Bitcoin was a stellar year for me.
And this is why.
It has been almost 3 years since I started cryptocurrency courses, in which I teach retail investors how to buy, or sell, Bitcoin and other digital tokens.
In that time frame, I’ve observed that many investors enter when the markets surge up, but very few dare to enter during bear markets – exactly what is required when you talk about making huge profits.
The Bear Market
In 2018, investors watched the collapse in prices of various crypto assets.
The industry leader, Bitcoin, plummeted by more than 75% from $20,000 a coin to less than $4,000. This dramatic decline raised questions across the crypto space.
Is there a future of these assets and the blockchain technology that underpins them?
I personally perceive Bitcoin, and blockchain, as early-stage venture.
The difference is that, the price of this venture is now broadcasting live , minute by minute. Typically for early start-up companies, we do not get such price indications. The valuation of such companies is determined by investment rounds.
Let me give an example.
Say I have a new company which uses artificial intelligence to predict traffic jams. I raise $100,000 for 10% of my company. Thus my company is worth $1 million dollars. Time passes as I build my company. I expand to 10 countries and governments projects pour in.
How much is my company valued at?
Technically , still $1 million. Since there is no indication of price, and no one in public knows how much development I have done.
After selling 10% , I require more capital and thus I plan to sell another 10%. If I can sell my second 10% at $200,000. My company is now worth $2 million. My seed investors, holding 10% shares now has $200,000 worth ( and $100,000 in paper profits )
As you can see in typically VC investing, there is very little price discovery until the next investing round. VC or angel investors, would be ok with that and give new entrepreneurs a couple of years to build their companies in the midst of holding on to that investment.
So here we have Bitcoin and cryptocurrency assets, which follows the attributes of a venture investment, but with the presence of real-time price discovery and mass market access. Given that not many people have the experience (or skillsets) for venture capital investing, the mass market will trade based on mass speculation and this results in extremely volatile prices.
That is why it is difficult to hold digital assets if we look at prices too closely. A much better angle to view this, is through a venture-style mindset, where cryptocurrency investing is a five-to ten-year investment that you put in the rear of your portfolio.
This picture of Jeff Bezos in 90s might give some perspective. Who would have thought this guy would eventually become one of the richest and more influential person in the world?
In 1994 , he held 60 meetings with potential investors ( including friends and family ) , to buy shares into his only book store. $50k for 1%.
Would you have placed $50,000 with someone working in an office like this? 22 of them did, and on December 2019, that $50,000 investment is worth $9 Billion.
I think cryptocurrency investment takes a lot of guts. From my perspective, I am ready for anything, including the day Bitcoin goes to $0. So the only way I will deploy capital to such an instrument, is that I believe the upside of Bitcoin is worth the exposure.
For those of you whose thinking of setting aside some money to put into cryptocurrencies, here’s 3 things you’d need to know.
- How many % of your portfolio should go into Cryptocurrencies
- Where should you keep and store them
- How does it work?
- Safety considerations
- What coins/cryptocurrencies should you be primarily accumulating
Here’s what you ask yourself at the beginning. “How much money, would I like to put into a venture fund? “
When I started out, I had around 10% into cryptocurrency, 30% in cash, and 60% in blue chip equities.
For a start, a 5-10% allocation into cryptocurrency should work for most people. This caps the amount that can be lost during bear markets, and during good times, you can achieve returns up to 200% or more. This in turn, will allow your entire portfolio to grow up to 20%
This method follows the barbell investment strategy , which was also made mentioned by DBS in their DBS 2Q 2019 Investment Insights. Here’s a description by Investopedia on what the barbell strategy is
“ According to modern portfolio theory and many other investment philosophies, successful investing is achievable by striking an acceptable balance between risk and reward.
For most investors, this entails cultivating a portfolio of securities that have intermediate risk characteristics and offer middle-of-the-road returns. Contrarily, an acceptable risk/reward balance may likewise be achieved with an entirely different paradigm known as
The barbell strategy, which aims to usher in substantial payouts without taking on undue risk. “Most investors create a portfolio of medium risk characteristics, which also offers mid-level returns. The barbell strategy focuses on the two extreme ends instead. Pairing one basket of extremely safe investments, with another basket of highly speculative investments. This method actually urges investors to stay as far away from the middle as possible
This strategy is currently working extremely well for me.
On my left, I have built up a portfolio of REITs in 2019, which is generating close to $1000 for me each month. And on my right, I have my portfolio of cryptocurrencies which I am also lending out, and doing options trading on. It generates for me roughly $1200 worth of crypto each month.
So the side of my barbell that holds safer investments, helps to preserve my wealth, while the aggressive investments aims to propel its growth.
Wallets and how to store/send cryptocurrencies
To get started on crypto, we have to understand that this is a “currency” that doesn’t belong to any nation. It doesn’t belong to any company either. The term used to describe it is “ decentralised”, which means there is no central authority like a central bank. Since that is the case, we do not currently store crypto in the same manner as traditional money.
Cryptocurrency is fully digital, and everyone needs to understand the concept of a cryptocurrency wallet. In each wallet, there is a Public Address & and Private Key. The public address is where you send your coins to, and the private keys is what gives you the authority to do so.
Imagine your email, where you need you password to access. That password is liken to the Private Key. While your email address is the Public Address. Having the public address without the private key, is like looking at a bulletproof glass vault. You can see what’s inside but you are unable to access the content
Here’s where it gets tricky. If anyone loses their private key, there is no way to reset. This is because there is no central authority like a bank or a company involved in decentralised cryptocurrency. We also face challenges such as having too many private keys to remember. Or if we write it down on a piece of paper, it might get lost. So what is the solution to that?
I personally use a hardware wallet. It is a unique type of bitcoin/Crypto wallet which stores our private keys in a secure physical device. The main advantages ( as described by Wikipedia) over standard software wallets: “ private keys are often stored in a protected area of a microcontroller, and cannot be transferred out of the device in plaintext. “
It’s pretty easy to use, and I would encourage all cryptocurrency investors to learn how to store and send their crypto , using a hardware wallet.
The other alternative, is to store your cryptocurrency on the exchange which you purchased them on. These are usually companies that match the buyers and sellers of Bitcoin and other cryptocurrencies. On these exchanges, they control your private keys though , and the risk factor is that they might go bankrupt one day. Should that happen, all the cryptocurrency that is stored there might potentially be lost.
Lastly, what are the coins worth accumulating?
One factor which I consider, is market capitalisation.
Market capitalisation , can be calculated by the circulating supply of coins multiplied by the price of each coin. E.g. there is 1000 Bitcoin circulating in the market right now, and if each coin is worth $1000, the market capitalisation of Bitcoin would be 1000 X $1000 = $1 million.
The bigger coins are deemed by the markets to be more valuable and prices are more difficult to manipulate compared to the smaller size coins. Volume is also higher, and these coins are traded on more exchanges, which allows for more price discovery.
The three coins I am currently accumulating is Bitcoin, Ether and Binance Coin.
The bulk of these goes to Bitcoin since it is one of the longest surviving crypto, easy-to-understand in the eyes of traditional market, and is the most well-know ( possessing a sort of network effect ).
Every cryptocurrency exchange in the world has a BTC pairing , and institutions are slowly coming to accept Bitcoin as a digital asset as well. Most reference data to cryptocurrencies are derived from Bitcoin data, and investors that are not in the crypto space, would often only be interested in Bitcoin
I believe that Bitcoin is the forerunner and would pave the way for other cryptocurrencies in future. If you are a new comer to crypto, Bitcoin is definitely what you should and would start out with. It belongs in the portfolio of every cryptocurrency investor.
I hope this article gives you some insights on how to get started on cryptocurrencies, and since I’ve finished it on the 1st of 2020. Happy new year! May you prosper in all things wealth related!
Chris made 138% returns in Bitcoin alone last year. In comparison, the markets as a whole rose 30+% world wide with the US leading the pack.
I favor investing in Bitcoin using a barbell strategy because it give me optionality:
- I gain protection against inflation. Bitcoin is also pseudo gold, becoming an asset class that rapidly inflates in value when investors flock to safe havens which cannot be manipulated, unlike traditional fiat currency, which the US government can always print more of.
- Bitcoin allows me to lend the coin out to others in order to generate income. This is a huge advantage because lending rates are tremendous in Bitcoin, allowing me to capture an edge in the markets. Bitcoin is also very lowly correlated with the markets as a whole, meaning my investment in it will not go to zero as quickly nor as easily as the markets at large.
- Bitcoin allows me the use of options. It’s worth noting options can be used on any equities market too. But it is the combined fact that you can own an asset that is a hedge against inflation (with a big catalyst of halving occuring soon to drive values even higher!) AND still have the edge of selling/owning more options on bitcoin that truly drives really explosive returns.
If what I have said so far interests you, feel free to register for a seat here. Lastly, please do your due dilligence. Caveat Emptor!!!
Chris holds MSc Applied Finance from the Singapore Management University and is the sole recipient of the 2015 Columbia Threadneedle Investment Award. He has been working in the banking industry as an investment banker before starting CryptoTrader.sg in 2017
Chris has a knack for simplifying the complex, identifying trends and helping people obtain investment insights. Always seeking passive income, he has achieved reasonable success investing in equity (~15% per annum), but his foray into Bitcoin and other Cryptocurrencies has reaped returns that are much higher
Chris now aims to share his knowledge and help others achieve the same level of success