One week into being a crypto investor and I have lost $151.69:
While I’m not surprised that I’ve lost a little money, I am a surprised at how relatively steady prices have been, given crypto’s reputation for volatility.
What’s up and what’s down
With my regular stock portfolio I like to see a little red and a little green to make me feel like I’m diversified, but I’m not sure you can be meaningfully diversified in crypto if you’re only buying established, proof-of-stake coins. This is more like being an angel investor where you bet on 10 startups that all kind of do the same thing, assuming 9 of them will fail.
Update on estate planning
In this post I discussed the pros and cons of using crypto as a way to pass wealth on to your kids but I was working under the assumption that I’d be using a cold wallet. I’ve since decided that a Coinbase’s custodial wallet (a type of hot wallet) with $1MM in platform-hacking insurance + good security hygiene* is fine.
Coinbase has a lot of familiar, online brokerage-type features but they don’t have a way to add beneficiaries to your accounts. They have a process to claim assets of a deceased family member but there’s nothing you can do proactively. Being married, having a will, and telling your spouse you have crypto squirreled away should ensure that you’re fine, but it’s still annoying that we can’t add beneficiaries. If they want to convince grown-ups that this is a grown-up product we need basic estate planning features.
Clarification on $1MM account protection
Last week I was pretty hyped about Coinbase One and its $1MM account protection feature. At the time I thought the feature protected you from being hacked, whether the hackening occurred on the platform itself or whether it occurred on your device, based on this description:
Reading the fine print it’s clear that the account protection only covers you in the event of a platform hackening:
With an active Coinbase One subscription, you may be eligible to receive a one-time reimbursement for up to $1,000,000 (U.S. Dollars) of actual losses (or the U.S. Dollar equivalent thereof, in the case such losses were in the form of Digital Currency) that you sustain due to a compromise of your Coinbase Account login credentials resulting from a vulnerability or other deficiency in Coinbase’s systems and/or security protocols (the “Coinbase Account Protection”)
So basically, if you are hacked due to your own poor security hygiene* that’s on you, e.g. if you let someone borrow your phone to make an emergency phone call and they drain your account (pro-tip: never let strangers borrow your phone*), or more likely, if there’s a new virus that targets iPhones that haven’t been updated and you have not updated your OS, you won’t be covered:
3.2.4. The Coinbase Account Protection does not cover reimbursement for any losses that were the result of a security vulnerability or other technical deficiency in your computer, mobile device or security key.
They also won’t help you if you accidentally send money to the wrong account, same as Venmo and Zelle:
The Coinbase Account Protection does not cover reimbursement of funds that you voluntarily sent to a third party in connection with an investment scam or otherwise, or if you mistakenly bought Digital Currency or sent Digital Currency to the wrong addressee.
The protection feature is still really good and worth paying for, given that Coinbase, as with any other custodial wallet, is a prime target for hackers. I would not use a custodial wallet without this type of account protection.
If you have a significant sum of money in your Coinbase account I’d spend some time reviewing the Eligibility and What’s Not Covered sections.
*Security hygiene
You need to be on top of your security hygiene if you’re going to have a custodial (aka hot wallet). That means:
Installing updates on your devices as soon as they’re available
Using authenticator apps
Having strong passwords that you change every couple of months and aren’t shared with other websites
Never clicking on unexpected links or attachments
I know that a lot of my audience is in tech and you guys know dis, but a lot of my audience is not in tech and I want this to serve as a reminder that you should not get into crypto unless you are VERY confident in your security hygiene. If you are a Verizon customer who clicked on this free gift text message, crypto is not for you. If your tech-savvy sister/daughter occasionally calls you, slightly panicked, telling you not to open the thing that you just sent them, crypto is not for you.
You should also consider your transaction costs: How much did it cost you to buy this crypto? And how much will it cost you to sell it? I think the major exchanges are charging on the order of 3.5% each way, so you're looking at 7% overall. Stocks are much closer to 0%.