Cryptocurrencies: How to Invest?
by Ivano Celia, on Sep 10, 2019 2:50:00 PM
Part 1: Investing Directly in Cryptocurrencies with Your Own Wallet
In this article series, I will outline the important aspects for investments in Cryptocurrencies to reveal the opportunities for investors. From an investor's point of view, there are clear advantages and disadvantages of different investment opportunities in Crypto. What opportunities do investors have if they want to invest in cryptocurrencies? There are at least 3 ways to invest in Cryptos at the moment:
- DIRECT, with a Crypto Wallet
- INDIRECT, with a Crypto Basket
- INDIRECT, with a Crypto Tracker
What are the characteristics of these 3 investment opportunities and, above all, what are the advantages and disadvantages? In this article I will analyze the varieties of direct investment in Cryptocurrencies on Crypto exchanges and, as a consequence, your own wallet. I will mainly focus on important questions such as:
- Should you invest directly in Cryptocurrencies?
- What are the pros and cons of a direct investment?
- What are the alternatives?
- What are the advantages and disadvantages of Crypto Baskets and Tracker?
One thing I would like to say to readers who don't know me yet, I am safety-conscious and a money saver when it comes to my investments and trades. I am extremely conservative in my choice of bank and trading platform for my investment portfolio. One of my platform "must-haves", is a detailed and transparent description of fees and I refuse to pay custody fees for my securities. Unfortunately, this was not always important to me, but not for long.
I know it is best practice to diversify an investment portfolio, especially in terms of currencies, but I absolutely prefer the Swiss Franc. As for the Dollar, it is more of a necessary evil for me than my own free will. On top of that, my two favorite investment instruments are gold and silver.
I don't work with a domestic or foreign broker for my trades or portfolio management, but rather I exclusively use a trading platform from a Swiss private bank which, in my opinion, has the best conditions offered in Switzerland.
In regards to Crypto investments, it is not my intention with this article to compile all aspects completely and scientifically, but rather to point out the decision criteria and current available options for investors to help you make the right decisions for yourself. More about the private bank and trading platform I use →
DIRECTLY invest in Cryptocurrencies with your own wallet?
Investors who want to trade directly with Cryptocurrencies (buy and sell) or want to participate in Mining need a so-called wallet. (Author's note: Mining = digging, one calls the creation of Crypto-Coins, analog digging of precious metals or gemstones; recommended only for technically savvy and IT-interested people with access to specially equipped computers; more information about this can be found here).
A wallet is comparable to a conventional depository for trading and storing securities. So, if you want to invest directly in Cryptocurrencies, you first have to create a separate account for the management of a Cryptocurrency (wallet) in addition to your existing trading account which manages your existing investment portfolio. As a first step to create a Crypto Wallet, naturally you would look for providers on the Internet. But alas, there are countless such providers, which one should you choose? What are the advantages and disadvantages of such wallet providers/crypto exchanges? Which provider has the best prices? Are there even price differences? Oh, yes there are and the differences are striking! What are the varying conditions? Clearly there is a lot to consider...
I will stop here for now without going on asking questions; there would still be many more important questions at this point. What I really don't like as an investor, is the thought of having to have another separate account and tool solely for cryptocurrencies and then having to split (distribute) my assets manually. Instead, I would like to have a cockpit in which I have an overview of everything in one place and can thus efficiently and securely manage my assets. This is usually a depot, trading account or trading platform. Agreed, this is a matter of taste, but will probably apply to most readers of this article.
As an investor, I want to have a single cockpit in which I have an overview of all my investments and assets and can manage everything centrally. Do I want to get bogged down with various accounts on various tools? Certainly not.
I realize that such an attitude can certainly be classified as conservative and narrow-minded. It probably is, but at least in a consistent and clear way. I think the majority of the readers of this article would agree: Who wants to add yet another additional tool or App or registration? Probably nobody, right?
We already have far too much activity spread across different platforms in our lives, why add another if it's not necessary? This is probably at the core of what prevents many investors from directly opening their own wallet and investing in Cryptocurrencies. It's all just far too cumbersome and complicated. Most likely, this is also a contributing factor why there has not been a bigger breakthrough of Cryptocurrencies. The question still remains today unanswered whether or not Cryptocurrencies will even survive in the long term. It is simply too complicated for most people. In addition, conditions are still too opaque and incomprehensible for how to directly invest safely and consciously in Cryptocurrencies.
The majority of investors who are trading and storing Cryptocurrencies using their own Crypto wallet, is made up of younger generations or IT-savvy people. Some Crypto investors also includes people who have cut their ties to gold or silver. Therefore, with a few exceptions, the phenomenon of Cryptocurrencies is a question of generations. If you are looking for more in-depth information on the subject of wallet, here a corresponding article to the topic Crypto Wallet. Before jumping into an investment, it is important is to understand why it can be dangerous to own your own Crypto wallet and to have a clear strategy and tactic behind Crypto-Investments.
Trade Cryptocurrencies Without Cyber Security Risk
The greatest danger of having your own Crypto Wallet
My position at this point is already clear; at the moment I don't think much of direct investments in Cryptocurrencies using a wallet. I am neither a fan nor a supporter, but there are good reasons for my attitude. This is not difficult to understand, actually, it is quite simple. As an investor, security is one of the most important aspects for me. Here is a simple but very good thought game that every investor should consider before investing directly in Cryptocurrencies:
As an investor, do I have to worry about the security of my investments/effects, i.e. my portfolio? Do I have to be afraid that suddenly my entire portfolio on my account will disappear overnight? Certainly not. I don't know of any case in which securities accounts are emptied or individual securities are stolen from them. Now let's ask the same simple questions about Crypto Wallets. Do I have to be afraid that my Crypto Wallet will be emptied or that credit will disappear without a trace? Yes, absolutely!
You've heard of this before, haven't you? If not, here is a small sample of actual cases. It happens again and again, Crypto stocks are stolen from wallets or so-called "private keys" are lost. A private key can be compared to a PIN or TAN, the difference being that if you lose your private key, it cannot be restored. Yes, that's right! Either you can be robbed or simply lose your own private key and thus forever lose access to your own wallet and everything that is in it. Beautiful new world, isn't it? The thought for this to happen, as an investor: Unimaginable!
Of course, at the end of the day you can destroy your own assets on the stock exchange simply by making the wrong decisions. After all, the only one left to blame is yourself. This is the same in the case of the private key, too.
But back to the topic of raids on Crypto Wallets. Don't forget, only the most gripping and prominent cases reach the press. Not to mention, no one has ever been caught for robbing a Crypto wallet. This is probably also due to the anonymity of cryptocurrency. Therefore, it is possible to steal Crypto stocks in wallets while remaining unnoticed and undiscovered. Am I mistaken, or isn't security one of the most important aspects of blockchain technology? A paradox that the public doesn't seem to have discovered yet. Ultimately it is important for the investor to know that this is a reality to be reckoned with. In Swiss German you could say «harter Tobak» or "tough to stomach".
Who is responsible for stolen coins?
This brings me to the second important question: Who is liable for such a lost fortune? Who bears the responsibility and compensates for the damage or lost assets? You must already have an idea, right? That's correct, nobody.
Crypto stock exchanges or wallet providers outline this in their general terms and conditions; there is no guilty party. If perpetrators can not be caught and Crypto exchanges or wallet providers do not bear any responsibility then there is no guilty party, unfortunately only victims. The fortune is gone forever and perpetrators are never caught. Many wallet owners come to terms with this circumstance considering most never invest large amounts of money in Cryptocurrencies anyway.
In an emergency, I can simply write off CHF 2,000. But what about CHF 20'000, 200'000 or 2'000'000? As an investor, am I willing to accept something like this? Certainly not. On the contrary, can something like this happen to me with my trading account and/or custody account at my solid and stable Swiss private bank? Quite simply, no. So why would one take such risks? Because of the possibility to benefit from the dream returns of Cryptocurrencies? Admittedly, this is indeed an argument, but it does not mean that you should invest heedlessly directly in Cryptocurrencies.
Are those enough arguments against using your own Crypto wallet?
The uncertainties described above regarding Crypto theft and the issues with private keys are reason enough for me, personally, to keep my hands off Crypto Wallets. Of course, I would also like to take advantage of the dream returns and the potential rewards Cryptocurrencies currently offer, but I want to do this without burning my fingers. So, there must be better ways than directly using a risky and expensive Crypto Wallet. There are of course other arguments against this; high transaction costs for direct trading of Cryptocurrencies (transaction costs are already higher than for indirect Crypto Investments), different prices and liquidities on different stock exchanges, large spreads (bid-ask spread), no market makers etc. etc. etc.
My personal strategy behind Crypto
I have already anticipated the answer to the question: Why invest in Crypto? It is simply an attractive opportunity to invest money and assets very profitably in Cryptocurrencies and actualize dream returns in a relatively short time. This is very tempting for many investors as well as for me. Cryptocurrencies have, in my eyes, the potential to be the Facebooks, Amazons, Googles and Microsoft of the future. It's an investment opportunity where, if you're lucky and bet on the right horse, you can confidently retire and enjoy life or create a lot of wealth for future generations.
Tactically, Cryptocurrencies can be presented as an alternative to diversify your portfolio. They are an investment instrument like any other. In my investment strategy, Cryptos are among the alpha positions, with a long-term buy-and-hold strategy, similar to physical gold. Apart from a much smaller proportion compared to gold, Cryptocurrencies cannot yet be shorted, which is why they are unsuitable for active trading. In this respect, it's advised that a Crypto Investment be based on at least a medium-term investment strategy. I tend to invest smaller amounts in Cryptocurrencies and only in a matter that I can hold the position(s) forever under any circumstances, if need be. This means that even if the value of my position would go all the way to zero, I can still hold it without any problems. Basically, I don't want to have any leverage in my Crypto positions. I aim to avoid taking unnecessary risks of being too exposed due to falling prices and subsequently being leveraged because of margin requirements. With such a long-term buy-and-hold strategy, I understandably do not want to pay any deposit or other maintenance costs for my Crypto positions, and I don't. More information about my private bank and trading platform here →
Which Cryptocurrency to invest in?
Another difficulty is that many investors do not know enough about Cryptocurrencies. What does it mean, for example, if a Cryptocurrency is mined or not, and is this relevant? There are so many questions and so much incomprehension. How can you get an overview of over 1,600 existing Cryptocurrencies? Will all Cryptos survive? That is not to be assumed. What happens if governments come out with their own Cryptocurrencies? Will it then be important which technological application (solution) is behind a Cryptocurrency?
Crypto is much more than a currency, it is a share in a technology company and its solution that you buy with Crypto Coins. In the media and probably in most investors' minds, it is only the currency that is in the foreground and not the product or technology behind the Cryptocurrency.
The real question for all of us is: Will crypto currencies survive and if so, which are the Unicorns with the highest returns?
Are you interested in a serious Bitcoin investment strategy?
Today's Crypto Trends: Is it similar to the beginning of the Internet?
The future of Crypto is impossible for an investor to truly know today, there remains too many unanswered important questions. Rather than list every possible uncertainty, I want to show you there are indicators that we, as investors, technically do not know for certain but theoretically know and use in order to make a solid decision for the right Crypto investment.
Without having relevant and fundamental information or the ability to interpret it correctly, an investment in Cryptocurrencies is a pure roulette game. Most investors probably don't want that level of uncertainty. What should you do if you don't have time or the desire to plunge into the depths of the Crypto jungle to be reborn as Tarzan or Jane, but still want to profit from the Crypto trend?
Before I come to my suggestion in my next article, I would like to tell you a little anecdote from my professional life, which fits quite well to the topic Cryptocurrencies. The whole Crypto-trend seems to me, similar to the beginning of the internet, more than 25 years ago. (Author's note: I started working in online advertising over 20 years ago and have had my own online advertising agency for 10 years, specializing in strategic and programmatic advertising).
Today, everyone has understood what the internet is and how to use it. However, at the initial time of conception and launch, there was only a very small group of freaks and technology affine humans world-wide. In addition, during the early stages these so-called Internet professionals had only a fraction of the understanding how the Internet would completely change society. No one could have predicted consequences of the Internet, with how people communicate with each other and how buying behaviour has changed.
To foresee such developments correctly is more luck than real science, trend research back or forth. Otherwise, we would have by far more Internet millionaires who entered an investment at the beginning. Today, in retrospect, it is almost unimaginable to simply look back with the knowledge you already have and to think why you did not launch that Shop X or the platform Y yourself.
Alas, it's always easier to see clearly in hindsight, isn't it? At the beginning of the internet everything was still complicated, difficult, fragile and full of mistakes. Nobody knew exactly where the journey was going and certainly not at what speed. The situation is similar with Cryptocurrencies today. Even though I was one of the first Internet users, my business and my livelihood have emerged from it, i did not foresee where is would lead me today. Like almost everyone, Cryptocurrencies remains a book with seven seals for me. What I know for certain is that I don't really understand much about Crypto. It's not the worst advice to not to invest in things you don't know about, is it? In my experience, there seems to be an elegant solution for a Crypto Investment. This brings me to the next chapter and part 2 of this article series.