Cryptocurrency

Love ‘em or Hate ‘em

The Choice Is Yours

What is Cryptocurrency

Cryptocurrency (also known as crypto) is a digital or virtual currency that can be used as a medium of exchange (like money).

Cryptocurrencies use special codes (cryptography) to secure transactions and control the creation of new units. This helps make them nearly impossible to counterfeit. Most cryptocurrencies run on a decentralized system/network using blockchain technology. This is a digital ledger enforced by a network of computers that everyone can see but no one can change.

Because no one person or government can control them, it is much harder to be regulated or manipulated by a central authority, such as a government or a central bank.

Cryptocurrencies are designed to be secure, transparent, and unchangeable, along with offering benefits such as privacy, and quick transactions.

Cryptocurrencies are considered part of the tech sector and are very volatile.

It’s never a good idea to throw all your assets into one sector, especially a very volatile one. If you feel cryptos have a place in your portfolio, then be sure you understand your risk tolerance and be sure you have diversified your portfolio to sustain you if this technology goes down in value.

Some crypto investors only invest 1% of their portfolios into cryptocurrencies, while others may move this up to 5% or 10%.

Know your risk tolerance, and NEVER invest more than you can tolerate to lose.

If you are considering purchasing cryptocurrencies

  1. Understand your risk. Cryptocurrencies are very new and very volatile.

  2. Understand how cryptocurrencies will play a part in your portfolio.

  3. Understand the exchange you will use to purchase your cryptocurrencies.

  4. Understand where you will hold your cryptocurrencies. Will you leave them on the exchange, or will you hold them in a cold wallet (hardware not connected to the internet)?

Not Your Keys, Not Your Coins

If cryptocurrencies are something you have chosen as a way to store, invest, or use then it would be wise to invest time into learning how to properly custody your own cryptocurrencies.

“Not your keys, not your coins” is a widely used saying in the crypto community. This means if you do not hold your own key phrases for your cryptocurrencies, then you do not fully own your cryptocurrencies. Cryptocurrencies are often bought from exchanges, and many just hold their cryptos on the exchanges never taking them off to hold for themselves. This can leave you vulnerable if the exchange was to get hacked or into financial trouble for any reason.

There are a lot of information and videos that can help you decide the best way to custody/hold your own cryptocurrencies, and how to pull them off the exchange onto your own device.

Read below about Cold and Hot Wallets to learn more about how to custody your cryptocurrencies.

Definitions to Understand

Central Bank Digital Currency (CBDC)

CBDCs are NOT cryptocurrencies. They are a digital form of a country’s fiat currency issued by its central bank. Although they are both digital currencies, cryptocurrencies are deregulated, untraceable, and outside of government control, whereas, CBDCs are issued, monitored, and regulated by federal governments. CBDCs claim to help promote financial inclusion, simplify monetary policy implementation, and help explore the potential impacts on economies, however, CBDCs are really a more controllable dollar giving the government the ability to enact policies through your money. This means the governments will have the ability to tell you when and where you can spend your money, and they can turn it off at any time.

Do you want the government to be your bank?

Cold Wallet & Hot Wallet

A cold wallet and a hot wallet are two types of storage systems used to store cryptocurrencies and other digital assets. However, they don’t actually store the asset itself. The digital asset stays stored on the blockchain. Cold wallet or hot wallet refers to how your keys to access the asset will be stored.

A cold wallet (also known as cold storage) refers to a storage system (hardware) that stores your private keys offline. Cold wallets are considered to be more secure than hot wallets because they are not susceptible to hacking or other online threats. However, because they are not connected to the internet, cold wallets may be less convenient for day-to-day transactions.

A hot wallet, on the other hand, refers to a storage system that is connected to the internet, such as a software wallet or an exchange wallet. (The exchange is the platform used to buy, sell, or trade the assets.) Hot wallets are more convenient to use for day-to-day transactions, but they are also considered to be more vulnerable to hacking and other online threats. Some hot wallets are custodial, meaning they do not provide you with your own private keys.

The choice between a cold wallet and a hot wallet depends on an individual's specific needs and priorities. For long-term storage of large amounts of cryptocurrency, a cold wallet is generally considered to be the most secure option, while for more frequent transactions, a hot wallet may be more convenient.

Below are a few videos regarding hardware wallets:

16 Things YOU DON’T KNOW About Hardware Wallets from Adam Venture Crypto

ULTIMATE Comparison: Trezor vs. Ledger Crypto Hardware Wallets from Crypto Tips

Cryptocurrency

Cryptocurrency (also known as crypto) is a digital or virtual currency that can be used as a medium of exchange (like money). Per Investopedia, cryptocurrencies rely on cryptography to secure transactions and control the creation of new units. This helps make it nearly impossible to counterfeit. Most cryptocurrencies exist on decentralized networks using blockchain technology, a distributed ledger enforced by a network of computers. Since this form of currency is decentralized, it is much harder to be regulated or manipulated by a central authority, such as a government or a central bank. Cryptocurrencies are designed to be secure, transparent, immutable (not susceptible to change), and offer benefits such as decentralization, privacy, and fast transactions.

Dollar Cost Average (DCA)

This is an investment strategy intended to minimize the impact of volatility. DCA is investing a fixed amount into a particular stock or fund (or even in the market as a whole) at regular intervals regardless of the market’s ups and downs. The goal of DCA is to reduce the risk of investing a large sum of money in a single transaction and to avoid trying to time the market, which can be difficult and often leads to poor investment decisions. This can help lower the amount paid for investments and minimize risk. DCA can take the emotion out of investing making it easier to deal with uncertain markets by making purchases automatic. This is also called unit cost averaging, incremental averaging, or cost average effect. In the UK, it is referred to as pound cost averaging.

Moon Bags

This is a slang term used by some in the crypto community, but it can be used for other asset categories as well. For this strategy, when an asset you invest in goes up a certain amount, you will then pull out your initial investment and maybe even some of your profits, while still holding some money in the investment. This gives you a “bag” of investments that you own free and clear, like house money. You can then HODL without the risk of losing your initial investment. This strategy can be used to help investors manage their risk by ensuring that they have recouped their initial investment, and they can still potentially benefit from further gains.

HODL

This is a slang term used in the cryptocurrency community that is said to have become popular after a post on the BitcoinTalk forum in 2013 in which the poster misspelled "hold" as "hodl" when they wrote, "I AM HODLING." The post gained traction and became a meme, with the term "hodl" being used as a rallying cry for cryptocurrency investors to hold onto their investments through market ups and downs. It is also sometimes referred to as meaning “hold on for dear life” as a strategy of holding onto a particular asset, regardless of short-term market fluctuations or price declines, with the expectation that the value will increase over the long term. Individuals that HODL are also known as Hodler.

Seed Phrase/Key Phrase/Recovery Phrase

This is a set of words your crypto wallet generates (like a master password) that lets you access your crypto, no matter what happens to the wallet itself. The words in a seed phrase are randomly generated when setting up your wallet. Therefore, this phrase should be written down and kept in a safe place so you can use it when needed. Most importantly, never give out your seed phrase. Phishing scams may try to ask you for your seed phrase, but the only person who should ever have your seed phrase is you. If someone uncovers your seed phrase, they can control all the crypto in your wallet.

Here are a few strategies to consider if you want to try to take advantage of this new technology

Only portion a small percentage of your investment portfolio to cryptocurrencies. The future of the crypto industry is yet to be seen as it is still so new. This makes it very volatile and hacks, bad news, and other world events can affect crypto prices in a major way. You do not want to invest a large percentage only for it to drop a lot in value and hurt you financially for your future.

Dollar-cost average your way in. This is when you buy a little every few days, weeks, or months. No one knows exactly what the market will do, and this can prevent you from going all in on an asset only for it to lose quite a bit in value shortly after.

Take your moon bags. When an asset (especially a volatile one) goes up, start to take off some profits so you don’t lose all your initial investment.

Strategy From Economic Ninja that could be a great moon bag strategy:

  • When an investment doubles, pull your money (the money you originally put in) back out.

  • Then when the investment doubles again, pull 1/2 of those gains out.

  • Then you can sit back and enjoy the ride. (It really is a rollercoaster ride. There will be highs and lows, but it can be more enjoyable if you know you will not lose your initial investment.)

  • If the investment dips again and drops by 1/2, then you can double your position. (Only if you still believe in the fundamentals of the asset.)

Deciding when to HODL or sell cryptocurrencies is a personal choice, and investors should do their research and due diligence before making these decisions. Some investors will choose the HODL strategy across the board while others may only buy and HODL some assets they believe in long-term, and they will buy and sell others.