Why cryptocurrencies is a very good first investment
This report is not meant as financial advice and please do your own research and take responsibility for your own trades. This report is meant to update you regarding the markets so that you can make informed decisions.
Good evening, I’ve produced this guide for friends as well as newbies that are coming into crypto for the first time and further explain all the jargons you need to know to be familiar with the space.
This is the first part of my beginner series. Check out the other articles here!
This article is written for people in their 20’s who have not started investing at all. Let’s dive in!
Barriers to entry to traditional investments
I was always keen on investments since young but didn’t have the capital to play stocks. As for stocks, the fees are 0.1% but the minimum fee per trade is $10, which means each trade size should be at least $10,000 for the fees to make sense.
For you to get a diversified portfolio with minimal risk, it is recommended for you to keep your exposure to each stock to 10%, which means you need $100,000 to start having a well-diversified stock portfolio. That was extremely off-putting as I was schooling and would never hit $100,000 savings unless I started working.
Even for most people working, it might be impossible to hit $100,000 worth of liquid assets, it will be so tempting to spent it on the newest iPhone or that trip to Japan.
The thing about traditional finance is that they rather deal with a single client with a million dollars than a thousand of you each with $1000, this is because to them, handling us is extra work for the same amount of profits. This is why when you buy gold or stocks, the large your size the more discounts you get on your fees or your spread(the extra money they add compared to spot price, which is the best price).
Thus the barrier to entry for stocks is extremely high.
The volatility is also extremely low which means the amount you can make off scalping (going in and out very fast) or swing trading ( going in while cheap and getting out while expensive but with a longer timeframe) is severely limited unless you are doing leverage ( borrowing capital from exchanges to increase your position size) which adds extra risk to your capital as you can get liquidated(the exchange closes your entire positions when your losses is too big to ensure they do not lose money).
All this made me stay away from investing as a whole until I found Bitcoin in 2017 July.
This is because, contrary to popular belief, you don’t have to buy an entire Bitcoin or even other cryptos. This is because they can be broken down to 8 decimal places. I’ve always told my friends to buy $50 of BTC (0.00143 BTC) monthly and just work up from there. This builds a habit of saving money and investing which is extremely good for you in the long run. If there isn’t an accessible place for you to invest your money, you’ll have a tendency to spent them when you have too much in your bank account.
What’s even more appealing about crypto is that getting cash in and out is extremely fast (hours) instead of days like traditional stock or fx brokers. There is also no spread on the spot price using small amounts which mean you can do spot scalp or spot swing for profits more easily.
90% of traders/investors also lose money and the key reason is that they cannot control their emotions as they are new. Thus the key to your first invesment is to minimize your losses while gaining the most investor maturity points you can. ( You can even make profits from your experience but trust me, nothing makes you work harder or grow faster than a losing streak)
An example is that a friend of mine decided to buy Starhub shares with $10,000 for his first trade due to the minimum viable fees and ended up losing half of that in 1 year. If he had follow my advice and started with crypto and $1000, he would lose much less and gain the same amount of investor maturity. Now he is a successful investor but everyone goes thru that period of losing money, its just how long and how much pain you need to go thru before you mature.
All these reasons make crypto extremely appealing compared to stocks for beginners to start.
Why investing is important.
First, I need to let you know why investing is so important and why you should work hard on it. If there is only 1 skill you ever master in your life, you better make sure it's investing.
This is because my parents work really hard (60 hour weeks) but were never rich because they didn’t invest.
You need to understand the concept of passive income and active income.
Active income: Using time to exchange for money which is what most people do, working for a living.
Passive income: Letting money work for you and generate yield.
The key to financial freedom and becoming wealthy is to grow your passive income over time until it gets big enough to sustain your lifestyle. It might look small at first, but it will allow you to retire 10 years earlier. Retirement in your 50s versus 60s has a very big difference!
Starting in your 20s is also extremely important, as many people only realize how important investment is in their 30s when they start buying a house or have kids. Not only can you retire earlier but the amount you earn is also much more due to the compounding effect, I recommend readers to read “The Snowball” by Warren Buffet to understand more.
Investments & trading is also where the more effort you put in, the more money you make. The relationship is not as strong when you look at your salary. If you don’t invest, you’re gonna work until you’re 70 and retire with a small sum of money. But will you be able to live the lifestyle you want? Will you have the energy to bring your grandkids overseas? Will you be able to afford that condo or afford that nice sports car that you dream of?
You also need to understand the concept of opportunity cost.
A very simple example of opportunity cost is when I bought a Titus watch that cost $500SGD in 2015. Today, that watch is worth at most $150SGD. If I had bought BTC instead, I would have 1.52 BTC ($327.76SGD per BTC). That will be worth $56,016 SGD today (at $27,000USD per BTC)!
This is why when I found Bitcoin in 2017, I FOMO badly. As I didn’t have a habit of savings and didn’t have much cash to buy BTC at $1,000. Thus I had to work part-time while schooling in order to stack my BTC’s and Cryptos with blood, sweat and tears.
But for many of you who are in your 20’s with few thousand dollars or even more veteran investors in their 30’s with more capital, crypto is an extremely good way to start learning the ropes of investing if you’re new that has high returns but low down draw. This might also be the last cycle where we see a 4 digit BTC and the last 5 digit BTC.
An example is if you bought BTC at $10,000 when I told people to buy, your upside was $20,000 to $100,000 while your downside was at most $5000. Its almost impossible to find such risk to reward ratio of 5:1 or more on a spot trade unless you’re trading tech stocks. As I’ve explained you can put $50 for crypto but you cannot do that for stocks, this is why I recommend people to do crypto first overstocks.
Last but not least, you need to understand inflation.
Many people who fear risk decide to park their money in a bank account with 0.015% interest rate per year. Or alternatively, you can do fix deposit for 1.5%/ year if your amount is big enough.
But the problem here is that the targeted inflation here in Singapore is 1.5% every year and averages about 1.4%/month for 2019. However, the Core Inflation Measure does not account for most people’s spending habit, so an estimated 3%/year is more realistic.
In other words, as long as your savings do not earn more than 3% yield yearly, it is going to shrink in value. This is why if you do not invest, you lose.
NOTE: We are skipping 2020 due to COVID and decreasing CIM, We need to predict the future using more normalized circumstance for it to be more accurate.
But isn’t it risky?
Yes it is risky but I’ve tried the way of doing low risk investments and just working my way to wealth but it is extremely slow. But what I’ve learned is that most people who became rich and wealthy took well calculated risk.
You need to understand how to factor risk adjusted returns. Example are starting your own startup or in our case, an investment. If the worst case you lose $10,000, but the best case you’re looking at $100,000 return. That is an extremely good set up that many people should take as if it fails, it wouldn’t make a difference in your life but if it works, its going to make you life changing money.
An example of a friend who got wealthy is one who bought Ethereum ICO in 2015. He threw $1000 that he was prepared to lose as he knew the potential of this disruptive technology and the risk this investment entails. That $1,000 gave him 3225.8 ETH, which became $4.67 million during the peak in 2017. He is now semi-retired. There are still opportunities in crypto like this, you just need to know how to find them.
There is not such thing as a free meal in this world. If you want to make money, you must pay with risk and a ton of hardwork.
Your job here is to minimise those risk. You minimize those risk by putting in the hardwork and doing research, making sure you are very confident in what you’re buying. This is because it will dampen your emotions and prevent you from Fear Of Missing Out (fomo) buys or Fear Uncertainty & Doubt (FUD) selling when there is volatility in the market.
An example would be me loading a a large chunk of BTC at $9,000 and $6,000 in 2018 thinking that it bottomed but BTC hit $3,500 TWICE after that and in each situation, I didn’t FUD and sell, I bought more instead. This 2 trade turned out to be one of my most profitable ones(for context BTC is at $28,000 at the time of writing LOL).
Reason being that I knew how fundamentally undervalued BTC was at $9,000 and below and I just bought more with my conviction. If you do not fully understand what you’re buying or believe in it, you shouldn’t invest in it at all.
Putting this concept into perspective, do not invest anything you’re not willing to lose. Be prepared to take out your capital anytime you feel risk is increasing. This way, you have 0% downside and have a large upside for you to ride on free profits.
It is not too late.
BTC has moved to $28,000 and ETH has moved to 730$, is it too late?
ITS NOT! Based on conservative estimated, ETH is looking at $3,000 and BTC is looking at $100,000 nex year. So current prices are still cheap! Just wait for red days to load the dips.
Now is a perfect time, Investments are more accessible as ever with Etoro and crypto.com, allowing people to buy small amount of stocks and crypto. I’m personally waiting for Revolut to come out with commision free trading this year and for Crypto markets to peak before cashing out and moving my money into stocks for more yield. Do follow me and my transformation in the coming years into stocks.
Work hard now because, it will not only affect your life in the next 10 years if you master investing, its going to tranform your retirement and even your families in the future.
You can also start on shares now instead of crypto if you like as the barrier to entry has lowered much more compared to 2017 and before when I started. Tech stocks also have volatility matching crypto now due to the macro environment of covid and money printing by the fed.
That’s all for now, I’ll update this page with more questions that I find useful as I get them from subscribers. Do hit me up in the beginner’s telegram chat or on Twitter if you have any heart-burning questions. Please share this to your friends if you find it useful.
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Have a great day and make a killing out there. Knowledge is power my young ones.