Crypto is hot
Crypto is everywhere lately and especially on traditional news media. This has given crypto a more mainstream appeal this year than ever before. At the same time the price of pretty much every token is rising and tremendous amount of wealth has been created in the last few months. If you had any BTC or ETH in mid-2020, it’s probably 10x’ed by now. Had you had ADA, BNB etc it might have 20x’ed by now. So yeah, the hype so far has been real. I get asked quite a bit about how to invest in crypto and what’s safe, so here’s the blog that details my learnings.
Disclaimer: I am not an expert and this is not certified financial advice. I invest in Crypto so I do have skin in the game but it can be an extremely volatile market. If you don’t want to experience 10% drops regularly or 50% drops from highs, crypto investing may not be for you.
That said, you can still use crypto ecosystem to earn (relatively) safe fixed interests on USD stablecoins. Read below to learn more
This is the 4th blog in the crypto series: Blog 1 covers some basics about what crypto is, some important terminologies and my investments in crypto. Blog 2 covers my take on why the crypto ecosystem is much better positioned in 2021 than in 2017 and it’s just a scam. Blog 3 covers my take on why ethereum is the best positioned technology and asset.
Tools to get started
Binance
It’s probably one of the most feature rich centralized exchange with simple buy / sell, ability to convert easily across certain tokens, have more complex buys and sells, do derivative and margin trading with various crypto products etc. I personally like their earning product on a lot of tokens like TRX, ADA etc that other exchanges may not have.
It’s also fairly simple to sign up with KYC (at least for non-US citizens) and you can wire USD to them from anywhere in world and get started. Sign up now here.
BlockFi
A mix of crypto exchange and bank. You can buy BTC / ETH and some other key coins. Simple KYC sign-up (including US citizens). Easy to use interface and mobile app. Limited token selection but allows ACH transfers for US customers as well as wire from anywhere in the world. They have good earnings rate of 8.6% on USD stablecoins and 6% on BTC. Sign up now here.
Celsius
More of a crypto bank. Simple KYC sign-up (unsure about US citizens). Only has a mobile app. It’s not great for buying crypto as the fees are high but it’s a great product to buy somewhere else and then hold it to earn interest. Currently it’s offering upto 10% in USD stablecoin interest (paid weekly) and another 10% extra if you earn in their CEL tokens. Sign up now here.
Gemini
I don’t use it personally as I had a poor KYC experience (stuck for 2 months) but it’s a fairly solid exchange backed by Winklevoss twins. It has good earnings rate and ability to ACH / Wire funds in. They also have a form of crypto USD custody so there’s added safety on the funds. Sign up here now.
Coinbase
Probably the most famous exchange, just went public in US markets. So definitely there’s more confidence and safety in using this product. However they have crazy fees everywhere and I don’t use them at all. Their product selection, earnings rate etc in general is very poor compared to other players mentioned above. If you still like Coinbase, can sign up at www.coinbase.com.
Metamask
It’s not a centralized product but rather a browser extension / mobile app that allows you to create a local Ethereum wallet. It’s geared towards more tech savvy customers and the key part is to remember / write down the seed phrase at time of sign up. If you lose that and change computers, you will lose your wallet (and your funds). The metamask wallet is great (almost necessary) to interact with Decentralized exchanges like Uniswap. You can also directly swap your funds in Metamask and it aggregates across various exchanges to give you the best rate.
Note, you pretty much need to have Ethereum to do anything here. So buy ETH somewhere on central exchange, send it to Metamask. The fees for complex transactions can be .02-.03 ETH so make sure you keep 0.01 in Metamask if you really want to use it.
Uniswap
Uniswap is a decentralized exchange that allows you to trade across random tokens. For example, you can exchange RARI (Rarible) to CEL (Celsius). It also allows you to become a liquidity provider and earn fees on the network. The basic idea being that you can supply some liquidity for any given trading pair and when people trade on Uni for that pair, you get a cut of the fees.
Risks to watch out for
Ability to wire
Most crypto banks like BlockFi, Binance, Gemini etc will allow you to wire USD funds to them. These generally get converted into a USD-pegged stablecoin at 1:1. These products don’t charge any fee for incoming wire transfer so the only fee you pay is dependent on your bank. You can even do cross-border transfers (I have tested sending USD wire from DBS in Singapore and it works fine).
However, note that most exchanges will only allow wire transfers from an account that matches your account holding name. Essentially if you use a 3P service like TransferWise or wire money through intermediary, it will not be generally accepted.
Supported tokens
When you buy something directly on a product, it will be deposited into your account directly. However when you are moving stable-coins or tokens across products (eg sending USDC from Binance to Celsius), you generally have to deal with ugly 64 character addresses like 0xabcdef8793459354534. Not all exchanges support all tokens, so make sure the receiving product can receive that particular token. For example, sending RARI to BlockFi will most likely not work, so if you end up doing it – it might be irreversible and the money will be lost.
For something like Metamask, you can probably use it to receive any ERC20 token on Ethereum network. But most central products have limited token support.
Network
If you have made sure you can send a particular token from one product to another product, the next thing to verify is the network on which this is sent. Each address is specific to a network (Blockchain), so make sure your receiving address is available on the network being used. For example, you use Ethereum blockchain to send ETH from product 1 to product 2. However, if you are sending ETH to a Binance smart chain address, the transfer may fail if you have an BSC address but Ethereum blockchain selected.
This is even more important when you use products like Metamask which are not backed by central entity and are more developer focused.
Transaction Fees
Ethereum network is highly congested due to very high demand. This can lead to transactions being very expensive ($5-$10 for simple transfers, $50-$100 for more complex token swaps). Hence be careful you understand the transaction fee you are paying. Some products absorb 1 transfer fee per month, or may have free transactions for certain things. Some exchanges may include transaction fee into the conversion rate. But in general pay attention to the transaction fee for the transaction you are about to undertake. You don’t want to pay $50 in fees for a $100 ETH buy transaction.
How to use these products
Simple safe fixed interest
The current bank accounts don’t offer any meaningful interest rate on deposits. This means money in your bank is generally depreciating as it can’t even cover inflation. Hence, one of my key focus in last few months was to explore the best fixed interest options that are relatively safe.
Crypto banks (like BlockFi, Celsius, Binance, Gemini) all offer some form of earning potential on USD stablecoins. This means you can put $1000 in Celsius for example and get ~10% APY in US and in 1 year, withdraw $1100 back to your bank account. Hence you can use crypto ecosystem to generate better wealth without even having to deal with cryptocurrency volatility.
Note that Celsius pays (and adjusts interests) weekly while BlockFi does it monthly. Binance has certain products that generate daily interest rates as well.
Long term buy and hold
If you are looking to buy and hold for long term, you can start by investing a small percentage of your savings at whatever the current prices are. You can then also buy monthly to dollar cost average. I would recommend using BTC or ETH for this as these are the bigger players and have more ecosystem around them, hence making them more unlikely to lose value over time.
You can buy directly on BlockFi, Celsius and any other exchange and then hold the coins in the wallet that works for you. ETH has 5% earning rates in Celsius and BTC has 6% (upto 1 BTC) on BlockFi as of right now. So not only are you getting long term appreciation but also generating passive income on these assets.
There are other assets out there but when buying for long term, my philosophy is to buy those technologies that have been around the longest, as they are more likely to be around in 5-10 years.
Speculate for high risk / high reward
There are too many ways to do this. You can buy smaller tokens that you think will do well. You can leverage upto 125x on Binance trading. You can do future, options and other derivatives. You can hold various tokens that might offer 30% yields on Binance. You can also go into various DeFi protocols to provide liquidity and earn fees.
But if you want a shot at 100x tokens, I would recommend taking a fraction of the amount you decide to put in crypto. (Eg: you have $10,000 – you decide to put $500 in crypto, of which you decide to put $100 in speculative assets). Buy small tokens that you understand the potential for and spread out the risks a bit.