So, you survived your first dip. Now what?
1st March 2021 |
Do you feel that?
That sense of sanguinity? The kind of feeling you get after it’s smashed down with rain and hail in a thunderstorm only for it to all end and the sun to beam on through.
That’s what today feels like.
That’s what riding through a 30% crypto dip feels like.
The good news is, we’ve seen plenty of these before. The bad news is it means some heart stopping moments of panic while it happens. The good news is nothing has fundamentally changed in the crypto space. The bad news is it will probably happen again as we march though this current mega cycle.
So, get used to it. But always have some perspective.
For example bitcoin is only down 22% from its all-time high of $58,640 set just eight days ago. That’s less than Tesla Inc. has fallen (down 25%) from it’s all time high a bit over a month ago. Ethereum is down a bit more at 30% from its all-time high, but again, it’s not something that’s all that unexpected.
If you’re new to crypto, and you’re testing the waters, this can make for some wild & woolly viewing. It’s also a reminder to the kind of stomach for risk you need when it comes to this new kind of asset class.
With all that said I think it’s also timely to remind you of the basic steps you need to get your head around when it comes to crypto.
These are important because volatile moves can also be prime time for accumulation and buying the dip.
But if you’re not comfortable or familiar with the basics it can seem daunting, overwhelming and may put an insurmountable barrier between you and this exciting world of crypto.
Where?
The first thing (I get a lot of emails about this) is where do you get crypto from?
Now, if you’ve read my guide, “How to spot and avoid crypto scams,” then you’ll know that there are a lot of ‘platforms’ and ‘trading systems’ that say they’ll do it all for you.
Not the case.
You should be doing this yourself and learning how to do it properly. That means going to a reputable exchange to get your crypto. However there’s so many to choose from, where do you start?
Well here’s a few to get started with.
Coinbase, Gemini, BitPanda, Binance.
Those are four that I use and very rarely have any issues with. They also (between them) cover a massive selection of crypto to choose from, more than enough to build a solid crypto portfolio.
How much and how many?
The other thing that is regularly asked, but I can never answer (so stop asking please) is how much should you put into a specific crypto or how many should you buy.
Everyone has different thresholds. To one person £500 will be a lot of money a huge amount. To someone else it won’t be as huge. To them £5,000 will be a huge sum. And to someone else, £5,000 might be play money and £50,000 is a huge amount.
The point is that everyone has different risk tolerance, different amounts to use, different amounts to risk. It’s based on what you can stomach in terms of volatility (as we’ve seen in the last week) and what your short, medium and long term goals are.
You absolutely should have a plan when it comes to crypto, as all investments.
You might be looking to get in, build up enough to pay for a car or house deposit or even a whole house and then get out. That’s fine if that’s your goal.
If you’re looking long term to build generational wealth, again that’s fine if that’s your goal.
Maybe you’re more like me and looking to build wealth within crypto and never sell it back out to fiat money. Again, that’s fine but it needs to be your goal. You need to sit down, think about it, map it out and work towards it.
That will also tell you how much you’re prepared to risk if it doesn’t go to plan and still be ok that you were in for the potential reward. This is the same approach you should also take to mid and small cap stock investing too. There’s a fair bit of crossover when looking at plans, goals and risks.
Key things to remember
Crypto investing requires a lot of self-responsibility. That’s part of why I believe it’s such a fantastic area of new finance, because the power and control over your wealth starts and ends with one person, you.
That’s a dramatic shift from the traditional financial system.
But with that comes a large degree of responsibility.
For example, if you sell a crypto that’s a taxable event for capital gains purposes. Also trading or swapping from one to another triggers a taxable event. Hence you need to be fully aware and responsible for your taxation obligations taking into account all the allowances and quirks of the tax system.
We’re not tax professionals, while we know the system, we can’t give tax advice. You need to make sure if you’re not sure about doing it yourself that you get proper professional tax advice regarding your crypto investments to stay tax compliant.
If your accountant isn’t sure or doesn’t know, find one who does.
Also when it comes to safe keeping and storing your crypto it’s all on you. There is no financial ombudsman, there is no government guarantee. You lose them, you send them where you shouldn’t, they’re stolen from you, it’s unfortunate but it’s bad luck.
In my view and the way I see this space maturing, I believe those kinds of consumer protections will come in the following years. We will come to see a far more regulated and monitored space, both from within the crypto community and externally.
But for now, it doesn’t exist.
For me one of the best ways to store your crypto is via a hardware device. The two most popular and proven to be secure are Trezor and Ledger. Now, nothing is 100% fool proof. There’s user error that can still lead to devices being accessed, but practice smart online protection and most of the time you’ll be ok.
Also if you’re storing crypto on these devices and you don’t need short term access to them, then you should consider something like keeping them in a secure offsite location such as a safety deposit box facility.
Last but not least
You also need to remember that the crypto ecosystem right now is still in its very early stages. The bulk of the developments in this world have really only come around in the last five years.
That’s phenomenal to have seen this great an explosion of innovation and development in such a short period of time. The next five years I believe will be equally as extraordinary and it’s why I get so excited about it all.
Over the last decade I’ve seen so much happen, and the acceleration of it in the last five is truly breathtaking. That’s why I think you should be so excited about getting in at this point before I believe we’ve even really come close to that hockey-stick inflection point where things really take off.
But you also need to remember this is still a very exciting and very risky experiment. A lot of the development and innovation are game-changing ideas that may change the fabric of our society, and also may utterly fail.
We’re testing and trying and feeling our way forward as to what can be achieved. That means the risk here is very high, but the payoff if it comes off I believe will be the biggest wealth creation event ever.
And I think it’s smart to have some exposure to the right side of that move. When you’re testing and trying and feeling your way personally, also take a similar approach.
Start small, test it out get comfortable and then start to build your positions and your confidence. This doesn’t have to be a sprint, but will be a long, fruitful journey if you play it the right way and take the right mindset to it all.
Crypto Chat with Chris
Also, last week I recorded a chat with Chris Lowe from Legacy Research in the US. Chris and I have known each other for a number of years. He’s an editor over in the US and he publishes a newsletter to subscribers over there.
We’ve spoken on several occasions and done a couple of interviews before on different topics. He asked me if I’d mind speaking with him about crypto following up from a similar chat we had a few years ago. He wanted to publish our chat to his subscribers over in the US.
I agreed. And I also made sure that I’d publish our chat with you. It’s a great discussion and really gives you my perspective of what’s been happening in crypto and what the future might hold.
You can find the video of my crypto chat with Chris here, and you can also find it under the ‘Media’ section of your Frontier Tech Investor log in.
Crypto Network, “Crypto to Know”
This is our growing section of crypto that you should come to learn and understand as part of the larger developments happening in the crypto space.
As part of your education and building up your knowledge base these crypto each form an important role in how the crypto ecosystem will build out in the future.
We’ve currently got five crypto on our ‘Crypto to Know’ watchlist.
- Bitcoin
- Ethereum
- Tezos
- Uniswap & 1inch
Now it’s time to add a sixth.
Filecoin (FIL).
When it comes to data and information most people don’t realise how much of a valuable commodity it has become.
Data and information is worth a lot. It’s worth so much that companies like Google and Facebook, have built companies worth 1.3 trillion and $733 billion off the back of it.
Those two companies combined are worth more than the entire circulating value of all cryptocurrency in existence.
The creation and value of data is one thing that’s very important and we’ll be looking at more in the coming months. But access to that data and information is also crucial.
When it comes to the access and control of that data, two companies reign supreme. It’s not Google or Facebook.
It’s Amazon and Microsoft. These are the two biggest cloud storage providers on earth. We say ‘cloud’ but we really mean data storage controllers.
Amazon through AWS controls around 47.8% of the public cloud services market. Microsoft through Azure (in second) controls around 15.5%. The rest of market is fragmented out with minor amounts.
These two effectively control 63.3% of the internet. And that’s how they stay so dominant and strong as part of the world’s ruling tech elite. They can dictate prices, access, the whole market.
Filecoin however is looking to change all that. Data and information always needs a place to live, but it doesn’t have to be at the mercy of two massive, centralised tech giants. A distributed, decentralised world-wide file storage network can exist and can be a better way of storing and accessing data.
It’s a massive idea. It’s got massive potential if it can pull off the vision it has for global decentralised data storage. It’s still very early stage, but it’s growing at a fast rate and it has the potential to dethrone the likes of AWS and Microsoft Azure. It already has more than 1 exbibyte (EiB) of storage capacity on its network.
You should take the time to explore the information that Filecoin has explaining how they plan to achieve this through a great introductory video on their website here.
Their blog also has great content to help you understand their progress. And probably the most important resource is their Filecoin docs section that has everything from getting started to building on the Filecoin network.
Filecoin, our newest addition to our “Crypto to Know” list of potentially game-changing crypto projects.
Regards,
Sam Volkering
Editor, Sam Volkering’s Crypto Network
