Cryptocurrencies are going mainstream!! Whether you are an investor or just an enthusiast, it is hard to ignore them.
🚨Big Disclaimer: This is not investment advice. I am not an investment advisor. These are my personal views & not those of my employer. This information is meant to be for educational purposes. Please do your own research before you decide to invest your hard-earned money. If you are unsure seek help from a professional financial advisor
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Not everyone reading this article is expected to be a crypto enthusiast so I will cover the basics without getting technical. The two most common blockchain-based digital assets are Crypto Currency and Crypto Token (the two most common ). The biggest differentiation between the two is that cryptocurrencies have their own blockchains (e.g Bitcoin, Ethereum, XRP), whereas crypto tokens are built on an existing blockchain (USDC, Uniswap).
Really!!! as if I am expected to understand what that means. The answer is No! For most practical purposes people use them interchangeably. I will do the same in this article so please don’t spam me as I don’t want to confuse the average reader (hopefully you)
When I started off, I thought Bitcoin was the only cryptocurrency. Till I started hearings all sorts of different names (uniswap, polkadot, kusama). The journey for Crypto started with Bitcoin in 2009 - the first & largest cryptocurrency. Since then thousands of cryptocurrencies have launched, flourished, and faded away into oblivion (in every crypto winter).
Cryptocurrency is often referred to as “digital money”. In line with this narrow definition, a CryptoCurrency is a form of payment that can be exchanged digitally for goods and services, very similar to how we use Fiat currency (USD, SGD) today.
However, this description is very myopic as it fails to capture the essence of what makes cryptocurrencies unique and so appealing to investors.
Make payments (Transactional Tokens) - This is the most commonly referenced use. Transactional tokens serve as a medium of exchange of goods & services and serve as units of account. These tokens often function like traditional currencies, but in some cases, provide additional benefits. e.g. Stablecoins, Bitcoin, CBDC
Ownership in the underlying Company or Blockchain Protocol (Security Token) - Just like we buy stock of Apple, Google, or Coinbase (a recently listed Crypto Exchange in the US), we can buy tokens that represent ownership of an underlying company or protocol(ICO)
Currency used within an ecosystem or website (Utility Token)- Many companies have issued their own currencies like chips in a casino, or loyalty points. These can be used for goods and services that the ecosystem provides. You’ll need to exchange real currency for the cryptocurrency to access the good or service. e.g. Ethereum, Uniswap, PancakeSwap
Blockchain Platform tokens - These are tokens in blockchains that build distributed apps for their platform (e.g. Cardona, Solana,Polygon)
Voting Rights for Projects (Governance tokens) - There are cryptocurrencies that represent voting power on a blockchain project. Holders of these tokens or coins stake these coins to exercise the rights to recommend proposals & vote on them.
Store of value & Speculative Instrument - When investors buy a cryptocurrency, they are betting that the value of that asset or ecosystem will increase in the future, just as stock market investors buy securities when they believe the company will grow and share prices will increase.
A more detailed list of Token types by Technical Layer, Purpose, Underlying Value, Utility & Legal Status
Cryptocurrencies use a technology called the blockchain.
What really is a blockchain? The term is thrown around in every conversation, yet its meaning and significance are often not really understood. Blockchain is a digital ledger (database) of transactions. This ledger is copied across many participants in the network (around the globe). No single person or computer controls the network. There is a decentralized network of participants & computers that is responsible to secure and keep the network running.
Cryptocurrency transactions are recorded in perpetuity on their specific blockchain.
Groups of transactions are added to the ‘chain’ in the form of ‘blocks’. An important part of the appeal of this technology is the use of cryptography to secure the network and the data on it.
Each block contains information about the transactions that have taken place and is connected to a chain of blocks, using a cryptographic key.
The creators of the block (‘Accountants or Miners’) are incentivized to do so based on a fee charged for each transaction (from the ‘transactors’) to be written on the blockchain.
As of 24 Jul 2021, there are more than 11,000 different cryptocurrencies & tokens traded publically (based on CoinMarketCap a market-research company). The total market cap for cryptocurrencies is currently at $1.37 trillion - down from a high of $2.2 trillion.
Do checkout out https://coinmarketcap.com/ for more information
Bitcoin ($631Bn), Ethereum ($240Bn), Tether ($61.8Bn), Binance ($50Bn), Cardano ($38.8Bn), XRP ($28Bn), USD Coin ($27Bn), Doge Coin ($25.2Bn), Polkadot ($13Bn), Binance USD ($11.6Bn)
💁 ♀️3.2 CoinMarketCap has easy access to a lot of information about a token - e.g. Audius
Rank based on market cap, helps get a sense of size of the token
Links to website, whitepaper, community, chat/discor
Access to smart contract on the blockchain network
Tags to easily understand more about the token - in this example Music App, on Solana Ecosystem and part of Coinbase & Binance ventures protfolio.
Price , High, Low, Market cap,
Lots of other information to help with analysis and staying up to date
While this space is still evolving, it is helpful to categorize cryptocurrencies into categories to help understand thematic topics and comparables.
Periodic table from www.investinblockchain.com
Currencies __– Coins used primarily for payments and to store value.
Protocols, Exchanges, and Interoperability __– Projects building decentralized infrastructure to exchange cryptocurrencies and enable communication between different blockchains.
Computing, Data Management & Cloud Services__ – Projects related to computing, data storage and security, and cloud services including file storage and cloud computing.
Others__ – Projects that didn’t fit into any of the other categories. These include prediction markets, oracles, betting platforms, and AI-related projects.
Platforms__ – Smart contract and decentralized application (dapp) platforms.
Gaming, Media, and Social Networking Platforms__ – Projects related to the gaming industry, online content publishing and distribution, and social media.
Privacy Coins__ – Currencies with features to make transactions anonymous and/or untraceable.
FinTech__ – Financial services and technology.
Business/Enterprise__ – Platforms meant to help businesses improve efficiency, transparency, and security, among other things.
Given this article would be read around the world, this is not an easy question to answer. It depends on the country you live in, tax residency, your current bank’s restriction, the cryptocurrency you are looking to buy, etc.
Centralized Exchange: For someone new to crypto, it is best to start off with buying from a centralized exchange. These typically offer a mechanism for you to transfer Fiat money (the money you use every day) into Crypto (USDC, USDT). The mechanism available to fund your account (credit or debit card, Paypal, cash, bank transfer) would depend on the exchange you choose and the country you live in.
P2P on Centralized Exchange: Another interesting method that is increasing in use is P2P transactions via a centralized exchange (e.g. Binance). The Exchange connects buyers and sellers at a pre-agreed price. The seller’s crypto is locked by the exchange once the transaction is initiated and the buyer has ~5min to make the transfer using an agreed payment method available locally in their country. Once the receipt of the funds is confirmed, the exchange will transfer the crypto to the buyer.
Online Brokers: There is also a growing number of online brokers who have started offering crypto purchase options such as eToro, Tradestation, Sofi Active Investing, Robinhood.
Hardware Software Wallet & Decentralized Exchanges: While centralized exchanges are an easier way to make your first crypto purchase, eventually users should look to move to a self-managed wallet (software or hardware). Some exchanges also support their own wallets (e.g. Coinbase, Binance) but other popular software wallets include MetaMask, Trust.
Exposure via Funds & ETFs: If you are not wanting to buy the asset directly and simply want exposure to the assets class. There are a few options like - Grayscale Bitcoin Trust . Many Bitcoin, Ethereum, Defi ETFs are pending approval in US & Canada that will make it easier for Retail & Institutional investors to get access to this asset class
This is a topic in itself, in a separate article, I will cover the pros/cons of various approaches.
🚨Go back up and read my disclaimer - I am not an investment advisor & this is not investment advice. This is simply for educational purposes. Also, before you buy anything Do Your Own Research (DYOR). From where - start with “Google”
A few things to note:
Crypto assets are extremely volatile - be prepared for a roller coaster
Don’t buy all at once -spread out your purchase, dollar cost average or wait for dips to buy
Don’t invest money you can’t afford to loose
Diversify your holdings (in crypto and non-crypto)
An example of a diversified portfolio structure.
When investors buy a cryptocurrency, they are betting that the value of that asset will increase in the future, just as stock market investors buy securities when they believe the company will grow and share prices will increase.
Stock valuations boil down to discounted estimations of a company’s future cash flows. There is no comparable valuation metric for cryptocurrencies because the crypto assets represent many things (network effects
For all of those that Crypto in May ‘21 & are waiting for their Uber in Jul ‘21
If you have not read it, do read my article Bitcoin Price - Scam or Real?_, as it explores various aspects to value the crypto asset
Cryptocurrency valuations boil down to one of two factors: the likelihood of other investors buying the asset or the utility of the cryptocurrency’s blockchain.
Crypto investors buy a digital asset if they believe in the strength and utility of its underlying blockchain. All cryptocurrencies run on a blockchain, which means crypto investors are betting (whether they know it or not) on the resiliency and attractiveness of that blockchain.
Crypto Currencies are still like the early days of the Wild West in US. There is a lot of money being made, which attracts a lot of scammers. Please be cautions, do your research and don’t get lured by get rich quick schemes.
Is it legal to buy cryptocurrencies
Is crypto safe to buy
How do I protect my holdings
Keen to hear your thoughts & views. Feel free to leave your comments below.
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1 more comments
Hi Chang. Thanks for your feedback.. The % cash is a subjective factor. Firstly outside of our core portfolio you need to keep money for 6-12 months of expenses to manage contingencies. I personal feel holding 20-30% in cash is a good idea. I have learned it the hard way, coz if you dont have money to invest when there are healthy corrections in the market you are missing out on opportunities. In a way, good discipline is to increase cash when the markets start getting extended and then invest it back in when markets correct 30%+ (regular markets), 50%+ (crypto markets).