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Bitcoin’s price is soaring and market cap is above all time high levels, alt season is beginning to take shape, and the retail FOMO cycle hasn’t even started. As more and more new investors are sucked into the market it is our job as crypto stewards to show them how to navigate the fragmented Cryptoverse. Unlike traditional investing a brokerage/exchange is NOT a one-stop-shop for crypto investors.
How do I get started investing in Bitcoin? Is a question that gets asked a lot so I’m going to answer it with some of the tools and tricks I use to manage my own digital asset investments.
The first thing to know is that investing in digital assets is easy, but requires care. As an emerging asset class the world is currently a fragmented state of exchanges, software, hardware, and snake oil. It’s important to do your own thorough research and trust the vendors you decide to ultimately use. Though there is a large upfront cost in terms of time (researching, setting up accounts etc.) once your system is in place it’s relatively easy to use.
So what are the basic buckets that need to be filled? To start you’ll need the following: storage (typically a wallet), exchange(s), a bank account, and research platform(s).
Storage — AKA Wallets
Part of the beauty of digital assets is that they are able to be directly controlled by the owner. While this does introduce risk, it ultimately allows you to bypass traditional financial gatekeepers (think stock brokerages and banks). Storage breaks down into two categories: Hard Wallets, and Soft Wallets
Hard wallets store your private keys offline in an external device. In more simple terms they store your coins off of your computer in something that looks like a flashdrive.
The absolute gold standard in hard wallets is Ledger. They have multiple different offerings and it’s important to pick the one that’s right for you, these wallets are used by retail and professional investors alike.
Hard wallets offer a very high degree of security.
Software wallets are applications that can be accessed via a web browser, installed on your desktop, or installed on your phone. Typically these wallets store your private keys behind a password or require your private key to be entered to access your coins.
There is a great breakdown here on several software wallets.
In general soft wallets are less secure than hardware wallets but the flip-side is that they offer a higher degree of speed, you are able to move coins in and out of them quickly.
Soft wallets offer a medium degree of security
Using Exchanges as Wallets
Most exchanges allow you to store crypto within them utilizing their own in-house wallets. While this is okay for short periods of time it is generally not advised due to the security risk of the exchange’s security being breached.
Some exchanges have robust security and insurance measures in place but that is certainly not standard across the industry and should not be counted on for security. It is best to avoid this method at all costs.
Using an exchange as a wallet offers a low degree of security (in most cases).
To buy and sell digital assets you’ll need a place to, well, buy and sell digital assets. These are called exchanges. In times past there were only a few trusted names to use but recently the number of reputable exchanges has exploded.
In 2020 exchanges really breakdown into 2 categories: US-Friendly and Non-US-Friendly. Due to an increase in global anti-money laundering compliance and know-your-customer compliance many exchanges have shuttered to non-US customers. If you are located in the US you’ll need to use a US-friendly exchange, if you’re located outside of the US you pretty much can use whatever you want.
“Due to an increase in global anti-money laundering compliance and know-your-customer compliance many exchanges have shuttered to non-US customers”
Gemini — Good UI, acceptable fee structure, great security/insurance protocols, few coins supported
Bittrex — Trading oriented UI, acceptable fee structure, 100s of coins supported
Coinbase — Good UI, 27 coins supported, high fees, questionable security policies (has indicated they will grant back-door access to the federal government)
Binance — Trading oriented UI, fees can be high or low depending on the asset, basically every coin supported
Huobi Global — Trading oriented UI, basically every coin supported
Kraken — Trading oriented UI, basically every coin supported, leverage supported, US users also supported
A big piece of investing is research, in order to figure out what to buy/sell you’ll need to wade through a variety of data sources to not only source ideas but also confirm or reject their viability as investments.
In the traditional finance world research is mostly centralized. Through your brokerage or something like a Bloomberg terminal you can access pretty much all of the data you could ever need. Unfortunately in the crypto word it’s not that easy. I’ve listed multiple sources below which I use for market research:
TradingView — live views at price action, useful for technical analysis (TA)
Live Coin Watch — broad crypto market views, useful for macro-level views (i.e. volume) and scouting popular coins
Woobull.com — in-depth blockchain analysis data, I also highly recommend following Willy Woo on twitter
Medium — lots of great crypto content on Medium
Koyfin — Bloomberg-esque market research platform, useful for watching macro conditions in the traditional financial markets
Reddit & 4chan — take these sites with a grain of salt but they are extremely useful to monitor chatter around coins and gauge popularity. Some of my best investment ideas have come from these boards
Google Trends — crypto is still very susceptible to the new cycle effect, this is useful to gauge search engine interest
Investing in crypto is tough. The fragmented market creates a lot of work on the investors end but once your system is in place it becomes relatively easy to maintain. The silver lining to this difficulty is that it is reflected in the upside. Digital assets offer the potential for HUGE excess returns over your standard S&P 500 investment. Part of this premium is your reward for going through the legwork that others aren’t willing to do.
Pound your head against the wall enough in crypto and you likely will do very well.
Have a great week and I’ll talk to everyone on Thursday.
The Complete Case for $100k Bitcoin – What a year – a global pandemic, a wavering stock market, rising numbers of unemployed people and continued uncertainty in global markets. Yet, we saw the bitcoin price recover from $5,300 in March to almost $18,000 at time of writing. That’s almost a 240% return within nine months… (via CoinDesk)
Billionaire Salinas Has 10% of ‘Liquid Portfolio’ in Bitcoin – Bitcoin has one of its wealthiest backers yet. Ricardo Salinas Pliego, Mexico’s third-richest person, said in a Twitter post Tuesday he’s invested a chunk of his liquid assets in the world’s biggest cryptocurrency… (via Bloomberg)
Mnuchin decision cuts Fed lending power, but sources say emergency programs can be revived – Treasury Secretary Steve Mnuchin’s decision to allow several of the Fed’s emergency lending programs to expire on Dec. 31 will dramatically reduce the central bank’s ability to backstop the financial system… (via CNBC)
Portfolio Performance & Updates
If you read last week’s post you’ll notice some big changes in the portfolio to kick off this week. I’ll be doing a deep dive on why I made these changes later this week but to summarize my gold position was downsized in favor of a pro-rata boost across the digital assets segment. I’m also now targeting a ~5% allocation to cash and gold.
Nothing in this email is intended to serve as financial advice. Do your own research.
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