Hello! Today I present the ultimate guide for those interested in getting started with cryptoasset investing. This guide will also be useful for those who have already started but would like to learn more about best practices for investing and securing assets. I'm going to talk about the following in this post:
- Where to buy Bitcoin, Ethereum, Litecoin, Altcoins, and all other cryptoassets
- The best ways to buy low cap assets and ERC20 (Ethereum) tokens
- The best ways to securely hold your own assets
- Initial Coin Offerings (ICOs) - best practices for research
- How to track your trades and report gains on your taxes
- Some recommended reading for learning more about investing
NOTE: I AM NOT a financial advisor and this is NOT financial advice. My goal with this post is to share the things I have learned from my own experience and to help you make good decisions. ALWAYS do your own due diligence and research, and be very careful. There are plenty of scams in this space. Always keep first principles in mind and don't buy something you do not fully understand and believe in.
Coinbase is the most well-established way to buy cryptoassets and has the best insurance and security policies. Coinbase and GDAX are the only locations aside from a hardware wallet where I would personally consider my funds to be safe. Coinbase owns GDAX, and if you want to trade on GDAX you should sign up for a Coinbase account first.
The nice thing about Coinbase is that it offers the most fiat onramps. You can buy with a bank account, credit card, or debt cart. The user interface is also very easy to use and there is no technical knowledge required.
The downside to using Coinbase is that the fees are high- around 3% for buys. I think it is OK to buy with Coinbase if you are eager to get some assets and don't want to dive too much into learning how to use an exchange, but would recommend using GDAX to save money on fees. GDAX carries trade fees of around 0.3% - that is 10x less than Coinbase! The downside of using GDAX is that you will probably have to wait around a week to start trading. To avoid fees, you should do a bank transfer of USD funds onto Coinbase and then use those funds in GDAX to exchange for cryptoassets such as Bitcoin (BTC).
Since GDAX allows market price buys, there is little technical knowledge required to use this service and pay much lower fees.
In my opinion, the best way to regularly invest in cryptoassets is to use a "set it and forget it" approach and to dollar cost average your buys. This is possible to do on Coinbase by setting recurring buys, but then you are paying very high fees. If you know a little JavaScript or are willing to learn some easy basics, you can easily run a GDAX bot on your home computer to accomplish this. Setting this up is not that difficult, and this will allow you to buy amounts as small as $1 every 4 hours. I personally run this bot at home, and using this approach has allowed me to save tons of time and use my brain power for other things. I don't want to spend all day checking charts and thinking about what the market is doing, so just buying $1-3 every few hours works great.
OK, so you've got some Bitcoin and Ether and you are eager to start getting bags of some lower cap stuff. How should you do it?
Well, there are a lot of exchanges available today. They have differing levels of security, established trust, and functionality. I personally always check Changelly first to see if the asset I want to get is available there. The reason I prefer Changelly over any web exchange is because when you use Changelly, your funds are sent directly to a software wallet on your computer or to your hardware wallet. This allows you to avoid holding funds on an exchange.
There are several benefits to this. One is that you don't have to worry about your funds being locked up due to exchange wallets going down for maintenance. There is also less risk of losing funds to a hacker. Also, if you are buying assets you plan to hold long-term, you would have to perform a second transaction to send them from a web exchange to your own wallet. Using Changelly allows you to avoid paying Tx fees twice.
I have also heard several good things about ShapeShift. This is another service very similar to Changelly. I haven't personally used it, but I believe it is a reasonably good alternative.
What if the asset you want isn't available on Changelly? Well, you can...
There are several options for exchanges out there. I recommend using CryptoCompare to research them. This website has user reviews and is a good source of information. Personally, I use Binance and Bittrex for most trades. HitBTC and KuCoin are also great and tend to have more lower cap assets and newer ERC20 tokens. KuCoin works well and has a nice user interface. It's not a bad idea to go ahead and set up accounts with all of these before you have need to use them. This will allow you to quickly make a buy if you identify a good buy opportunity. Some of these exchanges also require some significant up-front KYC (Know Your Customer) verification processes, and you might want to consider getting these done early.
The only way to really secure your assets is to purchase a hardware wallet. These are USB devices which work with just about any modern computer. There are two clear market leaders here: Ledger and Trezor. I personally use a Ledger Nano S, but any product from either of these companies is a good choice. Both wallets support a host of assets and have great ERC20 token compatibility. If you are going to invest a reasonable amount of money into crypto and plan to hold your investment for a while, you should really consider grabbing one of these. Your private keys are held on the device and the only way to sign a transaction is to enter a code and verify by pressing a button.
Many new projects have been vocal about plans to have solutions for one or both of these devices to support their coins.
Exodus wallet sets the bar for multi-currency support and user-friendly design. This is a great wallet which allows you to store dozens of different coins. One awesome feature on this wallet is that it has ShapeShift built in, so you can trade for different assets from within the wallet! It's always best to use a hardware wallet for the lion's share of your crypto-wealth, but having some assets in a wallet like this isn't a bad option if you are looking to make some trades.
Often times a very new asset will not yet have support on hardware wallets or be available in Exodus wallet, and in these cases it is still better to download the asset wallet from the project's website than to hold these assets on a web exchange. For many PoS (proof-of-stake) coins, this also allows you to collect a small passive income through staking with the assets in your wallet. Going into how PoS works is outside the scope of this article, but it is something I will write about in the future.
Always use 2FA and always use unique, secure passwords on every site.
Basically every exchange has 2FA (two-factor-authentication) available, and if you find one that doesn't that should be a red flag. Setting up 2FA on your exchange account should be the very first thing you do. Traditional web security only used one factor for authentication- a password. This can be thought of as something you know. 2FA introduces a second factor - something you have.
For example, you can use the Google Authenticator app on your phone. This app generates a new random code every few seconds, and when you enable this feature on your exchange account you have to enter this code to log in, exchange, withdraw funds, etc.
You should always use a unique and secure password on every exchange you sign up for. Passwords should be at least 8 characters long (longer is better) and have a mix of letters, numbers, and symbols. Remembering secure passwords can be quite difficult, and you can use a password manager such as LastPass to store all of them. This does introduce a single point of failure (if a hacker somehow got access to your LastPass account, they would have all your passwords), but if you have 2FA enabled on your accounts you are still safe! In addition to this, you can add 2FA to your LastPass account too.
ICOs are very risky investments with potentially large upside. If you are new to this space, it is best to just stay away from ICOs. In order to intelligently invest in these, you really need to do lots of research and understand the problem that is being solved and how blockchain can help. Many ICOs have bounty campaigns in which they pay people to promote the sale on social media. There are tons of YouTubers, domain owners, crypto tweets, and blog posts shilling out these things. Just remember that most of the time these promoters are in it for their own bottom line. Do your research!!
I have spent too much time researching these things, and as a result I have come up with a checklist that an ICO has to meet for me to even consider researching it further. I think this is a really good rule of thumb. An ICO should at the very least have all of the following for you to even consider looking at it further:
- A detailed whitepaper
- A full list of all team members - links to LinkedIn or an ability to find info on them with Google is important
- Transparent description of how the tokens will be distributed and the price structure for the ICO
- Addresses A real problem that needs solving
- NO guaranteed returns. If you see anything that says "guaranteed returns of x" run away!!
The easiest way to quickly rule out a project is if you cannot find info on who the developers and team are. I have been very surprised at the number of garbage ICOs in this space that have no team information whatsoever.
In addition to the above, some nice-to-haves are:
- A roadmap
- Mainstream media coverage of the project
- A good history in blockchain, successful previous projects
- Open Source code. Most of the time this is pretty important though there are cases where it can be OK if closed-source
Beyond these guidelines, you need to do your own research and be honest with yourself about how the project makes you feel. If it's not a hell yes, it should be a no.
Blockchain technology and cryptoassets are still in their infancy, and as a result there is not a plethora of good tracking and tax software available. I have looked hard for a solution, and the only good option today in my opinion is CoinTracking. This is really good software with a web app as well as iOS and Android apps.
Use this link to get 10% off any paid version of CoinTracking
You can get started with CoinTracking for free, but the paid versions offer many more features and allow for automatic data imports with CSV and API imports. The free version is limited to 200 transactions, but the pro version has a 3500 trade cap and the unlimited version is just that. Here is a breakdown of the different versions available:
If you know of another option that is comparable to CoinTracking, I would love to hear about it in the comments! I don't believe anything else currently comes close.
I couldn't write an article on Crypto investing without recommending Chris Burniske's book Cryptoassets. This is the best investing book out there for crypto, and it isn't even close. There are some other good investment books that are not specific to crypto, but Chris lists all of these in his book. I can't recommend reading this thing highly enough. The book provides a brief history of the space, a framework for evaluating cryptoassets, and a whole lot more.
I hope you enjoyed this article and it provided you with some value. Let me know in the comments if you have any questions and upvote if you loved it!