How I'm investing in cryptocurrencies like Bitcoin, Ether and Monero
Since Bitcoin hit $4,000 everyone seems to be talking about getting in before they miss out. The sad truth is that in terms of short-term growth, you’ve already missed the biggest gains BTC will have for a while (and perhaps forever). But you can still make money long-term by investing in cryptocurrencies as if they were any other asset class. Here’s what I’m doing in case you’d like to follow my lead. Please feel free to leave comments or ask questions and I’ll provide links and other resources.
Before you listen to anything I have to say on this topic please bear in mind that at one point I purchased about $15,000 worth of Bitcoin for between $220 and $290. I sold ALL (yes, fuck me, ALL) of that position to start Ruck Science. Which brings me to my first lesson.
- If you are not LOOOOONNNNNNG on cryptocurrencies, you probably shouldn’t bother getting into them at all. Unless you immerse yourself in learning about network capacity, ICOs and mining yields, it’s really tough to anticipate short-term fluctuations.
- Don’t invest more than you can afford to lose. Don’t sell your 401K or IRA to try this out. And don’t use a credit card to buy cryptocurrencies.
- Don’t watch the charts. If you can’t stop yourself looking at your unrealized gains on a daily basis, you’ll likely drive yourself crazy and make a bad, emotional decision that will destroy all your gains.
BACKGROUND ON CRYPTOCURRENCY
The easy way to think about cryptocurrencies is that they are a store of value. Value exists in anything that is scarce, sought after or functional. Gold for example is all three. And so are cryptocurrencies like Bitcoin and Ether. But unlike gold which is naturally scarce and has limited functionality, crypto coins are designed for scarcity and can be used in millions of ways.
The basis for all cryptocurrencies is a simple yet revolutionary piece of technology called blockchain. And this is usually where people tune the fuck out. But don't, I'll make this really easy. I hope.
- Imagine you're holding a $1 bill
- You are holding a recognized store of value
- Now imagine that the bill has a story
- This story includes the names of every person who has held the bill
- The times the bill was exchanged
- Where the transacting parties were standing
- What the bill was exchanged for
- How the bill was broken up into smaller bills
- And so on and so on...
That's the blockchain. It's basically a digital record of every transaction between blockchain addresses with a whoooooole bunch of other attached information. Those transactions are stored and remembered by a network of computers that all keep a record of these transactions. More on this in Mining.
Addresses are mostly people, but people can own multiple or even thousands of blockchain addresses. So while a transaction on the blockchain is probably between two individuals, it is technically between two addresses. And this is where the misleading idea of anonymity comes from when people use Bitcoin.
While many people think they're operating anonymously on the blockchain, there is almost certainly a record of them (the person) interacting with a blockchain address thereby destroying their anonymity. This might be a credit card transaction to buy bitcoins, or accessing a wifi network attached to your social security number or any number of other data points. The real deal is, nothing on the blockchain is anonymous unless you want to go to outrageous lengths to hide your identity. If you want to do that stuff, this blog isn't for you.
Crypto coins have value because they can be exchanged for goods and services. While some people still view them as a payment method to buy illegal shit (and they are) a huge number of online retailers, investment banks, federal reserves and governments are betting on crypto currency tech to power the next generation of digital commerce. Individual coins are stored in wallets. Or more specifically, they are stored on a network of computers.
The easiest way to store crypto currencies (if you’re not going to use Coinbase or something similar) is to store a copy in your “wallet” on your computer. I have 3 wallets on an old MacBook Air. These wallets can be obtained from:
- Bitcoin (BTC) - https://www.bitcoin.com/
- Ethereum (ETH) - https://ethereum.org/
- Monero (XMR) - https://getmonero.org/
However - for MAXIMUM security, you should consider cold storage as it’s the only way to store coins that is un-hackable. Losable, yes, but unhackable for sure.
Forget what mining is for a second and just know these couple things about it.
- When allocated correctly, it can allow you to obtain crypto tokens for MUCH less than the cost of buying them.
- The “yield” from mining is constantly declining. Which makes it potentially useful in the short-term. But there is a clear end in sight.
- The is no point trying to mine yourself. It’s a fucking nightmare and not worth the time or effort compared to renting cloud mining space from big companies.
If you must know more about mining read this lil primer.
BENEFITS OF MINING
I use mining to obtain cryptotokens for less than the market value. In particular, I do this with Ether and Monero. Mining of both these tokens is available through my choice of cloud mining service, Genesis Mining. Using this service, I’m able to mine an Ether coin for about $40 / coin. The current market value is about $325. So the #1 benefit of mining smaller cryptocurrencies is the lower cost / coin. You can get them for wayyyy less money.
NEGATIVES OF MINING
By renting cloud mining space from a company like Genesis Mining, you’re not actually buying cryptocurrency. You’re entering into mining contract to have them mine the coins for you. So if you want to sell them? Too bad, you don’t have them yet. This means it’s not liquid. The average Ether mining contract is 2 years. So you’re stuck with your investment for that period of time. However, at current mining costs and market value of Ether, you’ll earn back your money in about 5 months. Which means you then have 19 months of all-profit mining.
Personally, this is a positive thing for me. I know myself to make emotional investment decisions without looking at long-term trends. So being locked into a 2 year contract is actually quite liberating and means I don’t check the daily movement of Ether or Monero.
The yield (the number of coins you can get) from mining is constantly declining. The more people mine, the fewer coins each miner gets. So by advocating for using mining, I’m literally reducing the amount of Ether, Monero, Bitcoin that I will earn. If the price of cryptocurrencies stays where it is, mining will stop being profitable within 2 years. But if the price increases, well then…
HOW I’M MINING
I have tried creating my own air-cooled rigs, using old laptops, even building cloud rigs on Amazon Web Services (AWS) but none of them are worth the time or the effort. I’m now outsourcing all my mining efforts. If you value your time, I suggest you do the same.
Here’s my process:
- Every month I rent additional mining capacity (or “buy hash power”) with Genesis Mining
- Here is the link for Genesis Mining
- This code gives you 3% off your purchase and I get a small hash power bonus
- I allocate about 5% of my income to new mining contracts each month
- I split the mining allocation 50% Ether and 50% Monero
- If either of these currencies tanks, I’ll sell my position and switch to mining a different currency
Be sure to diversify your cryptocurrency payouts and hashpower. Having 100% of anything in the crypto-space is very risky, but especially with mining.
Buying cryptocurrency is easier than you think. You don’t even need to fly to New York.
BENEFITS OF BUYING
You have the coins immediately. Or close to immediately. Which means you can sell, trade or spend them as you see fit. This means that all your positions are basically liquid so I you need to sell you can. You’re also investing in the coin themselves so you don’t have to do any calculations involving mining and yields. For that reason, this should definitely be a part of your crypto strategy.
NEGATIVES OF BUYING
You’re buying at market value. So you’re not going to see gains straight away. With Mining Ether for example, I’m earning a coin for $40 that is worth $300 or more. So you’re instantly making a huge windfall. By buying, you’re not going to see any of this, which means you’re more affected both financially and emotionally as the price of each coin drops. For example, if you buy an ETH at $300 and the price drop to $200 (as it did last month) you’re in a panic because you just lost a third of your money. If however, you’re mining, you haven’t lost anything. You’ve made slightly less profit from your mining, but you’re still in the black by more than 400%.
HOW I’M BUYING
In the past, I used services like coinbase.com and circle.com. Circle has been acquired by coinbase and they now support a whole range of crypto currencies through their trading platform. If you’re in the US, this is the easiest and safest way to buy crypto currencies.
To buy the smaller currencies, Kraken is a really great marketplace. They have an awesome customer service team who are super helpful. Personally though, I suggest using two Australian services above all others.
1. I buy all my BTC using an Australian service called Coinjar.com because they have a great user interface, they’ll store money for you in offset accounts and they offer you a bitcoin debit card which lets you spend your coins on a day to day basis. I like to spend the profits of my mining sometimes so this is great for me.
2. If you're looking to buy multiple cryptocurrencies in Australia, I recommend using Coin Spot. Use coupon code FBVEU for a special discount. Their user experience is pretty good too and they have a lot of different currencies available. I like Augur for its interesting prediction model. But diversification is the key to crypto!!
HOW MUCH DO I BUY?
I spend about 5% to 10% of my income each month on Cryptocurrencies or Mining. That’s about 75% of my savings and retirement investments. That’s probably a LOT more than most people should invest. But I feel like I know the space pretty well and I have stops in place that prevent me from holding any particular asset as it declines. I’m also diversified across 4-5 different coins and I’ve also started buying in to a few different ICOs that I really believe in. Message me for particulars about this if you like.
I would suggest that you spend at most 5% of your monthly income on cryptocurrencies using the following breakdown:
- 3% Mining (1% BTC, 1% ETH, 1% XMR)
- 2% Buying (1% BTC, 1% ETH)
If you found this post useful please let me know in the comments. If enough people think it was a good idea I’ll be happy to do regular updates. And do please use my Genesis Mining code ThKlsf and Coin Spot code FBVEU if you decide to use these services. Thanks and good luck!