. It’s important to understand this if you’re searching for greater assurance about investing in crypto.

The ability to automate and decentralise the process of exchanging value will disrupt and transform multiple industries and create new ones.

Ark Invest, one of the world’s top innovation investment funds managers, sees cryptocurrencies as enabling a new paradigm for monetary systems and mechanisms to store and transfer value. Think banking, finance, money markets, logistics, gaming, health, food, and the list goes on. There are real use cases for blockchain technology in most of these industries today.

The upshot? Blockchain tech and crypto are not going anywhere.

2. Institutional, corporate and venture capital investors are getting in now

We wrote a post in April where we offered up 7 reasons why Bitcoin should be on your radar. It’s worth a read before you go any further.

One of the reasons we raised back then was the money flowing into cryptocurrency from corporations, venture capitalists and more speculative institutional investors. As an indicator of this, investments in Grayscale’s Bitcoin fund jumped 18X from $500 million to $6 billion in 2020. Mainstream institutional investors are not even invested yet due to a lack of regulatory clarity according to this Forbes article.

Since when have you had the chance to get in on the ground floor and front run mainstream institutional investors?

Add to that recent reports from Bloomberg that venture capital funds have made a $17 billion bet on cryptocurrency and blockchain.

make money with cryptocurrency

Our point is, if you follow the money flows at some point you’ll end up in crypto.

3. The tech is still early on in its adoption

How many people do you think own cryptocurrency today?

It’s a simple question, but one that’s difficult to answer because the holdings and data is decentralised by design. You’ll find different answers to the question of how many people own crypto depending on where you look.

One NYDIG survey of cryptocurrency investors estimates that 46 million Americans now own Bitcoin. And that’s just one cryptocurrency (albeit the most ubiquitous one).

For Australia, that number is roughly one in six adults or 17%.

And the thing about crypto is that it’s borderless. It’s literally global, which makes for a huge potential market for use and adoption.

What this all means is, we’re still early! If you’re familiar with innovation adoption S-curves, here’s a graph that demonstrates how early we are when compared to other disruptive tech adoption throughout recent history:

If surveys indicate adoption rates at below 20% for retail investors, this means we’re still right at the beginning of the S-curve. That doesn’t mean all blockchain projects will make you money. But if you get it right the risk to reward ratio can be asymmetrical for early investors (small risk, large reward).

4. Monetary and fiscal policy may not help you any time soon

Governments have been printing money and kicking the fiscal and monetary policy can down the road since the GFC in 2008. It’s gotten worse since 2020. The purchasing power of retail investors is being systemically eroded on a global scale across major economies. Some estimate to the tune of 15% a year. People are literally watching their hard earned wealth erode in front of their eyes.

But did you know that Bitcoin was borne from the GFC to remedy this very scenario?

We think that cash is trash and we chose to need to have our wealth in other value vehicles. As monetary policy continues to play out, our view is that more people may see crypto as a hedge against monetary policy – just as we did in 2020.

5. Survey’s show record numbers of retail investors plan on jumping in

It’s no coincidence with the flow on effects of rubbish fiscal policy that a number of surveys now show retail investors continuing to buy in to crypto in record numbers in the coming 12 months.

This Gemini survey of 3000 people estimates another 50 million Americans plan buy cryptocurrency in 2021. The Australian reports that 13% of Australians are planning on investing in the next year.

So why are they planning on investing?

The Gemini Study found that 69% of crypto investors today see it as a long term investment strategy and 36% of investors trade crypto to make a profit.

For early investors, continued retail interest in crypto assets means rising demand for coins and strong network effects for key blockchain networks.

6. Profits have been strong for many early investors

How does that old caveat go? Historic returns are not an indication of future performance. But we always look at it anyway because none of us have a crystal ball right? So let’s look at the performance stats for some core cryptocurrencies.

According to blockchain analytics firm intotheblock, in late 2020 at the peak of the market, 97% percent of all Bitcoin wallets and 88% of all Ethereum wallets were in profit. Here’s the data:

Large price corrections in crypto in May 2021 will have dampened these numbers. And keep in mind, what goes up can always come down. Markets are cyclical and prices move accordingly. The overwhelming long term trend of large market cap crypto like BTC and ETH has continued on an upward trajectory since their inception around 13 years ago.

7. The barriers to cryptocurrency investing can be overcome with risk management

Here are 5 common barriers to cryptocurrency investing raised in surveys and in the mainstream media, as well as ideas for how to overcome them:

  1. Volatility – It’s true that crypto is a volatile asset. Prices for large cap coins can move 20% in a single day. It seems that this volatility is the single biggest deterrent from new investors getting into the crypto asset class. Volatility can be managed like volatility in other stocks. How? These are the methods we’ve researched on the internet 1) Dollar cost average in to your investment. 2) Don’t bet the ranch all on crypto – only invest what you can afford to lose. 3) Don’t short term trade unless you know what you’re doing – the graph below indicates returns as high as 300% annualised for those that have held their Bitcoin for 5 years.
  2. It’s complex – crypto is still early stages so it’s not user friendly to transact with. When you’re sending your wealth around in cyberspace it can be downright scary for some people. But there are ways to overcome this by learning the technical basics. Start with the information we have posted about how to make money with cryptocurrency here and here. Start with more ubiquitous assets like Bitcoin which is easy to buy through Paypal, and start with interest earning Stablecoin products.
  3. Fear of buying the top – cryptocurrency prices have retraced from their historic highs of May 2021. Some investors are fearful that May was the top for crypto. Investors that bought crypto between early February and early May 2021 and in late 2021 are likely underwater. But the counterfactual is that if you bought at the top of the last crypto bull run in 2018, you’d be ahead today by almost 30%. Check out the graph of Bitcoin annualised returns over 5 years below from New York Digital Investors Group.
  4. Its a bubble – you’ll hear commentators in the news: cryptocurrency is a huge bubble just like the dot com era. Crypto is hugely overvalued and all bubbles burst. Ask yourself though, overvalued compared to what? If it’s fiat currency we are comparing with then everything’s a bubble – the stockmarket, commodites, real estate. Start comparing assets ratios with reserve bank holdings and you’ll get a different picture. This kind of commentary is a great headline grabber and is bound to create fear in many crypto curious. We think it’s worthwhile doing two things before falling for this old chestnut – 1) take a look at the vested interests of the commentators and whether they heavily tied to existing financial systems and assets; and 2) take a look at what respected investors do not what they say. Then make up your own mind.
  5. It’s full of scams – there are loads of scams in crypto and understandably this is very off-putting to new investors. But it’s a problem that you can overcome with mindset and by doing your own due diligence. If you come into crypto understanding that its designed to be decentralised and non-custodial, you’ll get that you alone are responsible for the security of your assets. If you get this, you’ll do your own due diligence and only invest in crypto with demonstrated real world use cases. You’ll accept that investing in anything else is purely speculative and could even be a downright scam.
make money with cryptocurrency
Annualised 5 year returns of Bitcoin versus a group of other common asset classes

The final word – is it time to rationalise your fears?

We’re not here to convince you to buy cryptocurrency. We’re here to share different information than you might hear or read in the mainstream media, so you can make up your own mind. We’ve made the case that you can make money with cryptocurrency and offered up 6 reasons why. We’ve shown how you can overcome 5 common barriers to investing in crypto. Our plan is to make money with cryptocurrency by focusing on real world use cases and investing for the longer term.

None of this is financial advice peeps – in fact if you asked a financial advisor they’d probably tell you to stay the hell away from cryptocurrency! 🙂 But here at the LLP we’re huge fans of taking control of our own finances and making our own decisions. No-one cares as much about your wealth as you do after all!

If you want to know more about crypto markets, here’s a super useful post about understanding crypto market structure. Please read it before jumping in if you decide to do so!

If you do purchase crypto assets you’ll need to safely secure them. We recommend using this site to get your hands on the best cryptocurrency hardware and seed phrase storage wallets. You’ll need these to protect your assets from theft and cyber attack. They’ve even got some useful FAQs to explain what all that means!

Til next post have fun, be happy and do good!

Market fundamentals you need to know before investing in cryptocurrency

Tara Investing in Cryptocurrency , ,
investing in cryptocurrency

If you’re an intrepid investor but missed the crypto train in early 2021, you may just be taking a second look at the market.

Crypto assets have experienced an epic dip since May. Most assets have retraced 50% to 80% of their YTD peaks. A opportunity maybe to ‘buy the dip’?

If you are thinking of investing in crypto this post will help you learn the crypto market fundamentals before you take that leap. If you don’t know the market basics, you may be taking more investment risk than you’re aware of. You’re also investing uninformed, which in our humble experience never ends well. So read on wannabe crypto investors, and make sure you get to the end to find out the next steps you should take to invest successfully in crypto.

‘Coins’ versus ‘tokens’

Before we get into the crypto asset ecosystem, let’s talk about the difference between coins and tokens. This can confuse people when they’re first starting out. In short, coins are assets on their native blockchain. For example Bitcoin on the Bitcoin blockchain and Ether on the Ethereum blockchain. Tokens are assets foreign to the blockchain they live on. Examples are Tether which is a second-layer token on multiple blockchains.

In this article we’ll refer to all crypto assets as coins, but in some cases the use might be interchangeable with tokens.

Investing in cryptocurrency – market fundamentals

Fiat currency (USD etc) flows into cryptocurrency according to the market capitalization of different crypto assets. This is because investors typically enter a new asset class looking for the lowest risk assets in the class. Investors will generally also equate highest market cap with lowest risk asset.

Then, when the investor becomes more knowledgeable or informed about and comfortable with the investment space, they branch out. By understand how the crypto market structure impacts the flow of money into and out of crypto, you can make more informed investment decisions when you’re first starting out.

#1 Crypto price trends start with Bitcoin

Bitcoin is the highest market cap and lowest risk crypto asset (barring stablecoins). This is because it is the most well-known and has the greatest ‘trust’ or ‘authority’ score. Bitcoin dominates the total cryptocurrency market capitalisation by a long way and it leads price trends in the market. Because Bitcoin is the headline crypto asset – some say the reserve currency of the crypto asset ecosystem – money generally flows into crypto assets from the fiat money system starting with Bitcoin.  

Money flowing into and out of Bitcoin can have a massive impact on price movements in other coins.

#2 Money flows from Bitcoin into large cap Altcoins

Next, as Bitcoin investors become more informed about other crypto assets, they tend to diversify.  The money starts to flow from Bitcoin into large cap Altcoins (alternative coins to Bitcoin are called ‘Altcoins’). Large cap Altcoins are the top altcoins by market cap, led by Ethereum (ETH). As the money flows into these coins from Bitcoin, the price of this bag of coins can often move AFTER a Bitcoin move, with a lagging effect.

Bitcoin plus top 10 large cap Altcoins . On a macro level, fiat flows down the list by market cap.

Large cap altcoins are more volatile than Bitcoin and can even include some ‘shitcoins’ among them – meme coins like DOGE coin with little real utility or project value. This is a characteristic of crypto and something to be aware of as an investor. Crypto is not like other investment markets.  Market cap is not necessarily an indicator of strength, or value, or lower risk. It can equally be an indicator of sentiment and the kind of ‘social trading’ popular in crypto culture.

#3 The wild, wild west of small cap Altcoins

Finally, there are the small cap Altcoins. Money can often flow from large cap to small cap altcoins. These are the riskiest and most volatile crypto assets by far. They also bring the promise of the greatest investment gains. No risk, no reward hey peeps!

#4 Money also flows by crypto asset class

The other way that money can flow in crypto is in and out of different asset classes. The asset classes are generally grouped by crypto use cases. For example, the Stablecoins such as USDC and USDT that provide a peg to the USD as a safehaven from crypto market volatility. Non-fungible tokens (NFTs), Decentralised Finance (DeFI) and Oracles are well known asset classes. You can think of these classes as similar to the different industries you see in the stock market. Typically money flows in and out of assets by class in either a cyclical or ad hoc manner, meaning ‘like coins’ in the same class can move together. It’s common to have leading coins in each class (by market cap) and instances where pairs of coins with similar use cases move together.

Investing in cryptocurrency – how to track the money flows

If you’re investing in cryptocurrency you need to know about some critical ‘tickers’ or trading indexes, to help track the flow of money by market cap and use case. Keep an eye on these indexes and understand what each represents. They can help you understand what part of the investment cycle crypto assets are in, and therefore the near, medium and longer-term prospects for particular investments.

TOTAL

TOTAL is the ticker that measures total market capitalisation and the very first index to take a look at if you’re considering investing in crypto. This ticker will show you whether the total investment in cryptocurrencies is in an upward trend. If ‘the trend is your friend’ in investing, then this chart matters. It will help you understand both bullish and bearish macro views of crypto, based on what you see on the chart.

Here it looks to be forming a possible falling wedge on the daily chart, and could also be on the verge of setting a higher low after the February 2021 low. Or it could be in a major downtrend lasting for some time. I don’t have a crystal ball y’all – it’s more about making informed decisions.

Investing in cryptocurrency

Bitcoin Dominance (BTC.D)

Probably the most important index to understand and follow is Bitcoin Dominance (ticker BTC.D). BTC.D measures Bitcoin’s share of the total market cap of the cryptocurrency market. It’s a good idea to understand the relationships in movements between Bitcoin Dominance, the Bitcoin price and Altcoin prices. For example, when people are buying Bitcoin but the total crypto market cap is not growing, then Bitcoin’s share of that total market cap increases and the BTC.D chart goes up. This is bad for Altcoins in general because it signals that Bitcoin is outperforming them.

BTC.D moves the market

When people are buying Bitcoin (the trading pair BTC/USD is rising) but BTC.D is trending downward, this is generally because the total crypto market cap (TOTAL) is also rising. A rising tide floats all boats. This trend is good for ALT/USD trading pairs but less good for ALT/BTC trading pairs because Bitcoin is rising.

The movements of BTC.D fundamentally define movements and trends across the crypto market for different coins on all timescales. I personally wouldn’t invest in any cryptocurrency without first checking this chart.

TOTAL2

The next is TOTAL2. TOTAL2 measures the total market cap of all coins except Bitcoin. It’s a measure of the money flow into and out of Altcoins. TOTAL2 trending higher when BTC.D is trending lower is an indicator of what’s commonly referred to as ‘Altcoin season’. This is a time in the market cycle where you can expect Altcoins to outperform Bitcoin.

DEFIPERP

This is an index made up of a bag of the largest Decentralised Finance crypto assets. It uses a weighted average of the prices of DeFi crypto assets including KNC, MKR, ZRX, REN, REP, SNX, COMP, TOMO, RUNE, CRV, DOT, LINK, MTA, SOL, CREAM, BAND, SRM, SUSHI, SWRV, AVAX, YFI, UNI, WNXM, AAVE, BAL. It tracks the movement of money into DeFi as a proportion of the total market capitalisation.

Investing in cryptocurrency
TOTAL, BTC.D, TOTAL2 & DEFIPERP – understand and use all of them to make informed investment decisions

The final word – crypto is an ecosystem so take it one step at a time

There is a lot to learn about the crypto asset ecosystem. We’ll do our best here to spread the love with information we wish we had before we started investing. These basics will give you a shot at:

  • working out, based on how much risk you want to take, whether large or small caps are your cup of tea
  • what coin categories you might be interested in investing in
  • when is a good time to buy crypto based on how the money flows.

If you want to take the next step and start making money with crypto, then get yourself along to this entirely online Rich Dad Summit.

You’ll get 2 days worth of great investment content including successful entrepreneur and investor Robert Kiyosaki covering topics how to invest in Bitcoin and how to easily get around some of the beginner challenges with buying and owning crypto.

The cryptocurrency market is the wild west of investing so if your risk appetite is not up to investing in cryptocurrency then head over and take a look at some of our other traditional financial freedom investing ideas.

Until next post – have fun, be happy and do good!

Oh, and if you get value from our content please share the love!


7 powerful reasons investing in Bitcoin should be on your radar

Tara Investing in Cryptocurrency , ,
Investing in Bitcoin

Just in case you’ve been orbiting earth from the International Space Station and hadn’t heard, Bitcoin recently rocketed to $60,000 per coin in just a few short months.

Bitcoin is one of thousands of cryptocurrencies that appear to have sprouted from nowhere and are now being bought, sold, held or traded around the globe. Cryptocurrency at its simplest is just a form a digital currency that is secured by cryptography. If you’ve seen the news about crypto but don’t really understand what it means for you and your financial independence journey, read on. In this post we’ll give you a simple introduction to investing in Bitcoin, as the king of cryptocurrencies. Believe me financial freedom seekers, if you don’t know about this stuff it’s time to get educated.

The Bitcoin difference

Bitcoin – the king of crypto

Bitcoin started as an electronic cash system in 2008. It was in the midst of the GFC when Satoshi Nakamura (pseudonym for person(s) unknown) went live on the internet with an alternative to fiat currency (think US dollar) designed to solve some of the major problems of the global money system.

In short, Nakamura opposed the de-pegging of the US Dollar from gold enabling unbridled money printing by central banks and nation states to do things like ‘save the world from the Global Financial Crisis’. Sound familiar? Fast forward to 2020 and it should….

The idea was to create cash for the internet that did not require central authorities (banks or governments) to supply or control it. To do this, Nakamura dreamt up some key design differences between bitcoin and fiat currency – the Bitcoin difference.

How does Bitcoin work?

Bitcoin is created and exchanged on the internet via technology called blockchain, which acts as a secure digital accounting ledger. But…instead of having banks control the ledger, this is performed by a network of independent and decentralised ‘miners’ who contribute their supercomputing resources into the network. Transactions on the network are secured via cryptography. Miners gather up these transactions into ‘blocks’ and solve math problems to verify each block and add it to the chain of past blocks (blockchain). Miners are rewarded in Bitcoin for this role. This validation process replaces the role of trust (in banks and governments) that underpins the fiat money system.

Now this all sounds a bit like a parallel universe of virtual BS, but at its core it’s just a technology and a system to execute ‘trustless’ money transactions that don’t require a central ‘authority’ to verify them.

What drives the Bitcoin price?

Another key characteristic of Bitcoin is that its supply is limited in the blockchain code. Unlike the limitless printing of fiat that is devaluing the dollars in our pockets, only 21 million Bitcoin will ever be issued. The rate of issuing halves every 4 years (called ‘Bitcoin halvening’). The last halvening was 2020, smack bang in the middle of the largest round of central bank quantitative easing the world has ever seen.  This feature is about supply, demand and pricing. If you look at Bitcoin’s price history there’s a strong and repetitive correlation between the Bitcoin price and these Bitcoin halvening events. The governance is set in code so that supply goes down, and if demand goes up then so does price. In a period of inflationary monetary policy, Bitcoins deflationary design has driven new demand for the coin.

What are ‘satoshis’?

It doesn’t sound like much when you think of the $USD9 trillion that rolled off the printing press in 2020 alone, but one Bitcoin can be broken down into 100,000,000 ‘satoshis’ (like cents or pennies) and this is how Bitcoin is traded – in satoshis. So there is plenty of scope to denominate and scale, but new supply of Bitcoin will halve every 4 years until it runs out completely in the year 2140.

Other cryptocurrencies that are like Bitcoin are built around these same principles as well.

Is investing in Bitcoin worth it?

With all this tech mumbo jumbo I bet you’re asking – Why should I care about any of this?  Here are seven powerful reasons Bitcoin should be on your radar if you’re a financial freedom seeker:

  1. Inflation or even hyperinflation. Money printing is killing our purchasing power peeps!  The cost of food, housing and other essentials is going up and will become more unaffordable as wages stagnate (as these tend to be more fixed or static). Bitcoin has a deflationary and controlled money supply and is in growing demand as a hedge strategy. 
  2. Listed companies have begun to add Bitcoin to their balance sheets. Most famously Tesla. Some are taking advantage of cheap debt rates or stimulus money to buy Bitcoin.
  3. Mainstream adoption is happening. Bitcoin and crypto’s use as a means of exchange in a more digitally-oriented global economy is growing. Paypal just launched a crypto check-out service for all of its 29 million merchants, coming in the next few months.
  4. Institutional money has begun to ‘follow the crowd’. Goldman Sachs and Morgan Stanley have both entered the crypto space. Canada has approved the world’s first Bitcoin Exchange Traded Fund. Van Eck and Grayscale are both looking to launch in the US. ETFs could bring ‘old money’ into crypto and light a fire under demand for larger coins such as Bitcoin, Ethereum and Litecoin. We’ll explain the crypto market and how money moves between Bitcoin and large and small cap ‘altcoins’ in an upcoming post.
  5. Trust and legitimacy are growing as more recognised brands and institutions buy in, leading to a ‘FOMO’ effect on demand. Trust matters in the money system. After all, isn’t fiat currency just our trust in a government IOU?
  6. The Bitcoin price has 20x-ed in 12 months. Without doubt it’s among the best performing assets of 2020 and so far in 2021. Will this continue? If I had a crystal ball I probably wouldn’t be posting on the internet about it…
  7. It’s still early. In terms of adoption and distribution that is. Retail money has not yet entered the market. Less than 2% of the global population is thought to own Bitcoin which means there’s stacks of growth potential.

These are notable changes in the cryptocurrency world, but be warned: it’s not for the feint hearted. The space is largely unregulated and this goes in keeping with the ethos of decentralised money and individuals controlling their own finances rather than banks controlling them for us. Just like any investment it’s important to know the risks before you dip your toe in the water (if you do) so keep an eye out for our upcoming post about the risks of investing in cryptocurrency.

The final word

None of this is financial advice peeps! Investing in cryptocurrency is like the wild west. The whole point here is to broaden your horizons, get educated about opportunities. But the great thing about financial independence is you get to make your choices yourself. Huzzah to that!

Until next post – be happy, have fun, do good!
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