With cryptocurrencies in the news so much now, thanks, at least in part, to the new administration’s pro-crypto stance, many Americans who weren’t early adopters are starting to see the value of crypto.
And it’s a smart thing to do on their part.
But like any other new area, it’s wise to do your due diligence, to do your research to make sure that you are making the best decisions for you and for your finances.
With that in mind, it’s worth looking into…
How the average American can take advantage of crypto (in a smart way)
The first thing to realize is that cryptocurrencies are here to stay.
Yes, the prices DO fluctuate, but that’s true of every asset! Although crypto prices have become known for their volatility. While this freaks many people out, volatility is a feature, not a bug.
But there are cryptocurrencies that have shown themselves to be stable enough (for some given value of “stable”) that the federal government is looking into diversifying the nation’s reserves with crypto. Perhaps you’ve heard of the Strategic Bitcoin Reserve legislation?
Why bitcoin? Fortune’s Jeff John Roberts explains:
Bitcoin, the biggest digital currency, is one of the very best-performing assets of the past decade, easily eclipsing gold and the S&P. Its price has climbed from $325 in January 2015 to its peak [of $109,000] early this year – a roughly 300-fold increase.
Bitcoin may have dipped to $80,000 last month (that’s volatility for you!). But still, $325 to $80,000 in just over ten years is impressive growth. I challenge you to think of any other asset that saw a compound annual growth rate of 73% for a decade. That’s unprecedented growth. In fact, it’s difficult to find enough superlatives to describe bitcoin’s trajectory… Unparalleled, extraordinary, even, as far as I know, unique in financial market.
And as Roberts also notes:
Despite bitcoin’s repeated and spectacular crashes, its floor keeps rising. Each recent deflation of a bubble has reset that floor a little higher.
And that brings us to the first lesson for investing in cryptocurrency: Buy and HODL. (Now, we’ve talked about this concept before, but the short overview is that when investing in cryptocurrencies, do your research, make smart investment choices, and, then, Hold On for Dear Life.)
In other words, buy for the long haul. Because the short haul can be exhilarating, and it can be terrifying, and you’ll drive yourself insane if you focus on the short-term. (Trust me.)
See, investing in cryptocurrencies is a long term proposition. You do your due diligence and buy established cryptocurrencies knowing that their prices will fluctuate. Also with the expectation that smart choices and successful assets will appreciate over the long term. You don’t pay attention to the short term fluctuations. You approach it like starting a family. Some days are great, some days are awful, you’ll have higher highs and lower lows. Your life overall will probably be more stressful, but you know what? Your life overall will also become immeasurably richer.
But how do you know what are the smart investment choices to make?
That’s a good question to ask, and frankly, it’s your decision. I’m not here to offer investment advice. I believe we each have to make the choices that are right for ourselves. Nobody can do that for you.
CoinFund’s David Pakman is a little less hesitant on this topic. Pakman recommends what he calls “a blue-chip strategy” which goes like this:
“What I would tell people is to create a portfolio of 60% Bitcoin, 10% or 15% Ethereum, and then put the rest in four or five other blue chips like Solana, Uniswap, Aave, or Compound.”
Even though BitIRA offers every single cryptocurrency Pakman name-dropped, that’s not why I used his quote. Rather, it’s the concept I want you to take into account: Diversification. Regardless of the specific tokens or percentages that you choose, the point is to limit your exposure to risk without significantly affecting return by diversifying among different cryptocurrencies. Again, ideally you want established cryptos with a solid track record, an active development team and real-world utility.
And the crypto world includes assets that I believe it’s smarter to avoid…
How do you know which assets are smart to avoid?
Note neither I nor Pakman mentioned memecoins. There’s a good reason for that! Memecoins are not investments. They’re a speculative purchase that derive their value from the “greater fool” theory, not from a solid track record or an active development team and certainly not from real-world utility. I don’t think it’s an exaggeration to call memecoins the 21st century reincarnation of the Dutch tulip bulb crazes of the 1600s.
The vast majority of memecoins vanish within a few weeks of launch. They’re announced, speculators pile in and when the founder decides the time is right, the rug pull begins and the asset’s price plunges, taking countless speculators’ dreams with it.
Memecoins aren’t assets. They’re financialized attention. They’re the most direct way for anyone to turn awareness into money. Think of memecoins the same way you think of slot machines at the casino. Pure gambling on a game of chance for entertainment purposes. And while you might win but everybody loses overall. (Otherwise there wouldn’t be a casino.)
If you want to spend money on entertainment, that’s fine! I’ve got no problem with the Bored Ape Yacht Club as an art project. Just don’t lie to yourself and call your entertainment an “investment.” Acknowledge in advance that you will almost certainly lose any money you spend for such purposes. There’s no financial return on your spending; we go to movies and casinos anyway because the returns from entertainment are non-monetary.
Savvy readers will also note neither I nor Pakman mentioned stablecoins.
Why not? Well, my thinking is simple. If the stablecoin is pegged to an asset, say the U.S. dollar the way Tether allegedly is, you have an additional layer of risk. You have both currency risk and inflation risk (from the dollar), while adding counterparty risk from Tether itself. Why not buy the underlying asset directly?
Honestly, I struggle to understand why the future of money includes stablecoins pegged to an unbacked, free-floating asset like the dollar. I have slightly more sympathy for stablecoins pegged to a commodity like gold. But again, you’re simply adding an additional layer of risk on the underlying asset. What’s the point when you can buy gold quickly, easily and legally. Why wouldn’t you choose to own the asset itself?
Putting the principles of smart cryptocurrency investing to work
If you want to start putting these principles to work, then congratulations! You are about to get involved in the future of money. I believe you’ll be putting yourself in a position to see future returns that you’ll be very happy with… If you’ve already done your due diligence and you’re chomping at the bit to get started, you can set up your Digital IRA right now online (it takes maybe seven minutes total).
If, on the other hand, you’d like a customized introduction to the thrilling world of cryptocurrencies, we can help with that, too! Learn more about the cryptocurrencies available and their benefits when you request your no obligation Insider’s Guide to Digital IRAs right here.
