A beginner's guide to investing in cryptocurrency

Buckle up for your trip to the moon, on Apollo 13

Shibetoshi Nakamoto @BillyM2k

the reason for crypto going up is always “cuz it’s going up” the reason for crypto going down is always “cuz it’s going down” the crypto market is just an endless financial bubble sine wave

So, you want to invest in cryptocurrency, eh?

My first question to you is… Are you okay?

No, really, are you? There’s plenty of other things you can put your hard earned money in that are much less insane. You’re quite literally investing in database entries represented by arbitrary hash strings. The entire value of any of them is like any collectible - based on whatever someone wants to buy it for, which changes dramatically for seemingly no reason at all.

And unlike traditional markets, the crypto trading markets never close, so you can wake up to a drastically different value than when you went to sleep. If you follow the scene, you’ll be inundated with scams, crypto bros trying to get you to prop up their bags, shady exchanges, weird insecure tribalism, and just all around chronic stupidity.

So, you still want to do this? …Alrighty then.

Well, I’ll try to help set your expectations realistically then. I don’t have any advice whatsoever on how to get rich doing this, as I have famously failed at that, but being a 10 year veteran I do have some advice on how to navigate this ridiculous space:

1. Have the right mindset

If you’re going to invest in cryptocurrency, I very strongly advise that you only use money that you would be perfectly okay throwing directly into a fire. If you are considering using any money to buy crypto that you might have a strong emotional attachment to, or that you need to pay bills, or could use to get a birthday present for your nephew… Just don’t.

Money is very emotional. Like most markets, the crypto market driven by emotions - euphoria when things are good which tends to lead to overreactions, despair when things are bad which tends to lead to overreactions. There have been dozens of crashes - sometimes in the 50-90% range - and these can literally happen overnight, usually due to some news that China has banned cryptocurrency (again), or some other nonsense that frequently happens.

On top of that, historically exchanges and crypto investment firms aren’t particularly capable of handling bear markets, save a few. Many have turned out to be run by people who turn into criminals, or get “hacked.” None of your assets held by them are backed by the FDIC, so if the exchange you’re keeping your crypto on fails, you’re not likely getting anything back. Many have lost all their money from failed exchanges.

And then there’s Tether. Woof. You’ll just have to do your own research on that one. Just trust me, bro.

So my fundamental advice if you want to invest in cryptocurrency is, you have to accept that you might lose all your money overnight. There’s no guarantees of anything. If you can’t handle your emotions related to money, cryptocurrency isn’t a good market for you. If you can’t accept the risks, don’t invest.

2. Don’t join crypto discords or telegrams

Photo by Hasan Almasi on Unsplash

Newbies often get lured into joining bizarre groups of bots, hopium addicts, desperate people, scammers, and other weirdos that tend to lurk in crypto centric discord groups and telegrams. Just don’t bother. There’s nothing useful gained by hanging out in these groups, except getting chronic misinformation from degenerate gamblers and bad actors, and barely anyone has any idea of what they are talking about.

On top of that, there’s often links sent around in these groups that are essentially trojan horses designed to steal your wallets and passwords. Accounts are constantly getting hacked, so moderators have to be super diligent in removing the bad actors swiftly, which is quite a lot of work.

You’re better off ignoring all this stuff. Do your own research, pick some coin or token you like, pick an exchange that you’ve found has a good track record, trade some of your hard earned money for these arbitrary hash strings, and then do something else with your life that doesn’t involve obsessing over the arbitrary monetary value of your hash strings. Maybe many years from now someone will buy the hash strings from you for more than you bought it for, or maybe not. Your mental health will be a lot better if you don’t obsess about it.

3. Understand where the money is coming from

Photo by Ibrahim Boran on Unsplash

If you buy cryptocurrency, you’re buying it at an agreed upon price from someone else.

If you sell cryptocurrency, you’re selling it at an agreed upon price to someone else.

This sounds completley obvious, but you would not believe how many people cannot grasp this basic concept and believe that developers or celebrities have the ability to move the market themselves. The price of crypto going up simply means people have collectively decided the arbitrary hash strings are worth more money and are willing to purchase them for higher than you bought them for. The price of crypto going down means the same thing in reverse. The asset itself is the same as it has been.

So why is this important? Because if you make money, that means someone else gave you money in exchange for your risk for more than you paid for it. If you lose money, you traded your money for their risk and were not able to get more than you paid for it. In my opinion, it is foolish to brag about making money in crypto, as someone essentially gifted it to you. And if you lost money, you are the one giving the gift.

If you can internalize this perspective, you’re not going to act like it’s some magic causing the market to go up and down. It’s just people, and their whims. You won’t try to talk up your assets in order to unload your bags on others, because you’ll know that’s a slimy thing to do. You won’t blame others for your choices. You’ve accepted the bizarre risk you’ve decided to take in purchasing these hash strings.

4. Don’t forget about taxes

Photo by Kelly Sikkema on Unsplash

Taxes are different in every country for cryptocurrency, so I’m mostly talking about the US here, but for the most part they are treated like commodities, and if you make any money you gotta pay taxes. In the US, if you sell within a year, it’s treated like income. If you sell after holding for a year, it can fall under long-term capital gains, but you still pay. Tracking all this stuff gets very complicated very quickly, particularly if you engage in purchasing and selling things with cryptocurrency, which I don’t recommend to newbies due to how difficult it is to keep track of everything for taxes.

Some doofuses act like crypto is untraceable and thus you don’t have to pay taxes. Those people are stupid. Crypto is easily traceable by design - every single transaction occurs on the public blockchain. Exchanges are required to do KYC if they’re gonna give you fiat money in the states. Pay your taxes. If you don’t, you’re gonna have a bad time.

5. Have fun?

Photo by Gabriel Valdez on Unsplash

If you’ve gotten this far, you might think I hate cryptocurrency and am trying to prevent people from investing in it, but that’s not true. It just is what it is. People can do what they want, I just think they should have the proper expectations. You’re quite unlikely to get rich from this. You’re much more likely to get mental issues.

But even though the cryptocurrency market is yet another ridiculous thing that humanity has created to move money around, you’ll find that all of finance is more-or-less the same - some abstract nonsense we invented to overly complicate moving money around. Money itself is kind of ridiculous, too. There’s no reason to take it all overly seriously.

Do your best, set your expectations properly, and enjoy the ride.