What you should buy and how you should buy it
The best way to get the right answer on the internet is not to ask a question; it's to post the wrong answer. If you see any holes in my logic or Obvious Mistakes please leave me a comment! Also, I am not a professional and this is not financial advice, it’s my opinion. Remember that with any investment, you must do your own homework. This is doubly true for crypto.
One of my biggest gripes about online discussions of crypto is that you rarely see tactical advice. 99% of blog posts about crypto explain how blockchain works or advocate really hard for a specific coin (I’m looking at you DOGE). There might be broader tactical advice buried in YouTube videos but there are glaring conflicts of interest and the thumbnail for the videos makes you want to claw your eyes out:
In this post I’ll share a step-by-step guide on how to buy crypto. Remember from my previous post that this is a very risky investment and you should not buy crypto if your only reason for holding it is to make money. You should have at least one other reason, like a hedge against inflation, backup currency in the case of [pick your global emergency], buying a seaplane for your drug business, etc. And don’t you dare buy crypto if you have any high-interest revolving debt. Seriously, pay off your credit cards.
How much should I spend?
You want enough money so that it would be helpful in an emergency but not so much money that you would be devastated, financially or emotionally, if you lost it. For me that number is $2,000.
What should I buy?
Guiding principle: only established, proof-of-stake coins. Split your investment evenly among these five coins:
ETH2 (Ethereum), $400
MATIC (Polygon) $400
SOL (Solana) $400
ADA (Cardano) $400
AVAX (Avalanche) $400
Also good to buy: COIN, aka Coinbase stock, to add that to your regular portfolio as a generic investment in crypto. Let’s throw $500 at COIN (that brings our total crypto investment to $2500).
Where should I buy it?
No need to overthink this. I’m buying at the longest running, largest, and most reputable vendor.
What are the fees to buy?
I’m actually not sure and won’t know until I start buying. I’ll add this to the list of Open Questions. Per Coinbase: “Fees are calculated at the time you place your order and may be determined by a combination of factors, including the selected payment method, the size of the order, and market conditions such as volatility and liquidity. Fees will be listed in the trade preview screen before you submit your transaction and may differ for similar transactions.”
If the fees turn out to be something ridiculous like $100 per transaction I’ll have to recalibrate this entire post.
How should I store it?
Coinbase Wallet with a physical key. The wallet service itself if free and the physical key is ~$50.
Also, put it in your will, add beneficiaries to your custodial wallet, and tell your spouse/heirs about it.
Pros and cons of cold wallets vs hot wallets/custodial wallets:
Cold wallet - This is a secure but very tedious solution. I don’t think it makes sense for most people but if you want to go this route I’ve heard good things about MetaMask. It’s sort of akin to burying a chest of gold in your backyard– only makes sense if you’ve got a lot of it (do not recommend for crypto) and not going to touch it for several years (also not recommended given the volatility of coins).
Hot wallet, most commonly used as a custodial wallet - If you’re going to use a hot wallet, you must trust that the hot wallet’s security. Your losses from a hack will not be covered. Coinbase has best in class security and it’s not importantly different than how you hold stock with Fidelity or E*TRADE today. Still, it is possible to be hacked and this is another reason not to put a ton of money into crypto. There is also an option to get a physical key to add a layer of security to your transactions which I like a lot. One downside to custodial wallet: they can be seized if the government decides you’re a bad actor. If things start to get spicy in your personal/political life I’d transfer my assets to a cold wallet.
When should I buy?
I think it's impossible to predict when coins are at their local maximums or minimums, even more-so that regular stocks. Crypto doesn't seem to react to events that one might expect to drive prices up or down and seems in large party to be driven by whimsy or impulse. Like regular stocks, the best strategy is just to stagger your purchases over time so you reduce your exposure to one particular day.
How long should I hold?
This is a passive, medium-term investment: ~3 years.
How much should I trade?
Much like the stock market, there is a step-wise function in difficulty for people who want to passively hold versus people who want to actively trade. I do not recommend actively trading crypto unless you quit your day job and devote yourself full-time to research.
Do check in every week to make sure things haven’t gone off the rails.
I was going to recommend that you set up volatility notifications but I don’t see an easy way to do that. Coinbase has retired that feature, this website is super broken, and this website wants you to buy a subscription. I’m hoping that once I buy coins and start using Coinbase a volatility monitoring feature will reveal itself to me. I’ll adding this to our list of Open Questions.
Open questions
What’s a good, free crypto volatility tracker?
What are the fees to buy?