An Outsider’s Guide to Becoming a Cryptocurrency Insider
(Note: if you don’t really care about the context of this article and just want to learn how to start investing in crypto within just a few minutes, jump down to the New User Crypto Primer section below).
2020 was certainly an unprecedented year, filled with a collective newness that promises to have created changes that will last for years to come. In this light, it was around last summer that I was quite unexpectedly reintroduced to somewhat of an old acquaintance, one which I didn’t much expect to see again anytime soon: the crypto friend. At this point, I would venture to guess that many of us who have been for most of our lives outside the cryptosphere (that is, have no interest in cryptocurrency, Bitcoin, or blockchain, thank you very much) have at least one friend who swears by the holy writings of Satoshi Nakamoto, hallowed be his blockchain. The last time I remembered hearing from the crypto friend was around October 2017, when I was told that all the world would very soon be forced to accept the blessing of Bitcoin (BTC) as a new standard of value, a global decentralized currency. Likewise, the Ethereum (ETH) global computer would also soon be upon us. And in all this noble pursuit, was it really so wrong that the crypto friend was becoming shamefully rich overnight, as he so gallingly intimated on not a few occasions? Unsurprisingly to me at the time, and perhaps to my glee, a mere few months later this friend became quiet all of a sudden, the evangelizations stopped, and so did the smug talk of unrealized riches and a future decentralized utopia.
You can imagine my surprise then, when the crypto friend emerged again two-and-a-half years later with much the same zeal. Only his spirit seemed more tempered and matured, as if the crypto friend had spent the last couple years alternatively hibernating and scavenging, and had come back a bit humbled, yet clearly wisened. I must say that my original opposition to the 2017 teachings of the crypto friend came in part from a collection of legitimate doubts (the price movement was obviously driven my immense speculation, the crypto space was generally unregulated, etc) but perhaps also out of a preemptive sense of jealously: if there was a good thing going on right now, I absolutely wanted it to fail. I had no intention of getting risky with my money, and I wasn’t about to have someone with much less life experience preach to me about something that was making other people millions of dollars. I’ll take my standard market return and let you learn the lesson that the market always wins in the long run. And for over two years I seemed to have been vindicated, and to have been spared the crushing realization that a life changing opportunity had passed me by.
Fast forward through the years of my feelings of vindication (and then forgetting about crypto altogether) that summer 2020 arrived, and with it the return of my crypto friend. To set for myself a standard candle, I checked the price of Bitcoin. It was holding pretty steadily in a $9,000 channel. Clearly it had depreciated tremendously from its highs of 2017 (which were really just a flash in the pan to nearly $20,000), but it now had the look of a much more stable asset, yet still highly valued. I started to do a little poking around to determine the source of the renewed excitement of my previously mummified friend. Surely $9,000 Bitcoin, a price point which admittedly proves a degree of value and legitimacy, was not so much a cause for his rejuvenation? It did not take much poking around in search of crypto-related news to get a reasonable high-level picture of the landscape: there are two main players in the crypto space, Bitcoin and Ethereum, with a seemingly endless, chaotic constellation of other tokens and coins swirling around these stabilizing entities. The space is relatively young still, but the blockchain and smart contract technology underlying these projects is clearly positioned to become a significant player in the near future. I was blown away by what I was reading, and it really does not take much time to understand some of the core terms with a comfortable mile-high perspective. However, as much as this detective work was edifying, there remained the matter of finding the source of my friend’s joy. Because if there is one thing I found out in 2017, no matter how noble the proclamations of the crypto friend about the potential for crypto to turn the technological tide from centralization and globalism back to decentralization and privacy, he ultimately wanted to get rich, and this would always be his first love in crypto. It did not take long to find what ecstasy stew he was basking in: DeFi or Decentralized Finance.
While 2020 presented a multitude of significant challenges for your average person, none maybe more so than the economic toll taken. Unsurprisingly, many wealthy individuals found this opportunity to grow much wealthier. But an interesting thing happened: average people were also finding a way to increase their wealth during a downturn, and this was through participation in DeFi. It has become clear to me that crypto is marching toward something very remarkable: the tokenization of all types of financial instruments. And this is on top of the original promises of blockchain technology that tailor more toward privacy, financial independence, and global remittances. Nascent libertarian fantasies were beginning to crystallize into more coherent realities. While much of the DeFi space was clearly over my head (with talk of decentralized exchanges and automated market making), I began to see the holistic value of the space more and more. Certainly, the crypto space seems to have value swings driven by as much speculative pumping and dumping of small-cap projects as ever. But there are a few key points to realize. Firstly, there is the broader picture: something like DeFi allows the common person to participate directly in the financialized economy. While Silicon Valley billionaires and venture capitalists currently get first dibs on private stock offerings at cheap prices not available to the public, the DeFi space promises something similar for your you average person, who can participate in token presales to try and get involved with promising projects as early as possible at the cheapest price possible. This type of speculative positioning was certainly present in 2017 as well in the form of initial coin offerings (ICOs), whereby crypto tokens were auctioned or distributed much in the same way stocks would be presented to the public following initial public offerings (IPOs). The space has clearly matured, however, as most of the ICOs of yesteryear have fizzled into oblivion, while the DeFi space has moved towards the makings of full lending and derivatives markets. [As an ironic aside, Coinbase, one of the largest and most popular crypto exchanges, is positioning to issue public stock this year. Purportedly they will have a private seeding round of initial sales, involving Goldman Sachs. I suppose even a company that exists to sell the tickets to a decentralized world (i.e. crypto coins and tokens) is itself first and foremost a centralized corporate entity].
Secondly, if there is anything that is considered a sure thing in the world of crypto, it is Bitcoin. Bitcoin has reached a point where it has been around for over a decade with ever increasing usage, and it only seems to be getting stronger. Fast forward to the end of 2020 into 2021, and again we see the news stories of 2017 with all of the glitz and hype, but far fewer naysayers (including perhaps myself counted among the converts) and many more moneyed institutions and firms who are putting their money to work and buying up large amounts of this “digital gold.” Lastly, it is that virtually everyone who creates anything in the crypto space does so using the Ethereum blockchain, which is the second most highly valued crypto after Bitcoin. Virtually the entirety of the DeFi space is built on Ethereum. I have read that it is possible that if Bitcoin is the best store of value in crypto, it will become even more overwhelmingly so, and even DeFi applications will move to Bitcoin. This is simply speculation at this point. What is very presently clear this that virtually everyone who has a serious project in the crypto space is launching it on the Ethereum network.
As is perhaps fairly apparent, I have certainly set upon a path toward crypto literacy since last summer. What can I say, I was seduced by the chirping’s of the crypto Twitteratti against the better judgements of my contrarian nature, and frankly there wasn’t a whole lot to do this summer, as you might recall. But perhaps the new world will belong to the contrarians. Or maybe being contrarian, to some extent, is just an implacable person’s way of saying he’s eager to become an early adopter of an inevitable new reality. As I am writing this article, the whole financial world has seemingly opened up to this new reality: stocks of companies whose heyday was over a decade ago are hitting huge new highs (what’s going to pump next, GoPro? Blockbuster?!!?), and the same mob who is behind this institutional mutiny is pumping the value of a tired meme crypto whose icon is a smirking Shiba Inu (who can’t even speak in complete sentences, not a very bright dog I suppose). The appetite seems to be there for decentralized technology, at least for a fair shot in a more open and honest market. To quench these urgings, one should look no further than the burgeoning DeFi space, where fair, decentralized financial instruments are emerging (read: not controlled by corporate institutional interests). Many of the projects in this space still have little to no value though (much like our soaring dog coin) and can pump and dump in a mess of hype induced speculation and greed. The desire for a fair investment space and the urge to throw money at anything that seems to represent the collective frustration of the common man is therefore still generally misplaced. Perhaps my crypto friend would have been counted among the ranks of the WallStreetBets hype mob had these recent events occurred in 2017. But no more. He simply tunes out the noise and sticks to what he knows. And as I’ve said, if there is anything to know in the crypto space, it is Bitcoin and Ethereum. The best strategy, therefore, is to stick as close to these assets as possible.
So to all of the disaffected, disillusioned, and disenfranchised individuals looking to put their money into something that embodies this sense of frustration with institutional finance, look no further than what’s at the top of the crypto food chain. And really this applies to anyone who is looking for a new investment opportunity, and a chance to own a piece of cutting-edge technology. Bitcoin’s greatest strength and really it’s only value store at this point, is its positioning as “digital gold.” It was the first blockchain created so it has the most name recognition and long history of use case, it works, is secure, and that’s good enough to simply store value. But nobody is really using the Bitcoin environment to develop any applications at this point. As I’ve mentioned, this is all happening on Ethereum. What this means is that if there are any new projects to come out of the crypto space, you will find them built on Ethereum. But before running after the next hot project, I would say do the smart, simple thing and start with Bitcoin and Ethereum. It is a completely legitimate position to simply buy and hold either or both of these. However, as the price for both BTC and ETH races higher and higher, it can be intimidating to get into the market. As a point of historical reference, a popular way of viewing Bitcoin’s price action is to do so according to 4-year cycles, where there is a 3-year period of generally sideways trading or incremental growth, followed by an extreme final year of both massive gains and as much as 90% correction to a new low, which is still significantly higher that the previous low of 4 years’ previous. Currently, 2021 is on schedule to be the year of massive price runup followed by massive price fallout, so it might not be the best time to get in, unless you are willing to buy and close your eyes for a while. Mid-to-late 2022 might be a better time to buy into BTC, after the market has bottomed out. It is not completely clear why the 4-year cycle exists, but this period of growth is certainly reminiscent of other tech adoptions (Google “dot com bubble graph” and compare it to past BTC cycles). The 4-year crypto cycle also is likely based on the way new Bitcoin is created or mined, as every 4 years there is a decrease in the new supply the is minted (decreased supply, increased demand, increased price).
Other cryptocurrencies such as ETH are not immune to this cyclical action, and generally behave similarly as Bitcoin leads the entire market. With this in mind, we will set out to find the perfect DeFi project that has all of the assurances of BTC or ETH but is low cost and user friendly enough to not be intimidating. This will allow us to participate in some speculative buying, but at low risk (or with risk comparable to investing directly in BTC or ETH). Is this possible? If there are only 2 sure things in crypto, how can we find something else that lets us get into the game “late” while still having the safety and maturity of one of the top giants? Let’s more clearly state what we are looking for via the following: we are looking for a project that is backed by one of these top cryptocurrencies. Because nobody is developing on BTC, this will be an Ethereum-based DeFi token, and will therefore be backed by the value of ETH. Long story short: its price action is directly tied to ETH, as if connected by a string of fate across time and space… Maybe not so dramatic. But the dramatic reality is that with such as project, one could experience all of the upward price action on an investment that comes from owning Ethereum (which is a rapidly appreciating instrument), while being able to buy into something new to get the gains from being an early investor. There is precedent for such a crypto instrument: stablecoins. Stablecoins are cryptos that are tied to the value of a fiat currency, and backed by holdings of physical assets or bonds. For example, there is USD Coin (USDC) which has a very consistent price history of approximately $1. With such a precedent as a reference, I think I might have found the perfect entry project for the new user. But first, let’s start at the beginning with a crypto primer.
New User Crypto Primer
Step 1 — Install Metamask
To keep things simple, I will cut through all of the options and decision making that goes into feeling one’s way around the new world of crypto investing. Recall that I mentioned in summer 2020 I was completely new to crypto, even holding an antagonistic or firmly non-participatory stance on the matter. But once I started looking into things, I came to realize that partaking in this emergent space is as easy as any online shopping. And with an application called Metamask, I would argue it is even easier as it is one-stop shopping. Metamask is an application interface that allows you to easily buy, store, send, and receive cryptocurrency, acting as a “wallet”. If you go to the link below, you can easily download it as a web browser extension. You will generate a seed phrase (a sequence of random words) which lets you import the application to any computer you choose, and a password which secures your account between uses on the same computer. There are videos and other resources online explaining in detail how to set this up, but everything is very straightforward, just like downloading any other application from the Internet, but with a few added security measures. I am a bit baffled by the mainstream media articles that are published every once-in-a-while where the author struggles with completing even the most rudimentary step in entering the crypto space (he seems incapable of transferring even $100 to Coinbase to make a purchase, for example). Whether this is exaggeration by the old guard intended to scare prospective new users from diving into this new investment opportunity, or truly an indication of some of the traffic jams or glitches one can encounter on centralized exchanges is irrelevant, because Metamask solves this issue. Once you have a Metamask account, you are ready to start buying or receiving your first crypto instantly. It’s just as easy as shopping online on Amazon or any other digital retail marketplace.
As a final first point, you should also do some very basic research into what a crypto wallet public address is versus a private key. The address is something that is shared with other people or institutions and is located at the top of your Metamask account. This line of characters is your public ID that others can send crypto to. Metamask hides your private address, but this is the behind-the-scenes string of characters that allows your account to send out crypto in the form of payment or spending. The public address is yours to share, the private key should never be shared. Also make sure to store your seed phrase and password in a safe place. In addition, note that not only the correct order but also the correct orientation of the Metamask seed phrase is required to re-create your digital wallet on a new device. For example, if you can unlock your account with 12 random words shown on three rows as 5 words, 3 words, 4 words, you must type these same words in this order and in the same 5–3–4 fashion if you ever want to re-create your account on a new device.
Metamask download link: https://metamask.io/download.html
Step 1b — Secure Your Wallet (for Long-Term Storage) — Optional
From everything I have read, Metamask is a very popular and secure way to participate in the crypto space. However, if you plan to store large amounts of money in the Metamask wallet, you should link it with a hardware wallet, which is a physical “memory-stick” type device that you can use to store your crypto offline while still using the convenience of Metamask. I only recently purchased a Trezor wallet which was pretty easy to set up. This is not a requirement for getting started, and there is plenty of guidance for setting this up for long-term storage should you choose to do so. It is simply a secondary security measure.
Step 2 — Buy Some Crypto
It is important to note that Metamask is an application that ONLY supports Ethereum and Ethereum-based tokens. If you want to purchase Bitcoin, see Step 1b above and purchase a Trezor or similar type hardware wallet. You can buy from any exchange such as Coinbase or directly from within the Trezor site, and store on your secure device. This guide does not consider this pathway and will only focus on Ethereum and Metamask, as this is the easiest pathway into crypto.
Once you have your Metamask wallet installed, click “Buy” on the main page. In order to get started in the crypto investment process, the easiest path is to first buy an amount of Ethereum equal to the USD amount you would like to invest, and then use Metamask to switch to the DeFi token of choice. Once you have clicked “Buy”, you can then use Wyre (the first option when you are in the “Buy” window) to enter your credit or debit card information into the secure payment processor, and transfer into your Metamask account the amount Ethereum you wish to buy. At the end of the process, you will have an amount of ETH in your wallet, and you are ready to start investing! In reality, you have already started investing, and if you choose, you could at this point simply hold your ETH and wait for further asset appreciation to discover a good sell point.
Step 3 — Identify Your Desired DeFi Project and Make Your Investment
Typically, crypto buying, selling, and trading occurs on either centralized or decentralized exchanges. To making things as easy as possible for the new user, we can use Metamask directly to make a swap from Ethereum or an Ethereum-based token into another Ethereum-based token or back into ETH itself. For this service, Metamask charges a small service fee, but this is worth the convenience of one-stop-shopping. Additionally, whenever crypto is transferred, you will need to pay a small amount of ETH to the network to serve as “gas” to fuel the transaction. At times, this fee can be somewhat high depending on the number of people buying and selling at the same time as you. Thus, in order to conduct any transactions you will always need at least a small amount of ETH to use your Metamask wallet. In order to make a trade from ETH into your DeFi token, you will first need to add the token ID to the wallet. On the main page, scroll down to the bottom and click “Add Token.” You can then type in the ticker symbol or public address ID tied to the project.
And now a pause in the action for the big reveal. We have determined that we are looking for a Ethereum-based token that is backed by the value and stability of the ETH token, while having a small market capitalization (low competition), a low entry price, and is a relatively new project. This allows us to speculate on the price of the token, while it naturally appreciates with the uptick in price of Ethereum. In the latter part of 2020 when I was finally ready to make my foray into the DeFi investment space, it did not seem such a unicorn actually existed. It wasn’t until late November that I came across a token that had everything I was looking for. This token was backed by Ethereum and was undergoing a presale, with the native token set to go live in late December 2020. What is more, the technology and basic application of the token make it even more impressive. This DeFi token allows users to “stake” tokens they own, which is a way of lending the tokens to the network for a period of time, locking up their value until the agreed-upon maturity date when the investor gets the principal back with the accrued interest. This token, in essence, operates like a bond or certificate of deposit built on top of the Ethereum blockchain. The Ethereum network itself created a lot of buzz in late 2020 for the launch of ETH 2.0, which is a system upgrade where investors have the prospect of staking ETH tokens directly and earning interest on the stake. However, this process is still in the making, requires the user to lock up the investment for at least two years, and has a tremendous barrier to entry (creating the setup at this time requires a significant amount of technical knowledge). The particular DeFi token I have identified allows the user to begin staking immediately for any selected amount of time, with better staking rates for keeping your tokens locked up longer. In some sense, staking is the real gem of crypto: while one can earn a tremendous return by simply buying and holding tokens for the best projects (i.e. BTC, ETH, and perhaps some future and current diamonds in the rough flying under the radar), it is the creation of passive income by earning interest on your holdings which can truly put you on a path to financial freedom.
The token I have come to identify as the perfect crypto starter investment is called Wise Token (aptly named, no?). At the time of writing, the token is trading around $0.40-0.50. With a total supply around 500 million tokens and a market cap around $150 million, the token is still small enough to experience massive growth, but has enough investment behind it to keep investors’ attention and pull in new users. For reference, a crypto token with less than 1 billion total tokens in circulation is not overly diluted (still has some level of scarcity), and with less than a $1 billion market capitalization is a decent “small cap” candidate to invest in. Having come into existence a little over a month ago, the token has already seen an uptick in active investors. Moreover, it has already demonstrated that it is fully backed by ETH, as any price action ETH has experienced in the last month has been directly reflected in the token price action. You can swap ETH for WISE directly on Metamask. Once you click “Add Tokens” on the main page, type “WISE” into the search feature. Select the first option and click “Next” and then “Add Tokens” again to confirm.
Once you have added the token, click on the new WISE token entry on the main page, then click “Swap”. This will bring up a window that prompts you to swap WISE for ETH. Use the arrows on the right side to switch the order so that ETH is being swapped for WISE. Enter the amount you want to convert, then click “Get Quotes”. Once Metamask has finished searching, click through the windows to complete the transaction. Congratulations, you have successfully invested in your first DeFi project.
Step 4 — Staking or Cashing Out
Once invested in WISE, you have three options (besides buying more if so desired): holding in anticipation for value appreciation driven by Ethereum appreciation and new user adoption, staking to earn passive income, or selling. By selling, I am actually referring to swapping WISE for a stablecoin. If you ever want to cash out of Ethereum or WISE, use Metamask to swap for USDC (first add the token as above, and select the desired pairing to swap). For staking, visit the Wise website via the link below. The founder of the Wise token, Peter Girr, is very active on Twitter and YouTube under the tag WiseStaking, where you can learn more about the project and ongoing marketing. The other link provided below is to a site made by one of the members of the community who has invested in the project. It provides useful data and analytics to monitor the status of the token.
Wise Token Staking Site (Official Website): https://wisetoken.net/staking
Wise Token Information Site: https://www.wiseinfo.io/
A final word of caution regarding crypto investing: you can expect volatility. Currently, as I have said in reference to the 4-year cycle, Bitcoin is dragging up the entire market to higher highs as the bull market phase of the cycle plays out. Historically, however, Bitcoin and other crypto assets can experience brief intervals of 30–50% loss even during the final bull leg of the market. These losses have been temporary consolidation periods before Bitcoin ultimately reached new highs. The same can be said for investing in Wise token. Expect turbulence, but I anticipate this project could gain serious popularity as it is very easy to invest in, and you can earn passive income through staking returns.
Conclusion
Finally, fast forward to the present day. The first month of 2021 is in the books, and the world is much the same as we found it in 2020. But something is brewing, still unfelt by the public at large. It’s the same feeling that an even smaller group felt four years ago before a long and tortuous crypto winter that buried many a former crypto evangelist. Several have risen from the ashes, and most of these have returned with renewed wisdom and experience. Others, much like myself, are newly anointed converts ready to test our will against this new frontier. The crypto space itself has matured after the long winter, with a clearer distinction between the top projects and ones that are not value based. As I have said, I am fairly new to this space as an active participant. But if I have learned anything over the past half year it is the following: the crypto space is both easier and more secure to enter than you probably think, and that people are making money every day simply by entering this growing space. So, if you have any reservations about investing in crypto, rest assured these are mostly unfounded. Start by investing a little at first (a test amount), then maybe increase your holdings every month or quarter as you see fit. Remember, the long term hold is a legitimate position, but you will also be in a position to take profits along the way, which you should do. Staking simplifies this decision, as you can set several staking intervals and scrape the returns along the way. Maybe this is the allowance you cash out to lock in profit.
Not everyone (in fact, almost nobody) who puts money into crypto is expected to be a computer wiz constantly surrounded by the buzz of electronic machines and cooling fans, or perimetered by half a dozen computer monitors. It’s a common misconception that by participating in a “risky” investment, you have an obligation to compound this risk to the highest degree. This is simply a complete fallacy. It is in fact a very few within the crypto space who make an existence day trading every new hype token that pops into and out of existence in a matter of weeks or months. Invest in the projects you know have merit. If you build some confidence and experience, and supplement this with proper research, try branching out to smaller startups that offer larger multiples of return. And to be clear, an investment in crypto also need not be a frenzied get-rich-quick proposition. I have come to realize in fact quite the opposite: an investment into the crypto space is an investment in the future of technology and finance, a hedge against fiat devaluation and toward new digital stores of value. It is almost becoming more of a responsibility than a risk to hold some amount of crypto, in particular BTC, ETH, or even WISE. Perhaps Ethereum is that “next Amazon” every investor fantasizes about getting into in the early days. Currently Amazon is valued at over $1.6 trillion with 500 million outstanding shares. The price tag of a single stock is around $3,200. In comparison, Ethereum is valued at $150 billion with 114 million outstanding “shares” (tokens). There is still vast growth potential, even at a current price tag of 1 ETH around $1,300. Perhaps this is even more so for an instrument such as WISE, which is built on top of ETH but only has a total value of $150 million and a price tag around $0.50 spread across its 500 million outstanding tokens?
It could be within the very near future that digital currencies, especially stablecoins, dominate the retail landscape. You may simply choose to adopt this technology as you are forced to. If everyone is using crypto as a means of exchange, you’ll wait to be grandfathered into the medium along with the final wave of resistant adopters. But would have missed an exceptional opportunity to transform your wealth as an early adopter. And if you let that happen even after a former unbeliever such as myself has chosen to unashamedly proclaim his conversion in the public square, then I will find myself forced to regard you with that same, smug, self-assured smirk that my crypto friend first flashed my way 4 years ago.
Disclaimer: the author has holdings in several of the cryptocurrencies mentioned in this article. The author is not a financial advisor and the information above should not be taken as financial advice. Invest at your own risk and discretion.
