As a serious investor with quite large holds in the stock market (especially for a Belgian) I always told myself to stay away from Crypto. Every moment Bitcoin was getting higher I was also convinced it was getting higher to its breaking point. I saw it go down with 90% more then once and I was quite convinced that the day I invested in Crypto would be the same day that the bubble would burst.
Lasts months portfolio update you could see I was experimenting with Crypto, but I had yet to write a blog post to explain why I invested into Crypto. I do not want this to become a Crypto blog at all, but I do want to explain why I make certain decisions to invest into something and I will be writing occasionally about crypto related topics. As an IT guy the digital world they are building with Crypto is fascinating to watch to be honest.
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I still see Crypto crash actually but at this point I believe Crypto is following more the stock market. The stock market crashed before and will crash again. In the end I do believe it will always recover. In that perspective I also believe Bitcoin can recover after a crash.
Crypto has managed to put itself in the market as a global currency and is by now so intertwined in the global world that it will not be easy to get rid of it, as entire companies have been built on the crypto world.
What is Bitcoin
Bitcoin was created now about 10 years ago, and was meant as an alternative global currency. The ledger, also called the blockchain, is public so everyone can see the transactions someone is making. Well I say “someone” but they can actually see the addresses where money is stored.
You can’t actually see who the wallet belongs to and might be its biggest downside or its biggest advantage. Wallets are stored on the blockchain online, so you can never actually store Bitcoins on an USB stick. What you can store on a USB stick is the password (also known as keys) to your wallet that is stored on the blockchain.
By now you can also pay with Bitcoin on various places, although generally its only convenient to pay large amounts with Bitcoin because there is hefty transaction fee to transfer coins.
The reason for transaction costs is because the Blockchain is monitored by physical miners, meaning actual graphic cards that are “mining” the blockchain. They will do and confirm your transaction but in return they will charge a transaction fee. Since its quite large (10-20 EUR), Bitcoin cannot really be used as a means for payment, unless its something expensive. Its more used to hold on to as a counterweight against fiat currencies like some people hold on to gold.
Before you decide to invest its important I tell you about some of the risks that are involved in investing. Investing always contains Risks, but investing in Crypto assets is much more risky then the stock market or real estate.
Storing Bitcoin anonymously on the blockchain guarantees privacy, its simply not possible to see who a wallet belongs to. But this also makes people who they know own Bitcoin a really nice target for hackers. If I would post the email address I am using for exchanges this email address would become a prime target of hackers. If someone manages to get the private key of your wallet they can transfer all the coins to their own wallet.
Right now its not possible at all to identify who a wallet belongs to. You can track where your stolen crypto are going but that’s about it. Until they go to a wallet where you know someone is the owner from you won’t know where your Bitcoins are or who has them.
This makes PCs that have private keys stored, or exchanges a prime target for hackers. The large exchanges like Coinbase and Kraken have never been hacked before. I also doubt they are keeping their private keys stored online anywhere. Most likely they are stored on USB sticks or even on paper.
I myself purchased a Nano S. Ledger to store my Bitcoins on. I avoid storing anything on exchanges. Storing it on paper would not have been for me, storing it on an exchange is unsafe if you or the exchange get hacked. If you decide to invest into Bitcoin you absolutely should purchase such a wallet.
Without access to the private key the wallet in itself cannot be hacked. With the current technology this is not possible. I do say current technology because if quantum computers ever become reality almost anything digital is suddenly at risk, including Bitcoin.
What turned me away often in the past is the volatility. Especially the early days (2014) we saw bitcoin sometimes go to 1000 and then drop 80% in less then a month.
While crypto is still much much more volatile then the stock market and especially then my rather conservative ETF strategy, it is already far more stable then it was a few years ago.
I am specifically saying Bitcoin because the Altcoins are still very much volatile. Especially as a beginning investor I would stay away from the altcoins. You see them sometimes rise 100% in a day, but can drop 99% the next day. This is called a “pump and dump”. Never invest in something you are not prepared to hold on to long term.
Risk of losing your keys
Another risk you need to consider is that you could lose the keys to your wallet. If stored on an USB they could become lost in a fire for example. You could spill a liquid over your USB. You could forget your password.
All these things you need to consider before investing into Bitcoin. This is exactly the reason why you shouldn’t be holding large amounts of money in crypto.
Risk that countries ban Bitcoin
Bitcoin is actually banned in China, and also India is currently considering a ban. Governments enjoy to have the monopoly over currency’s and this is why gold was actually banned before in the US as a means for payment.
The ban in China hasn’t led to less Crypto being used there, infact Bitcoin is still being mined massively in China.
I also don’t see this happening in Europe or US. Firstly Bitcoin is actually taxed in the US by capital gains tax. The same actually goes for the UK, who is not only taxing Bitcoin but is also considering to tax income from “staking”. I’m not going to go into staking right now, but in short its a way for you to earn up to 12% interest per year on certain cryptocurrencies. The UK is planning to tax this 12%. Why would they ban something they earn taxes on? Why would they ban something that whole companies have been and are being built around?
I don’t see this happening in the developed world right now and even less so the more crypto becomes mainstream.
While China banned Bitcoin they do believe in the technology. They have actually started working on their own digital currency since 2014 and since this year Chinese can actually request the government for a digital wallet.
Why I decided to invest into Bitcoin
Honestly for me the turning point was the day Elon Musk / Tesla invested into Bitcoin. For Bitcoin to be successful institutional investors had to step in. By investing 8% of Teslas cash holds into Bitcoin he might have changed the game altogether.
Institutional investors will make the coin more stable, additionally if more institutions follow it could mean that the Bitcoin price even goes up much further then it is today.
So this was the turning point for me, but also in general that the technology is more matured, its more user friendly to both store Bitcoin and to purchase Bitcoin then it was 5 years ago.
Its more accessible then ever right now.
How am I investing into Bitcoin?
Right now I am using two exchanges that have been around for quite long and thus are considered safer to trade on by me. Again I avoid storing Bitcoin on these exchanges, I transfer them right away to my physical wallet.
Kraken was one of the first exchanges, its been around for ages and has never been hacked.
It also stores the large majority of its crypto wallets offline.
What I like about Kraken is that they have most of the altcoins apart from Bitcoin. I did spend a brief time experimenting with altcoins, although my strategy (further down in my post), is mainly focused on Bitcoin.
Another positive point for Kraken is that their fees are much lower then other large exchanges.
Kraken also has the option to lock an account. A locked account can be unlocked but there is a cooldown time of days or even weeks, depending of you set it. It can be unlocked with a Yubikey however, more on that bellow.
My long term strategy
I considered to actively watch the crypto market to look out for interesting altcoins hitting the market. In my previous portfolio blog you could also see that I had invested some money into an altcoin. I noticed quite fast that altcoins turned out to be far more volatile then Bitcoin.
Bitcoin is the number one currency that holds the biggest market share. Everyone knows Bitcoin, you can pay with Bitcoin on more places, its less volatile, and all the altcoins are basically looking at Bitcoin. If Bitcoin drops altcoins will drop more. If Bitcoin rises altcoins will follow.
Additionally its supply is limited so that means that generally its price will go up in value, at least compared to EUR & USD. Another way to look at it could be that USD & EUR are dropping in value and quite rapidly last year.
But gains in the past give no guarantee for gains in the future of course.
Because Bitcoin is still very volatile you need to realize that most likely you will see your portfolio in red quite often, especially the first weeks / months after your purchase.
I will be using a similar strategy as I am using on my ETF portfolio. Its called Dollar Cost Averaging, meaning you invest every month a certain amount. This way you don’t need to worry to much when the market crashes and you don’t need to spend any time to try to time the market either (something I am really bad at).
I set up an automatic transfer of 500 EUR / 3 months right now. This way I don’t need to worry about it to much, and buying in bulk will bring transaction costs down. That’s about 3-4% of the money I save every 3 months, so that is the amount I aim for in my portfolio.
As mentioned before one tool I am using is the Ledger live. Your keys are stored on a USB stick, but you can still view your Bitcoin from the application itself.
The application that comes with it is Ledger live. It allows you to view what is in your wallet without actually exposing your keys. So you can even store your Ledger in a bank safe somewhere and you can still look at the cryptos you have on your Ledger.
The second tool I got is a Yubikey. Its a hard key that you can use for two factor authentication. Its an actual physical key that you can use, next to your password, to access exchanges. In my case I use it to access Kraken. It makes sure I feel more at ease when using an exchange, and like this even if they manage to hack the email I use for Exchanges and change my password they still are not able to transfer my crypto.
Should you invest in Crypto?
I really can’t answer this for you. Everyone will need to decide by himself if this is worth the Risk. You need to do your own due diligence and find out if this is a viable long term investment for you.
Like in any investment the value can drop to 0, so never invest more then you can afford to lose.
Do you have Crypto? Let me know in the comments bellow if you own any crypto, what crypto and what your strategy is, or if you don’t let me know why not.
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