Many people who start with crypto get overwhelmed by all the information. They pick something random in crypto and go for it.
For example:
Plan: Going all in with altcoins.
Result: The altcoin goes to (almost) zero.
Plan: Buy crypto, put it on an exchange, and leave it there forever.
Result: the exchange got hacked or went bankrupt.
Plan: New people start with leverage trading.
Result: They overleverage and lose all their money.
These are some examples of people diving into crypto without knowing what they are doing. You can’t manage your risk if you don’t see what you are doing.
Let’s start slow and then take the time to get to know the market. Eventually, you will see where the opportunities and risks are.
In this issue of the safe crypto investor, I want to show you the starting point of your crypto journey.
Start with a plan
Most people aim to have a profitable crypto portfolio and be part of a movement that does not rely on banks. “Profitable” means that your portfolio is worth more than you put into it. There are many ways to be profitable. What works for one person does not work for another.
Let’s first take a look at how the crypto market works:
- Crypto has a great average year-on-year return on investment (ROI)
- Crypto is very volatile
- Crypto is risky: hackers, scammers, bankrupt exchanges, etc.
- Crypto can be emotional: FOMO, revenge trading, etc.
- Crypto can be very time-consuming: A lot of research on new tech.
Make a plan that works with the market and your situation.
We know how the market works, but how can that fit your situation? I write for busy people who aren’t capable of making a huge time investment, maybe because of your work, family, relationships, etc.
My advice:
Expose yourself to the crypto market without big risks and a huge time
investment.
The plan has four major points:
- Invest for the long term: 5 to 10 years
- Automatic buys + once-a-month withdrawal to your wallet
Risk avoidance:
Self Custody: hardware wallet
Mostly large caps (the biggest crypto coin)
Average into the market (DCA – Dollar Cost Averaging)
Smart take profits
1. Invest for the long term
The first step is to have the right perspective. Is the market always
increasing, and will your wallet explode with huge gains? I don’t think so.
There are months of great wins, but most of the months, crypto is going sideways or is in a downtrend. You don’t know the top, and you don’t know the bottom. The safest way is simply dollar cost average (DCA).
You are consistently going to purchase crypto in a set amount of time. This way, you benefit from lows and take advantage of a good uptrend.
DCA only works in the long term because it takes time to average your investment. The long-term game is 5 to 10 years.
DCA is not a sprint but a marathon. The big question is: What would be a good amount to invest monthly?
In my opinion, I would invest around 5% of my income monthly in crypto. But only do this if you have 20% of your monthly income to invest/save. Always live under your means.
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Here are some examples with a Bitcoin DCA calculation of the last five years:
| Income (100%) | Expenses (house, food, etc.) (80%) | Total amount to invest/save (20%) | DCA amount (5%) | Five years DCA example* |
|---|---|---|---|---|
$2,000 |
$1600 |
$400 |
$100 |
Spend: $6,100
Value: $13,183 |
$4,000 |
$3200 |
$800 |
$200 |
Spend: $12,200
Value: $26,367 |
$10,000 |
$8000 |
$2000 |
$500 |
Spend: $30,500
Value: $65,917 |
Based on https://www.bitcoindollarcostaverage.com/ [1 Sep. 2018 – 1 Sep. 2023]
2. Start DCA with Coinbase
The easiest way to DCA is to configure the automatic purchase method in Coinbase. Coinbase is an excellent exchange with good reliability and features.
The downside of Coinbase is that the fees are slightly higher. To keep the fees low, I recommend using a bank account to send funds to Coinbase.
How to set up automatic purchases is Coinbase:
- Go to Coinbase
- Create an account and set up KYC (Know Your Customer)
- Before you can purchase crypto, you need to configure your payment methods. Ideally, we want to use a payment method which you can buy crypto with. See the list here.
- On the left, go to more (three dots) and select Recurring buys
- Type in the amount and the period. (For example, 100 per month)
- Preview the buy and confirm.
Note: You can always cancel your recurring buys. So, if you did something wrong, you can just cancel and rebuy.
3. Risk avoidance
The next step is to avoid risks. Buying on an exchange is not enough to
protect yourself from the craziness of the crypto market. Who knows what will happen to Coinbase or other major exchanges?
The best way to protect yourself is to put the crypto in your own wallet. And not just a wallet but a hardware wallet.
I won’t go into the details of wallets. If you want to know more about
hardware wallets, check out this article.
4. Smart take profits
Once you have been doing this for a while, your crypto is worth more than you invested. You need to consider making a profit. I don’t mean that you cash out all your crypto, but I would take partial profit so you can get some money out of the market. You can only profit if you sell when your crypto is in the green.
The key rule is:
- Take a profit in the bull run and slowly invest in the bear market.
It is the easiest to take profit on major levels. Here is an example:
| Date | BTC price | Worth | After TP | Take Profit (TP) |
|---|---|---|---|---|
21/Nov/2022 |
16k |
$1000 |
$1000 | |
20/Feb/2023 |
25k |
$1562 |
$1406 |
10% -> $156.2 |
16/April/2023 |
30k |
$1687 |
$1518 |
10% -> $168 |
Total profit: $1842,2
In the pocket: $324,2
BTC investment: $1518
By taking profits, you reduce the risks. If Bitcoin would fall to 10k, then you would still have 33% of your initial cash investment. The more volatile the cryptocurrency is, the faster you need to take profit. Crypto can backfire if you aren’t careful.
Start small and get to know the market
Building wealth takes time but doesn’t have to be a big-time investment. I
can’t explain all the ins and outs of the crypto market in one newsletter. The
best way in the beginning is to get the ball rolling and start DCA a small
amount. Once you have been investing for a year and slowly getting more
knowledge, you can expand your investment strategy.
Be the hero of your own crypto journey, and stay safe.
Daniel Donselaar
