We’re scared to death to try new things because we think we have to get it right the first time. That’s how I felt about buying bitcoin.
As I attempted buying cryptocurrency for the first time with my first Bitcoin transaction, I stared at my smartphone, refreshing frantically to ensure the transfer went through. Success – but completion would only happen two weeks later (buying with your bank account on Coinbase takes two weeks for the first transaction). Really?! Two weeks dragged on slower than the wait for the next Game of Thrones season, but finally, it hit my account, and my anxiety subsided.
That sums up the feeling I had when I went to make my first purchase of the now-well-known, somewhat elusive and very volatile Bitcoin. Bitcoin has become a household name in today’s society and is generally used as a catch-all phrase for cryptocurrencies (kind of like “Kleenex” for tissue or “Google” for web search). There are literally hundreds of other coins available to trade, but Bitcoin has been at the vanguard for quite some time.
My journey to making my first purchase was fraught with questions, what-ifs, and FOMO; but the journey is often times better than the destination.
Below, I’ll give you some insights into my own journey from trading stocks to trading Bitcoin – the thought process, and why I believe Bitcoin should be an integral part of your investment strategy. Now, I’m going to assume you have a basic knowledge of investing in stocks as I tell my story of buying cryptocurrency and my first Bitcoin.
My Life as an Investment Banker
In my earlier days, I started off as a finance nerd, working in New York City at an investment bank. I graduated from Georgetown with a finance degree and began my career as an investment banker in New York. This was 2007 and the start of the financial crisis. I learned a ton about finance and investing, but the most important thing I learned was how to not LOSE money. My investment strategy mainly focused on finding businesses that are well-run and undervalued. And that was what I did for the next several years in my own investment portfolio. I did well and was happy with my overall investment strategy over the next several years.
Fast forward to 2017, and now we’re on the verge of a nuclear war with a fat guy and a child (interchangeable), fake news abound, and Nicki Minaj is donating money for college scholarships. Crazy world.
In the midst of all this, I kept hearing about blockchains, cryptocurrencies, and Bitcoin, so I figured I need to change my investment strategy to align with the craziness in the world. Hence, my initial foray into understanding the cryptocurrency world. (Okay, Trump and Nicki weren’t really a factor in deciding to invest.)
Learning about Bitcoin & Cryptocurrency
When I started researching Bitcoin, I found there were a handful of sites that had decent news/information, but they were WAY too technical for someone trying to learn about what the heck Bitcoin or cryptocurrency was. I started finding topics on medium and Reddit with people talking about investing in cryptocurrency in an easier way to understand what Bitcoin really was. Several days later, I realized a few key things:
- Bitcoin is kind of like the Wild West. Think of the internet when it first came out and no one knew what was really going on. There are many opinions out there on Bitcoin, so becoming comfortable with ambiguity is a must.
- There is no one source of truth. Aside from the actual bitcoin website, which has some pretty technical pieces, there isn’t one singular source of truth.
- Bitcoin is a case study in Microeconomics: Microeconomic foundations are about supply, demand, utility, and scarcity. This relates to Bitcoin because there is a limited supply of coins available (max supply of 21MM coins), high demand (very high daily trading volumes), and increasing utility with many ways to use Bitcoin (goods and services…for example you can even book a trip with Expedia using Bitcoin.)
- The long-term potential is immense. Bitcoin is based on blockchain technology. Bitcoin is mainly a digital currency with an expanding set of uses. It’s anonymous, carries $0 transaction fees, and isn’t dictated by a single government. This article is a good summary of why Bitcoin can be viewed as better than traditional currency (i.e. US Dollars, Euros, etc).
In other words, Bitcoin is a relatively risky proposition compared to stock investing but has some characteristics of existing assets that are already available. For example, Bitcoin trades on exchanges (just like other securities), has volatility like stocks and has (generally) been trending upwards over the past year. While there are inherent risks in any investment, I felt comfortable enough with the long-term potential of Bitcoin and the potential uses.
I started off buying $500 of Bitcoin using Coinbase. The good thing about Bitcoin is you don’t have to buy in whole number increments – i.e. you can buy 0.1 BTC (Bitcoin), or 0.01234567 BTC if you so choose.
When buying stocks, there are many well-known stock brokerages (an entity that facilitates buying and selling of securities between a buyer and seller) like Fidelity and Vanguard, or upstarts like RobinHood where you can set up a bank account and buy anything from Apple to Zion Bank. Also, when you are buying stocks through a brokerage, the brokerage effectively acts as a “wallet” to store your money (many of which are SIPC and FDIC insured).
With cryptocurrencies, though, it’s a little different. The “brokerages” you need to use, like Coinbase, are smaller and some have security issues or aren’t SIPC or FDIC insured. It can be nerve-wracking giving your bank account info to an company that is up and coming. So, I had to find out some things about how transactions work and where to go to buy and how to store. To save you all the agony of doing that yourself, here are some tips I learned along the way about transacting in Bitcoin.
- Bitcoin ticker is BTC. There are others out there including Bitcoin Cash (BCH), First Bitcoin (FIT), BitConnect (BCC), Bitcoin Dark (BTCD). Make sure to buy BTC.
- Setting up an account is easy. I use Coinbase. This is one of the most popular exchanges, is US-based, has good security practices and actually does have insurance on your wallet. This means that if Coinbase were to suffer a security breach, the insurance policy would pay out to cover any customer funds lost.
- When you are transacting, you have a private key that is unique to you. This key is a long alpha-numeric number that ultimately becomes your unique identification, like a bank account number. DO NOT LOSE OR SHARE THIS PRIVATE KEY.
- You can use them to send or receive any amount of money, with anyone, anywhere in the world, at very low cost. Bitcoin payments are impossible to block, and bitcoin wallets can’t be frozen.
- You can directly control the money yourself without going through a third party like a bank or Paypal. So if you didn’t want to buy from an exchange, you could essentially ask for payment from friends with Bitcoin. My go-to spot for this is Paxful, which allows you to buy Bitcoin with a variety of different things (gift cards) and also send and receive coins.
- Bitcoin transactions cannot be reversed or refunded. You should only deal with businesses or people you trust.
Protecting your Bitcoin
There are several ways to store Bitcoins when you purchase them. In cryptocurrency terminology, this is called a “wallet.” Literally, storing your bitcoins is like putting your money in a storage unit. A cryptocurrency wallet is a program that stores private and public keys and enables users to send and receive cryptocurrency and check balances. There are several options for wallets – mobile only, desktop, or even hardware (i.e a physical wallet). Several exchanges also act as a “wallet” as well. I store funds in Coinbase and also Ledger Nano S hardware wallet. However, if you want more security, you should look into a different wallet outside of an exchange. Below are some of the more popular wallets. Most digital wallets are free, but physical wallets will cost you from $75 to $150.
- Copay is a wallet by Bitpay and available on iOS, Android, Windows Phone, Linux, Mac OS X, and Windows. Because Copay is available on multiple platforms, it’s easy to use the same wallet or account across multiple devices. Copay’s simple, clean user interface makes it a good choice for new Bitcoin users.
- Breadwallet’s combination of simplicity and security has made it the most popular iOS wallet.
- Bitcoin hardware wallets are the most secure because they do not expose your private keys to the network. Some options include Trezor, and Ledger Nano S.
So, after all this research, and pulling out the few gray hairs I have, I decided to make my purchase. After my first $500, I haven’t looked back since, and plan on buying much more Bitcoin in the future.
My Future with Buying Cryptocurrency & Bitcoin
Today, I have diversified into other cryptocurrencies that I believe have long-term potential, including Ethereum (ETH), Litecoin (LTC), OmiseGo (OMG) and others. I do believe that cryptocurrencies are one of those opportunities a generation sees once in their lifetime. I’ve been pleased overall with the investment – I’ve gained ~90% in BTC as of today. I’m continuing to add more each month across different coins, and am a big advocate of including cryptocurrencies in your overall portfolio.
You can start with Coinbase, my go-to exchange. If you buy just $100 of BTC, you will get an additional $10 of BTC for starting.
Are you investing in Bitcoin or other cryptocurrencies? Have a question about this new asset class? Leave a comment.