An Absolute Beginner’s Guide to Cryptoassets
Disclaimer: I want to note that I am not a financial advisor and the content in this article does not constitute financial advice. You should always DYOR (do your own research) and invest at your own risk. Do not invest any amount of money that you aren’t comfortable with losing, this will be beneficial for both your sanity, sleep as well as your ability to make better trading and investment decisions not based off strong emotions.
I also want to point out that I am not an expert. I’m still learning like many others who recently jumped down the crypto rabbit hole, but I wanted to share some advice which I learned through trial and error, things I wish I had known when I started investing a couple of months ago.
This article does not go over the value of bitcoin, other cryptoassets and blockchain technology and what they are. There are countless other articles and videos out there that will go over this in much better clarity and expertise than I ever could.
Purchasing bitcoin
One of the first questions people have when they first hear about bitcoin or ethereum is “Where the hell do I buy bitcoin anyway?”. There are several places where people can purchase bitcoin, however the most common gateway into the magical world of cryptocurrencies is Coinbase. This is the easiest way to convert fiat (USD/CNY/GBP/YEN, etc.) into BTC (bitcoin).
Amateur tip: Once you become more comfortable with purchasing bitcoin, I would recommend using GDAX, which is slightly more advanced. It is owned by Coinbase, however the fees are much lower.
Purchasing Ethereum, Litecoin and other Altcoins
Once you’ve bought some bitcoin, you may be thinking to yourself: “cool… so what’s next?”. You may have discovered the world of altcoins (alternative coins, other than BTC) by this point. If you used Coinbase for your first purchase you would’ve noticed altcoins such as ETH (Ethereum), LTC (Litecoin) and BCH (Bitcoin Cash) that are also available for purchase. But what about those other exciting projects like Monero, Neo or Ripple that you’ve heard from the news or on some dark corner of the interwebs? To purchase these altcoins, you need to register for an account on an exchange such as Bittrex (currently not allowing registrations) or Binance. You cannot purchase these cryptoassets directly using fiat, but you can using BTC, ETH or LTC.
Note: The markets for ETH and LTC may not always have trading pairs with the cryptoasset you want.
Don’t panic, the importance of HODLING (if you believe in the coin)
HODL is just HOLD misspelt, however there are some who claim it stands for Hold On for Dear Life. Another lesson I’ve learned the hard way is the importance of patience and HODLing. I made the costly mistake of selling some coins way too early. This led to huge opportunity costs in which I could’ve earned 8x-20x returns if I held for a few more weeks instead of allowing short term market fluctuations dictate my actions. HODLing is also helpful when the markets are extra volatile. It is essential to understand that the cryptocurrency market is still in its infancy and is subject to extremely volatile swings (in both directions) and it is important to not panic sell when you see the price of something you invest in drop suddenly, hence the importance of investing only what you’re comfortable with losing. Bitcoin recently dropped all the way from around $19,000 to about $6,000 in a little under two months. If you had sold at $6,000, you would have been kicking yourself two weeks later as the price of Bitcoin recovered, almost doubling and has hovered around $10k levels. It is paramount to do your research when you invest in something you plan to HODL so you have real conviction in the project you are investing in because you believe in its long term sustainability and vision.
Amateur tip: Set stop losses. If your asset has gone up in value, set it at a level where you would like to take profit or just at your entry price or if you just purchased the asset, set it slightly below your entry price (choose a % based on your conviction in the asset).
Also try not to look at your Delta/Blockfolio too often.
The Importance of Taking Profits
You’ve bought a coin and now it has gone up 2X, 5X, 10X, 50X???!??! When should you take profits? Depending on your risk tolerance, a good rule of thumb is to take your initial investment when your asset has doubled in value and allow the rest ride. While this may result in opportunity costs if the value of the asset continues to pump, you can move your profits into other assets you may be interested in. The main purpose is to eliminate all risk in your investment, you will essentially be “playing with house money”. There are people who argue that if you are a true HODLer you should never sell, and that is fine if that suits you. However, it is important to understand that the price of cryptoassets is determined by day traders and that trees don’t grow to the sky. Whenever there is a huge run up, it is almost always followed by a selloff where people take profits. The new floor after the selloff will still likely be higher than your initial entry price, but will be lower than the price you sold at if done properly. You can take advantage of this by selling when the asset has appreciated considerably or try to pinpoint the top (much easier said than done) and buying back in if the price drops below the price you sold it at.
Amateur tip: If your asset has doubled or tripled or more within 24 hours, I would highly recommend taking your initial investment and some profits off the table as these types of pumps are usually followed by a very violent selloff.
Security (hardware wallets)
Once you are able to figure out how to purchase altcoins on different exchanges and you’ve made a bit of money, you may begin to wonder: “ how can I ensure that these assets are secure?”. This is where we begin to get into the spirit of cryptocurrencies: total ownership and control of your money. No more relying on the custodianship of exchanges or worrying about an exchange being hacked or hammered by strict regulation. When I first bought my hardware wallet and sent bitcoin to it and saw it appear, I felt an incredible sense of control and ownership. Two of the most highly sought out hardware wallets are the Trezor and the Ledger Nano S. Both have some advantages over the other so DYOR and decide which one is more suitable for you.
Note: When you set up your hardware wallet you are asked to fill out a sheet containing your recovery seed (in the event of your wallet getting stolen, breaking or some other unforeseen circumstance). Make sure you DO NOT keep this information on any digital device. The security of hardware wallets comes from the fact that access to your wallet requires some physical hardware and vital information is not stored digitally (vulnerable to hacks) and is much harder to obtain.
Focusing too much on the coin price
This is one mistake I notice almost all beginners making when they enter the crypto space. It goes something like this: “Oh look at the price of coin x. It’s only $0.0001, if it goes to the price of Bitcoin I’m going to be rich!”. The problem with this logic is that beginners usually aren’t taking into account the total circulating supply or the total supply. For example, there are about 39 billion XRP (Ripple) in the circulating supply and the current price (as of February 24th 2018) is near $1, which makes its market cap $39 billion ($1 * 39 billion XRP). If we assume Ripple will achieve the same price of bitcoin ($10k for simplicity sake), Ripple’s market cap would be $10k * 39 billion = $390 trillion. You can see how this is extremely unrealistic given that the total amount of liquid money in the world is around $60 trillion and the combined wealth (in assets) of everyone in the world is around $215 trillion.
Understanding market cycles/patterns
It is very important to look at historical trends and patterns, what has happened in the past during certain months and seasons. While history does not always repeat itself it is still helpful to look back in case it does. It is also important to understand the movement of BTC and how this impacts the price of alts when it moves up or down too fast. When BTC is moving up or down very quickly this usually causes alts to take a hit — we can speculate many possibilities for why this occurs. A few things which make sense to me: people want to jump onto the Bitcoin train to increase their gains when it’s going up and people also want to jump onto it when it’s going down to get cheap Bitcoin as well as some noobs panic selling. There’s also the matter of alts not being able to keep up with BTC which causes them to decrease in value in comparison to BTC (more on that in a bit).
Don’t buy the top
This one is simple and somewhat has to do with FOMO (fear of missing out), when a coin breaks its ATH (all time high), it is important to consider whether buying into the coin is a good idea. Since, the price of coins are determined by day traders it is likely that they will take profits once a coin hits an ATH causing a drop in price. You have to consider whether it is worth it, sure the coin might double, triple or even increase tenfold after it hits its ATH, but you have to consider the downside risk and the fact that there will be a dip from the ATH where you can scoop the coin up for cheaper. So unless you are a TA (technical analysis) master who is confident in their ability to recognize certain patterns and can confirm that a coin has more room for growth, I would not suggest buying at ATHs.
Understanding gains in Satoshis vs. USD
One factor that beginners don’t usually consider is looking at their gains from a BTC/Sats vs. USD/Fiat. A Satoshi is the smallest unit of bitcoin, it is a one hundredth million of a bitcoin. If you are investing in altcoins and aren’t able to outperform bitcoin, I would suggest you just leave your money in bitcoin. The whole purpose of alts is to be able to realize more gains quicker than bitcoin. Otherwise it just makes more sense to simply place your money in bitcoin.
The media — when they say buy, sell; when they say sell, buy
It’s important to follow the news cycle and what they’re saying about cryptocurrencies in general to get a tone of the markets and understanding how this news may impact your assets. For example, we were hit with a ton of FUD (fear, uncertainty and doubt) this year and it contributed to the BTC free fall. However, understand that if you listen to the advice given by the talking heads, you will at best have results like the millions of others who are also following the advice of the talking heads.
If you’ve reading this and haven’t begun or just began investing in crypto, congrats! You are in a better position than I was when I started. There are a bunch of other resources and things not discussed in this article such as taxation on cryptocurrencies, whales and market manipulation, pump and dump schemes and so much more. I’ve included some helpful resources as well as some articles to read to continue learning. Remember to continue to learn, because while making money is great, learning to find promising and valuable projects is a very good skill to have and will pay off in the long run. Following off of this, my last piece of advice would be to focus more on finding undervalued projects/projects that will be valuable instead of projects that will make you money because if you can do the former well, the latter will follow. Blockchain technology is not going anywhere, it will be disruptive and will be immersed in our everyday lives in the next 5–15 years. Be grateful that you were able to be part of technological history.
Disclaimer: The link to Coinbase and Binance are referral links of mine, help me out (and yourself for the Coinbase one at least) a little for free.
Helpful resources/articles:
https://www.coinmarketcap.com — Cryptocurrency Market Capitalization
https://www.coindesk.com — Cryptocurrency News
https://www.ccn.com — Another news source
https://cryptopanic.com/ — Aggregated news sources
https://np.reddit.com/r/Particl/comments/7f28ja/the_intelligent_investors_guide_to_cryptocurrency/
https://hackernoon.com/0-to-pro-crypto-trader-your-ultimate-guide-to-bitcoin-and-altcoin-investing-e3d7b3840125
