Monday, February 20, 2023

Opinion: Lessons learned after 4 years of dealing with crypto

Since about 2018 I have been semi-passively interested in crypto. During these last 4 years, I dipped my toes into a few most famous coins/tokens like ETH, BTC, CRO, etc, and a few meme ones. Noways I still have about $5k split between ETH and BTC on one of the major crypto exchanges. This investment represents only a tiny percent of my net worth. If next year crypto drops another 50% I will be disappointed but not financially broke. Here are some thoughts and lessons learned:

- Crypto is still and will be for a while a new frontier. If you want to play safe just buy some BTC and/or ETH on a single major US/EU-based crypto exchange and forget about it. You can now stack your ETH2 and get some % back while you wait. It's one of the safer exposures to crypto in my opinion.

- Do not chase hype coins. The crypto market is mostly hype-driven. You might get lucky when the hype is rising, but then you will burn when the hype dies down. In fact, many of these coins move along with "blue-chip" crypto like BTC and ETH (meaning if BTC is falling, usually everything else is also falling).

- There is an exception to the previous point I made. The crypto market is also "whale"-driven. Large sums of tokens are concentrated in a hands of a minority of people(or wallets), who can move prices up and down through the means of speculation. It is easy enough, especially on non-English speaking forums and chats, to find a group of individuals who create these "waves" in supply and demand of a particular token. There used to be people who would do the same with the stock market, but it was made illegal. Crypto markets are much more open, thus anyone from any part of the world could mess with them.

- Be honest with yourself and do not call yourself an "investor". You are gambling with your money. There is nothing wrong with occasional gambling for fun, but do not bet away your or your loved ones' life savings.

- If you care about filing taxes, do yourself a favor and stick to a single exchange. You will thank me later next tax year. Every trade you make is a taxable event; You might get sing up bonus here and there and trade/transfer some meme coins between wallets, but every single activity you perform with your crypto makes your taxes more complicated and more expensive to file. In fact, depending on how much you made, you might find yourself spending all your winnings to pay different 3rd parties to help you to file taxes properly.

- Do yourself a favor and stick to a single exchange due to a different reason: contrary to good old cash, every time you want to do anything with your crypto you must pay a fee. If you are a gambler on a budget, you will quickly see how your balance gets drained with every single transaction you make. If you decide to trade on a single exchange, be aware of "spread" (a hidden fee), you never get 1 for 1 in terms of comparable market value between two tokens.

- It's quite possible that the crypto market will double by date X, but it's also possible that the stock market will double by the same date. Yes, there are tokens that will produce 500% by date X, but it's quite possible that there are also stocks that will produce 500% by the same date. If you want to speculate, or even properly invest in something, try the stock market for starters as it's not only a safer option thanks to government regulations and consumer protection laws, but also a much more mature market.

- Blockchain is a great and promising technology. After all this mess, there will be use cases that will drastically affect/improve our lives. On other hand, Bitcoin won't replace the dollar or cash, in fact, some governments might switch to a digital currency at some point that will be based on blockchain technology, but they will be the ones to reap the benefits and not the people who invested in coin X and hodled through all the years.

I personally plan to keep my BTC and ETH untouched until I really need money for some large purchase like a house. I sold all other coins/tokens for a loss and got rid of all my wallets and all but one exchange. From now on I will try to keep transactions to a minimum, so next year I am not paying extra to file taxes here in the US. If I decide I want more exposure to crypto I will simply buy more BTC or ETH, or invest in Coinbase or Square stock on US markets.

This is not financial advice. Have a good night.


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