The 7 Basic Tenets of Investing in Cryptocurrency – A Quick And Dirty Guide

What You Must Learn before Investing in this New Asset Class...

Winson Ng

The 7 Basic Tenets of Investing in Cryptocurrency – A Quick And Dirty Guide. coinzodiacAre you thinking of investing in cryptocurrencies but afraid of the scams and losing all your money?

Well, then you’re in the right place. Because like you, I was once in your shoes, considering whether I should flip a coin and decide whether I should take the plunge.

Thus when I read the first article about Bitcoin, I wanted to learn everything I could.

Like a rabbit hole I went deeper and deeper until I realize 7 fundamental truths every newbie needed to know before they invested a single dollar of their savings or else it’s as good as gone.

Don’t be like Edward over here. He used his credit cards and took a mortgage out just so he could make 10,000% returns. 

Guess what happened next?

He made almost $300,000 in just over a month. The following months, he re-invested all of his profits back into crypto, and 7 months down the road. He is now down to his last $30,000.

Not only that, he still owes the IRS tens of thousands of dollars on the profits he cashed out of crypto for US Dollars.

He got greedy.

One early & lucky trade during a bullish run would likely reinforce a bad habit that will lead to a lifetime of losses.

This is a true story.

Bitcoin is under no obligation to make sense to you.

That’s how all the latest cryptocurrency wannabes thought of it — a get rich quick scheme, one that allowed them to buy things from their wildest dreams.

What the 2017/18 bubble shows, however, is that cryptocurrencies such as bitcoin shouldn’t be treated like a a get rich quick scheme. Treating it as such is tantamount to throwing your money down a wishing well.

But I’m getting ahead of myself.

I’ll let you in on why I started writing.

I created this blog to organize all the knowledge and information I’ve acquired over the years.

I waste my life writing just so that I can be an expert. It’s my way of learning. But if you benefited from reading some of my articles, that would be a cherry on top.

Here on CoinZodiac, I only write about what’s important to me and summarize them so I can easily recover it when I need to. That’s why I bookmarked this Bitcoin Resource Page.

If you’re layperson with zero technical knowledge, this will not only help you understand how cryptocurrencies work but help remember what it was that you read.

Here’s what I normally write about:

  1. Bitcoin
  2. Cryptocurrency exchanges
  3. Regulation & policies
  4. Scams
  5. Wallets
  6. Tools
  7. more….

The power and elegance of computer coded laws in Bitcoin is that they apply everywhere, whether or not you choose to believe in them. In other words, after the coded laws of Bitcoin, everything else is opinion.

Don’t let all that information scare you.

You don’t need to understand all the technical jargon before you can invest in cryptocurrencies.

I don’t claim to completely understand everything too.

All you need to know is that its important to channel your worst fears into a hunger to learn & curiosity to understand.

Meanwhile, I will take every effort to simplify the process and help you get to where you need to be and what to do exactly without breaking a sweat.

101 Fundamental Investing Advice

~Not just in Crypto but in any damn thing.

Do not invest more than you can afford to lose.

This isn’t a financial advice I’m about to give you. It’s the one I received from many venture capitalists and experts who got burned and REKT because they thought they were experts.

Let me take you on a journey in my ship of imagination back to an age where money isn’t a thing. People back then used to write down what they have and how much they owe their friends and family.

Yesterday: A physical Ledger | Today: A Bitcoin Blockchain

5,200 years ago, our minds experienced a cognitive revolution. It allowed early humans to record transactions & expenditures of goods received and sent.

It kick-started this whole Bitcoin thing we have today.

These were called ledgers.

This one right here is a clay tablet from the ancient ruins of Babylon. People relied on writing down what they have and owed in order to keep track the movement of goods or merchandise of value.

Only in the last 50 years or so with the advent of the internet, that trading began to take shape in the form of digital bits of information.

Problem with transacting data in the digital realm is spam and false transactions.

There’s nothing wrong with that. We relied on third party intermediaries to put their stamp of approval onto these transactions to make sure their legitimate.

Unfortunately, in doing so, we also passed on our power and authority over our monetary power to these Intermediaries.

Today, central banks and the state control and weaponize their authority over money at will.

Before 9 January 2009, nobody could solve the Byzantine’s General problem and double spending.

In computer science, this was the holy grail of getting your message across the internet without being tampered with.

The internet is a messy cauldron of information. People who have the right skill set can easily change and edit the information you’re sending across the web to your friend.

So how can you trust the validity of the information you received from the web? Especially when it involves money?

How can you be so sure that it is indeed from your friend and not information from a bad actor in disguise as your friend?

You can’t. It’s impossible.

Not until Satoshi Nakamoto released this 9-page document.

Within the pages, Satoshi detailed how online payments can be sent directly from one party to another without needing the bank or payment processors.

It was revolutionary.

Some of the brightest skeptics, hackers and programmers attempted to digest, find vulnerabilities and loopholes but ended up turning into staunch believers.

The whitepaper was released at the cusp of the 2008 financial crisis where Americans alone lost $12.8 trillion due to bankers negligence and abuse.

When money supply is controlled by a few powerful men. All the energy and effort will go into expanding that supply.

And that creates an illusion of prosperity.

The fun stops when everyday people have to return to objective reality and pay back everything they owe.

Also read: Ways You Need to Allocate Cryptocurrencies in Your portfolio for Maximum Profit

1. Assess Your Risk Appetite

The bigger the Cheese, the bigger the profit; but beware of the Cat (Market)

Investing in this new asset class is widely considered to be risky and volatile.

While some early investors gain exceptional amounts of profit, it has also led to the downfall of many new investors this year.

Just this year alone, the cryptocurrency market cap lost nearly 50% of its value.

How you allocate your assets in cryptocurrency will most likely determine how well you handle the risks on a personal level.

If you’re too heavily invested, it will be harder for you to ride out the bear market. So there’s a high chance you would sell at a loss.

Experienced Investors and venture capitalists do not put their money into something they do not believe would last decades on.

For example, Marc Andreessen who famously kick-started the whole internet revolution views Bitcoin as a decade long investment.

In an interview on the Washington Post, Mr. Andreessen states “In 20 years, we’ll talk about Bitcoin like we talk about the Internet today.”

Warren Buffett is a notable investor who views investors with low risk-appetite as somebody who lacks any conviction in making returns on his/her money. But he is known to be a huge skeptic, calling Bitcoin “Rat Poison Squared.”

He’s a legendary investor of his time. Not ours in the digital age.

In other words, investing in cryptocurrency would likely mean you need to have a relatively high risk appetite and you also need to do a little bit of homework.

Without some level of understanding on what you’re getting into, you would likely take the rumor mill or the news outlet as your next financial advice.

Read my Quora Answer: 

  1. Do you think bitcoin will reach 100k, or are these people online just bluffing? Seems to be dropping fast with no sign of coming up.
  2. I invested in crypto when it was on the high, I am afraid that the crypto market could fall more as of Sept’18. Should I pull out at a loss?

 

2. Treating Bitcoin as Digital Gold or Speculative Trade?

Treating Bitcoin as a speculative trade would likely mean you want to make more fiat money.

And that means you don’t truly understand what Bitcoin is all about.

Even veteran and respected traders are trying to get in on the act:

See how fast their opinions change just to sell more newsletters?

Traders will never ever see the underlying principle of a technological breakthrough because they’re so far up in their asses with consumerism.

Remember: They will only show you what they want you to see.

Scarcity

Digital scarcity is a brand new phenomenon. Before this, the only thing in town that is known to be scarce, existed in physical form.

Gold is one such example.

Gold is the result of two stars far larger and denser than our own sun colliding at each other at a probability of close to zero, creating an unimaginable explosion a trillion times greater than the last asteroid that killed the dinosaurs.

As a consequence of this rare collision, our solar system consists of these rare heavy elements such as gold, silver and copper.

Bitcoin on the other hand is just bits of digital information and signatures, cryptographic-ally secured to the pin in your head.

What Bitcoin does is give everyone their sovereignty over their money.

The power and elegance of computer coded laws in Bitcoin is that they apply everywhere, whether or not you choose to believe in them.

In other words, after the coded laws of Bitcoin, everything else is opinion.

Paul Krugman, an economist in the US says that fiat money is backed by men with guns. The strength of the US Dollar today comes from the barrel of a gun.

And that is a fact.

Today the US is flexing their arms all over the world through their financial power. Countries that don’t play ball either get sanctioned or ostracized completely.

Now blockchain is not the only thing that makes Bitcoin unique.

The network effect and Proof-of-work gives it a distinct advantage over all other cryptocurrencies.

Interested to Learn Why?:

  1. Why Bitcoin is a protocol and Altcoins are companies.
  2. Why Blockchain is Overhyped.

 

3. Time Preference

Time preference is a test of willpower and self-control.

It turns out, your time-preference determines whether you’re a bad, good or great investor.

If you have a high time preference, that means you need things happening for you now or as soon as possible. 

A low time-preference indicate that you are willing to wait much longer than anyone else before you consume the fruits of your labor.

Want a Cookie?

Just imagine 5-year-olds alone in a room. And siting right in front of them on the table is a scrumptious marshmallow or a cookie.

Beforehand they were given a choice, withhold the temptation for 15 minutes and you get two extra cookies.

This was a study conducted by Stanford University and it found that the majority of the 600 children that were tested had high time-preference, or a low willpower.

The research also indicated that kids that had near-term greed, effectively succumbing to the temptation of eating their marshmallows first, were associated with lower SAT scores, higher body-mass index and increased risk of substance abuse later on in life.

Simply put, a low time preference investor would be better-equipped on getting a higher return on their investments.

Investing favors the emotionless.

And getting great returns on your investments takes patience, foresight and self-control.

 

4. Market Manipulation

Every free market is subject to a very simple mathematical fact.

For you to outperform the market, many others must under-perform.

In traditional markets, it’s safe to say that you’re protected by regulation and law.

Assuming that everyone now has the same information they need to make an informed decision, the winners and losers comes down to those who can make a better prediction.

Unfortunately, that is also not the case for traditional markets. As you’ll soon find out that even in highly broad and regulated markets, professional money men are highly adept at manipulation.

Now consider the cryptocurrency market.

Dubbed the wild west of the digital gold rush. Trading on thousands of exchange sites are unchecked and unregulated.

Especially those with low volume and liquidity.

You’re subjected to an array of professional manipulators:

  1. Inside Traders – Coinbase listing of Bitcoin Cash
  2. Whales – Investors who are capable of mobilizing mindboggling amounts of capital
  3. Spoofing
  4. Wash Trading
  5. Pump & Dump Groups on Telegram
  6. and much much more…

Yes, I’m telling you the the entire game is rigged.

The only solution is to stop actively trading to try to predict the price movements.

You don’t own a Crystal Ball.

Cryptocurrencies that are new are the easiest targets of them all. Unless you’ve an unfair advantage, you will be losing out to these dirty, no-good rent-seekers.

And just to be clear, what they’re doing is in the grey zone, there is no policing yet capable to bringing them into justice because this space is still so new.

But there’s where the opportunity lies. Real money is made when there are dirt roads.

Be extra cautious of salesmen using terms like ICO, Crypto and Blockchain to ‘wow’ you into buying. 98% of them are either trash or an exact carbon copy with a different candy wrapper.

Meanwhile, a study by Sylvain Ribes finds that over $3 billion dollars worth of faked Cryptocurrency volumes & wash trades were concocted across all major exchanges.

“I found ridiculously massive discrepancies between exchanges. Not the kind that can be easily hand-waved away (“oh well, their users must behave differently”), but the kind that can only be explained by some figures being overstated as much as 95%,” explains Ribes’ study.

So unless you understand how trading cryptocurrencies works under the hood, it’s best to just buy and hodl in your hardware wallet.

Here’s a deeper dive into the topic…

Essential Read:

  1. 5 Reasons why You”re Burning Money Trading Cryptocurrencies
  2. Why you should Buy At least 1 BTC before buying Altcoins

 

5. Scams and Snake Oil Salesmen

Why do so many people fall prey to scams?

Because most people have a very shallow understanding of how things work. Especially when presented with something so technical and always explained in jargon.

They’re usually ill-informed because they think they’re right but not enough to know they’re actually wrong.

Or, they either don’t read and do their own thorough research (DYOR). And I’m not talking about watching some YouTuber rant or reading your favorite idol tweet.

Their need for instant gratification or near-term greed is also not helpful. It makes it easier to fall for charismatic personalities.

Usually, they will learn about some random coin through the grapevine, friends and family who will vouch for it, saying they are already making lots money.

A lot of people talk about investing, but few actually know how to differentiate investing from gambling.

Oxfam International did a study last year and found that just 8 people owned as much wealth as HALF of the WORLD’S POPULATION.

It Will Get Worse.

Half of the world’s population get their daily news from the mass media controlled by these 8 people. And generally the rumor spreads like wildfire among themselves.

Not only that, half of them are choosing to completely shunt investments of a lifetime just because they heard or experienced something bad before.

Think about it.

It’s monopolistic in nature and a scheme to extract more wealth.

As a result, more and more capital accumulates at the top.

And with more capital comes more power to dictate the terms governing your future and the future of your children.

Using Blockchain and Patents

The term ‘Blockchain’ today is just the jargon snake oil salespeople needed to polish and pull off their latest MLM scams.

Look at the Current List of Blockchain Patents that these Corporations Own:

Blockchain’s use can be traced back to 1991, so why the sudden spike in interest in 2017?

Because its profitable and seductive brand marketing for Giant Corporations. Using a recycled term to temporarily boost their own image.

Corporations understand they cannot profit from Bitcoin, so what’s the next best thing?

Create their own private blockchain.

Its subtle implication that what blockchain is, can be molded into something better than Bitcoin itself.

Nick Szabo, A Premier Thinker of History, Law and Economics talking about Bitcoin

I really liked this sentence: “Bitcoin Offends the Sensibilities of Resource-conscious and Performance-measure-maximizing engineers and businessmen alike.”

If you want to learn how Blockchain works within Cryptocurrencies:

Read more: What is the relationship between a blockchain network and a digital currency?

 

6. Cryptocurrency Exchanges = Big Security Holes

~Source: CoinIQ

Lesson: Never Secure your Coins for long term storage on Cryptocurrency Exchanges. No matter how Professional or How much Guarantee they offer you, always be skeptical.

Get a Ledger Nano S or Trezor and transfer your precious coins there.

Exchanges are most likely the first point of contact for people to buy or sell cryptocurrencies.

On top of that, they’re required to submit all kinds of weird and interesting details about themselves including a selfie to these new platforms to satisfy the “Know-Your-Customer” rule.

So that’s why it’s essential for you to pick and choose a relatively safe and reliable exchange to do your bidding.

Here’s my recommended list: My 8 Step Process to Identify The Best Cryptocurrency Exchange [2019-2020]

Alternatively, you can purchase P2P via LocalBitcoins,

Quick-Fire way to Buy Cryptocurrency with Credit Card or Debit: Read this 7 of the Fastest Ways to Buy Bitcoin (BTC) Today!

  1. Changelly Most crypto-to-crypto exchanges integrates Changelly. (Most Popular)
  2. CoinMama Buying BTC the old-fashioned way in Satoshis (Bitcoin’s smallest unit)
  3. CashApp (buy btc for free!) Only US & UK

 

7. The Human Condition – Psychological misery

There exist a natural inclination within humans to go towards something that could cause harm to themselves.

This is evident when we saw every newcomer to the space, buying more than they can afford to lose while the crypto price was reaching All-Time-Highs (ATH) every week back in December 2017.

They swiped their credit cards, took loans and mortgages, etc. and bought every single coin that was out there.

When the correction finally happened due to over-inflated enthusiasm, the majority of this get rich-quick mindset mania sold at huge losses because they couldn’t bear the thought of suddenly wiping out their years of savings.

This is a very bad habit of short term thinking.

Noisy action over small gains.

Now they’re shouting and saying Bitcoin is failing because they themselves took a terrible bet.

Let me share this insight: Nike has a market cap of around $110 Billion and spends hundreds of millions each year on marketing and is seen as a huge success all around the world.

Bitcoin has also the same market cap, spends nothing on marketing and yet is seen as failing?

Thinking Bitcoin will not go exponentially higher is betting that a $111 billion global decentralized empire will fail.

On the opposite side of the spectrum, there are those who procrastinate time and time again despite having connected all the patterns to make an informed decision.

Ian Fleming calls it: “Once is happenstance. Twice is coincidence. Three times is enemy action”


The Long Term Thinker Will be King.

Win the Decade, not the Day.

Conclusion

When investing in cryptocurrency.

Don’t be lazy or ignorant.

If you do, you’ll end up tripping over some entangled cord due to your own negligence.

Bitcoin is a new way for ordinary people like you and me all over the world to regain power and control over our assets.

It does not care about your skin color.

It does not identify you by national borders.

It’s neutral, decentralize and censor-ship resistant.

If you’re too lazy to learn or read on how to apply the best investment & security practices for your crypto-assets, then it’s best to just avoid them altogether.

You know the other day I read about how people in far-flung corners on the globe are using cryptocurrencies like Bitcoin to send money to countries that are experiencing hyper-inflation.

War-torn countries. Countries that are ruled by an authoritarian regime.

Countries that are sanctioned by other more powerful nations due to political reasons.

Some of them couldn’t even send money via PayPal because of all these censorship.

It’s ludicrous.

A few Powerful people still cannot get over some small feud.

And it is costing people their lives.

It’s Time to Regain Control over our money!

Is it safe to invest in Bitcoin now? Read & Share real knowledge, it’s easy. Don’t let that button stop you from sharing.

I read Satoshi’s work, his philosophy is simple. If you want to learn the secrets of Bitcoin, if you want to have real knowledge, You’ve just got to Read more

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