I will be joining eToro’s Senior Analyst Mati Greenspan to host a free webinar at 3PM UTC tomorrow. Register for free, learn about the fundamentals and ask me anything about Ethereum or crypto generally. Further details and registration can be found here.
This post’s takeaways are a culmination of my 6 years buying, selling and using cryptocurrency. Here are what I feel are some of the most important takeaways I’ve picked up from my time in this space. Disagree or have another investment strategy? Share it in the comments below!
1. Be Wary of Echo Chambers
I would have invested in Ethereum far earlier than I did if I had reflected more on the content I was digesting. I discovered Ethereum in late 2015 through the Bitcoin community on Reddit; the sentiment was overwhelmingly negative at that time and the community wasn’t afraid to speak out against it. Ethereum was pitched as a threat to Bitcoin (sadly some still see it that way), one which was “full of bugs” and would be a “pump and dump” with every other post referencing it as they would anything that wasn’t Bitcoin – a “shitcoin”. It was this content that I was reading which would delay my investment into Ethereum; finally breaking the mould by actively deciding to subscribe and follow both the Ethereum and Bitcoin communities, stumbling across this video of Vitalik Buterin which ultimately helped me decide to buy. I now make it a habit to – at the earliest opportunity – subscribe and follow those who I often strongly disagree with, holding zero loyalty to my incumbent opinion at the time. Following and taking advice from only those who you agree with is an easy trap to fall into on the internet, and being aware of this is important both in and out of crypto.
Follow Experts on Twitter
To build on the above, there is a vast array of different opinions on Twitter, opinions which help to provide a broad mix of sentiment towards Ethereum and other cryptoassets. Here are a handful of some of the best people to follow on Twitter as an Ethereum investor:
- Laura Shin – Senior Editor (crypto) at Forbes
- Vlad Zamfir – Ethereum developer, largely responsible for the upcoming Casper Proof of Stake protocol.
- Joseph Lubin – founder of ConsenSys
- Ari Paul – CIO of BlockTower Capital
- Emin Gün Sirer – professor at Cornell interested in distributed systems
- Vitalik Buterin – Ethereum co-founder
- Erik Voorhees – CEO of ShapeShift
- Barry Silbert – CEO of Digital Currency Group
- Brian Armstrong – founder of Coinbase
2. Invest in What You Know
Ethereum is now covered extensively in the MSM thanks to its unprecedented gains. The hysteria generated has driven newcomers to invest in this cryptoasset after doing little to no research. This is all well and good given that we are currently in a bull market, but when the inevitable downturn comes, it is those who do not understand the fundamentals of Ethereum who will struggle to discern whether or not to sell.
This played out in October 2017 when China announced its ban on ICOs. Many new investors who knew little about Ethereum were immediately panicked. What will Ethereum become if there are no more ICOs? Those following the development of Ethereum would have known that ICOs happened to be a popular use-case, but the real importance of this blockchain stretches into the broad restructuring of social, economic and political systems. Understanding the fundamental value of Ethereum would have made the decision to hold a more comfortable one.
3. Secure Your Portfolio
Beyond the day to day risks of investing in the world’s most volatile alternative asset class are the platform risks of actually holding it. Exchanges have – and most likely will continue to be – hacked or exploited. Ethereum stored on an exchange opens up this new risk type that further compounds the already significant risks associated with crypto price volatility. Understanding how to safely secure Ethereum in a hardware wallet or multi sig will provide you with much greater confidence when investing. I touch upon security in our guide on how to buy Ethereum.
4. Cost Averaging
Bitcoin, Ethereum and others have broken all time highs with unprecedented regularity. It is no surprise then that new investors looking to buy into crypto have constantly feared “buying at the top”. From many different people I have spoken to, this fear has been enough to put off an investment in its entirety. “Surely it won’t go higher still” or “the government has to step in soon” are phrases I’ve heard often. Given that we are now at yet another all time high, every investor who bought and held Ethereum at any point previously would have now made a return. Why should this all time high be any different? The best way to overcome this fear is to cost average – making a purchase of Ether over several weeks or months, buying several chunks at specified intervals regardless of price movement. This helps investors enter the cryptocurrency market with a price that is averaged over time as opposed to a single price that could suffer much greater deviation.
5. Balancing Your Portfolio
Whilst Ethereum should – in my opinion – make for a significant chunk of a crypto investor’s portfolio, there are potential gains across many different tokens – ROIs which could reach into the thousands of per cent. As a strong advocate of “buying and holding” over day trading, a balance of 90% BTC/ETH/XRP (public and private blockchains with proven tech and massive usage) has always been my preference, using the remaining 10% to effectively gamble with low market cap tokens that could blow up. Crypto investing isn’t all about capital gains either, a managed fund token such as TAAS provides quarterly dividends which investors are paid via an Ethereum smart contract. Income generating assets like these can also be a great way to balance a portfolio, and the strategy of the fund managers at TAAS is certainly more involved than the average investor’s. There is one caveat, and that is that the investor is now placing trust in the payout of the dividend, another risk to consider.
6. Take Profit
And finally, take profit. “Hodl” is the rallying cry of many an Ethereum investor, a term which emerged from a typo (hold) made by one hysteric investor. Hodl refers to the long term buy and hold strategy that has proven successful time and time again. Anyone who bought and held Ethereum will now have made significant gains, but at some point realizing these gains is essential. There is every possibility that a black swan event may occur; particularly in Ethereum whose codebase will continue to change, integrating technologies never before seen in the wild. Taking a percentage of your return as profit is important, if not for realizing gains as it is for relieving the stress of potentially losing one’s net worth overnight.