I'm not a crypto expert.
I've read a lot about cryptocurrency.
I have what I consider a basic understanding of decentralization and blockchain and how crypto works in general. I've read a few books on each and listened to a handful of podcasts.
Yet I still consider myself a crypto noob. There are a few reasons why being a crypto noob might be a good thing, but more on that later.
I'm here to lay out a case for why everyone should own some cryptocurrency, especially Bitcoin.
The perspective I'm writing from is as a 35-year-old male that has lived in the United States my entire life. I own guns, and I've generally been wary of government most of my life for reasons not pertinent to today's discussion.
I recently bought a few 50lb bags of rice when the 2020 virus came around. I also stocked up on ammo for my small gun collection. I like to go to the range, and I like owning guns, but that's about it. I'm not the tactical type nor a hardcore gun enthusiast. I hope I never have to fire my weapon at another human.
I tell you this to paint a picture so that maybe my perspective here will resonate with you if you're in a similar boat as me.
This article is hoping to help you develop the mindset conducive to long-term cryptocurrency holding. This is not investing advice.
Personally, I don't consider owning cryptocurrency investing, similar to gold in that way. I believe it a store of wealth and a tool. The reality is that the way things are going, will probably become one of the best investments you and I will ever make. I think of that as a bonus.
I'm going to give you the case for crypto and bitcoin and why I believe everyone should own some. I will focus mostly on the security benefits you get from storing wealth in cryptocurrency.
The Case for Cryptocurrency from the average joe's perspective
Fiat Dollars Are Not Sustainable
First, we need to establish a fact of our monetary system: the fiat dollar system propping up our economy is not sustainable.
This system will eventually crash and reset. There is no way around this. Understand this is outside of my expertise and purview, so do your research as to why this is the case.
This should be one of your first principles of bitcoin ownership. Since I aim to make all my decisions based on first principles, crypto has become a must-have in my portfolio.
I recommend you research until you can form first principles for yourself. That will strengthen your ability to hold bitcoin for the long run.
In a fiat dollar system, inflation is constant. As inflation increases, bitcoin is likely to strengthen in value relative to the dollar's decreasing value.
If we get runaway inflation in our future, bitcoin will likely skyrocket as millions jump into bitcoin and gold. No one can predict when this will happen, but bitcoin and physical gold are the most likely safe havens for those frantically exiting the dollar.
Hint: you don't want to be one of those frantic souls.
Owning bitcoin is your first defense strategy in protecting your wealth. Think of your Bitcoin holdings as a rainy day fund and an emergency fund while also having a small chance of becoming one of the best investments you've ever made.
Yes, bitcoin could go to zero.
Your cryptocurrency holdings could go to zero, but so could the dollars in your bank account.
The entire world may blow up before either of these happen.
There is a risk in everything.
The problem most humans make—and most investors—is they think they can control more than they can. So they end up buying and selling and otherwise being too active because they believe they can make "good" decisions.
Your defense against an overactive strategy is to do the opposite: avoid doing anything for as long as possible.
Most financial mistakes happen when selling (you can make buying mistakes as well, obviously). So focus on buying and avoid selling if at all possible. Generating wealth is about acquiring assets over time. It's not about buying and selling, that's called trading, and it's not something wealthy people do, it's something traders do.
The key to growing wealth is acquiring more assets over time.
The wealthy buy assets and hold them forever. Think like the wealthy, do like the wealthy.
A few years back, I sold some Amazon stock. The stock was around $350 a share at the time I let it go. I made a small profit. Today the stock is worth $2500.
Sure, I made some money on the trade—and generated a tax bill—and probably thought myself smart. Now it doesn't seem all that smart. And it will probably end up making me look (and feel) less smart each year that goes by as Amazon gobbles up the world. Had I bought and held, I'd be along for the ride. Instead, the few thousand dollars I pocketed are gone.
You can avoid investing mistakes like this by creating an acquiring mindset. Become obsessed with buying and holding. This simplifies your entire wealth creation or bitcoin holding strategy. After you do your research and feel confident in your decision, you can buy and then forget about it. Then keep buying and keep forgetting about your holdings. Before you know it, you'll have real wealth accumulated.
This is how I think about bitcoin, and my advice is for you to do the same; buy and hold.
Why buying and holding bitcoin is the best strategy
Like in the Amazon example, I'm more interested in giving myself the opportunity for bitcoin to be worth $250,000 rather than making a few thousand dollars by selling for a profit the next time the price jumps. The few thousand dollars I might make won't change my life. If I sell, I'll have to let go of my bitcoin and thus give up the benefits of holding cryptocurrency, making it a lose-lose situation.
When I buy and hold, I give myself massive upside potential as well as maintaining the benefits of owning bitcoin of security, flexibility, and privacy. I want to have bitcoin, so I take a very long term approach.
All this points to the same thing: buy and never sell.
I want to purchase assets and own them for life. Warren Buffet recommends this as well. Yet very few people do this. Most try to time the market and end up making emotional decisions. They use a haphazard strategy, or none at all, and respond to the whims of the market. This is why most active investors fail.
Only in a desperate situation should you ever consider unloading your assets.
If you do your research, you can mostly ignore what's going on in the financial news. If things get really bad, you'll hear about it. Even then, you should probably just ride it out. So do your best to ignore the daily price ticker, and the "sky is falling" pundits that profit off hysteria.
Ignoring the news and market price is how you become a confident buy and hold investor. (Anyone that actively trades is a trader, not an investor.)
So the principle for being a successful cryptocurrency investor is to buy and hold.... forever.
Of course, forever could mean ten years or forty or forever.
So how do you buy and hold bitcoin? And how do you know when to buy cryptocurrency?
You don't know.
After you do your research and you feel confident that your allocation is the right amount, you can buy all at once or dollar cost average in.
Dollar cost average means to buy over time regardless of where the market is. The theory is that you'll buy low some days and higher others, theoretically evening out over time. I'm not an expert here, but it seems like a reasonable strategy. Of course, if an asset you are targeting is at all-time lows and you feel confident in your assessment, then you probably should just buy all at once before the market rebounds.
Do not try to time the market. You'll always be wrong. So if the current price fits your investing thesis, then buy and forget about whether it goes up or down tomorrow.
This is what the average person should do. It shouldn't matter if you buy a bit higher or lower on any given day since, as a buy and hold investor, you're buying for what will happen 10+ years from now. As long as your investment thesis is sound, you'll do just fine.
Time in the market is what matters.
The true case for Bitcoin: if things go haywire
The other thing to consider with bitcoin is the massive upside it has if things go haywire in the economy.
When we hit our next financial crisis, it will likely be worse than the last one, as they tend to be. This is going to keep happening for as long as we rely on a fiat money system. Bitcoin has the chance to become massively valuable at any one of these crises and perform well generally over time as the fiat system becomes more precarious. If we ever hit the ultimate reset, bitcoin is likely to skyrocket.
How to be a successful long term investor of cryptocurrency
Now that we've covered some of the general principles for owning cryptocurrency, let's talk about what it takes to be a long term holder of cryptocurrency.
Don't look at the market.
You'll end up peaking at it from time to time, but do everything you can to avoid it.
If you get afraid when the market goes down or excited when it goes up, this advice applies doubly to you because you are likely to make rash buying or selling decisions based on the market hype.
Bitcoin is highly volatile, as all cryptocurrencies are going to be for a while. Even the stock market is more volatile than some people can stand, which is why most people should not pay attention to the financial news.
The only way to be a successful investor, in my opinion, is to avoid paying attention to the market as much as possible. Set your auto-invest options up based on your investing principles. Then set it and forget it.
When the price goes up or down, do you earn or lose money?
Not unless you sell.
I won't go into all this now, but it's worth noting the public's misconception about how the stock market works. You hear people often talk about how they "lost money" when the market went down. They didn't lose anything. Nor did they gain anything if the market went up.
This is a fatal flaw in how people think about stocks, and it leads people to make truly dumb decisions.
You don't lose anything or gain anything unless you SELL. Only when you sell your stocks, do you realize a gain or a loss.
As an example, let's consider the 2009 financial crises that tanked the market. If you had $500,000 in your retirement account before it happened, you might have ended up with $200,000 or less soon after the "crash."
Now what you did in response to the market prices going down is integral to answering whether you actually lost anything.
If you sold during the decline, you would have realized a loss by subtracting what you had invested from what you received on selling.
If you ended up negative, then yes, you did lose money. But that's not because the market tanked, it's because you sold while the market was tanking.
If you did nothing during the crash and kept your portfolio as, by 2019, your portfolio would have been higher than it was in 2009 (granted you didn't own any of the companies that defaulted and had a mixed diversified portfolio). Most people that sold in a panic realized their loss. Had they done nothing, most would have "earned" all your money back and then some.
If there was a market crash, say you lost 80% of the value of your portfolio in a flash, but as long as you don't sell, and as long as none of the companies you own go bankrupt (some could of course), then you are likely to regain back the value of your portfolio over time as long as you do nothing.
So what did many do in 2009? They panicked and sold because they had an irrational fear that their account would go to zero. Many should have done nothing. Yes, some companies went bankrupt. But most did not. Most recovered just fine. And if you had your money in an index fund or other diversified portfolio strategy, your most likely best action was probably no action.
The price the market is paying for an asset has nothing to do with the intransitive value of the asset traded. This is one reason why you should ignore the market most of the time.
I rarely check my stock or crypto portfolios. At the beginning of the 2020 pandemic, my stock account had lost around 35% of its value. What did I do? I bought more. Three months later, it was back up to a higher level than before. In the future, it will undoubtedly go up and down again multiple times. When this happens, am I happy or sad? Well, surprisingly, I'm usually happy when this happens because it's when I buy more.
When it comes to owning anything, you should ask yourself one question: will this company or asset be here in 10 years and still be valuable? If the answer is yes, invest, then forget.
If you don't have the confidence that this asset is something you want to own in ten years, then do more research until you can find something that you can.
The Benefits of owning bitcoin
This itself could be an article. Let's keep it simple.
You can go anywhere in the world, and no one can take your cryptocurrency from you. You also don't need to transport anything physically.
No government can take your crypto away as long as you have it in a private wallet—I'll cover the dangers of keeping your crypto in a public wallet like Coinbase later.
Fungibility means every bitcoin has the same value. Your bitcoins won't be worth more or less than someone else's. This is integral to having a stable and trusted money supply.
4. Huge upside potential
There could be a point in the future where bitcoin is valued at $250,000 or more per coin. (It could also be worth $0.)
5. Bitcoin has the most trust thus far
Right now, Bitcoin has the most trust and branding. It is also “out in the wild” and cannot be stopped or controlled. For another coin to do this seems extremely unlikely to happen. Bitcoin might end up being one of those freak events like the Big Bang.
Just the branding alone makes it the most likely to win in the long run compared to other coins.
Why 2020 changed my mind about bitcoin
I've always been pro-cryptocurrency and pro-bitcoin. Then 2020 happened, and my good opinion of bitcoin solidified into a must-have first principle for life.
The political and civil turmoil our country is experiencing as I write this in June 2020 made me view bitcoin in an entirely new light.
It happened when I started considering having a backup plan for leaving the country. As I started contemplating the importance of becoming a global citizen, and after the FED printed 7 trillion dollars in a week, I became a diehard bitcoin convert.
As I started visualizing myself leaving the country at the first sign of trouble, I thought about carrying gold on that journey, or worse, silver. Getting these heavy metals a different country without anyone noticing does not seem like an easy ordeal.
Then I thought about bitcoin. I could fly anywhere and have immediate access to my crypto holdings to be used as I see fit, and no one could take it from me or even know I had it. I've always known this was a benefit of crypto, but it wasn't until I visualized myself having to take drastic action that it fully clicked.
The portability, privacy, and security of Bitcoin are why I believe Bitcoin is here to stay. Dollars and precious metals have NOTHING on cryptocurrency in this regard.
Bitcoin vs. Gold
You should own gold. Here's my article covering my gold buying and owning strategy.
I'm still unsure of my ideal allocation strategy. I feel more comfortable holding more gold than crypto due to gold's track record, but I'm concerned with issues with third-party custodianship of my gold, and it's just not practical to walk around with gold coins in your pocket.
I could see myself hitting one-to-one allocation of gold to crypto.
Your allocation strategy will depend on your risk tolerance and how comfortable you feel with each. The problem with gold is custodianship—who stores your gold and whether you can trust them in a worst-case scenario.
If a vault holds your gold and the world crumbles, this company will have no incentive to send you your holdings. Maybe the government that controls the jurisdiction declares a state of emergency and raids the vault. (The American government did this with the gold act of 1933, so this kind of thing can happen anytime.)
How to buy bitcoin in 2020 - my strategy
There are many ways to buy and store cryptocurrency and many guides for doing so. Do your research. Here is my strategy for owning cryptocurrency in 2020.
I don't feel comfortable leaving more than a few thousand dollars on Coinbase, a US-based company. The government could outlaw crypto overnight, forcing Coinbase to freeze all of its customer's assets. While this is a low likelihood event, these kinds of things have happened throughout history, and I'm sure the citizens didn't see it coming before it did.
Here is my strategy.
1. Ledger Nano wallet
This is the gold standard for holding crypto in a private wallet.
2. Use Coinbase pro to buy crypto then immediately transfer it to your ledger nano.
3. Split key phrases for ledger and keep in separate places (Not together and not in a place that can be hacked or locked down like a bank vault).
Track your holdings and where everything is stored somewhere private, but not in the same place where your passphrases are. You don't want to forget where things and how to retrieve them. That could become a very costly mistake.
Should you buy altcoins?
Short answer: no.
I don't like them at all.
I used to own some, but then I dug more into what Bitcoin actually is how altcoins can’t compare no matter how hard they try. Since then, I’ve sold all my altcoins and moved everything into BTC.
I do not believe anyone should own altcoins if trying to store wealth. If you want to gamble, go ahead.
Best cryptocurrency to buy in 2020
This one's easy: Bitcoin.
Nothing comes close.
Nothing can be Bitcoin. Bitcoin took on a life of its own. It is not alive and cannot be shut down or censored or controlled. It is almost divine in being one of man's greatest creations.
Buying Cryptocurrency For Dummies
If we summarized this entire piece, it would go like this:
1. Buy bitcoin a bit at a time. Move large amounts off any exchanges to remove exchange risk and store them on a private wallet.
2. Do not pay attention to the current price. Maybe check once or twice a year.
3. Auto-invest or set up a google calendar to buy a bit each month. Set it and forget it to the best of your ability.
4. Buy a few of the most popular altcoins if you want to add a long-shot opportunity to your portfolio. Be prepared for these to be worth nothing and slowly lose in value over time.
5. Never sell unless it is an emergency and you need the funds.
6. Do as much research as you need to feel confident buying and holding forever.
7. Be a buy and hold investor, not a trader.