Investing your cryptocurrency for higher returns and real world value
It’s hard to believe that less than a decade ago, the only way to grow your crypto portfolio (beyond buying more) was to hold on in hopes that you cryptos demand would skyrocket.
Nowadays, however, you have more options in terms of investing or leveraging your token’s value. From lending your crypto on exchanges or investing in EFTs, there are increasingly more ways for you to make a mint off your cryptocurrency.
Remember: All investing involves risk. The content of the podcast is for informational purposes only and is not investment advice. Please always use caution and diversify.
Hello and welcome to the 29th episode of Alternative Investing. I’m your host, Trevor Kraus, Communications Manager at MyConstant.
Cryptocurrency has taken an interesting trajectory. After Bitcoin came into existence in early 2009, for a good 11 years, it was (among other cryptocurrencies) really a niche asset class. Understood by a select few people.
In fact, Back in December of 2017, a friend of a friend came over to my apartment for dinner and implored me to buy bitcoin. At the time one bitcoin was valued at around 7 to 8,000 dollars.
And I recall having a very low understanding of what it was and how you even went about buying it. But that’s natural, right? I think anytime something is new, there’s a hesitancy to get involved. And that, compounded by the fact that cryptocurrency is intangible it makes most people question the assets value itself.
This all changed in early 2020 when the Covid-19 pandemic forced people to work at home, or worse, lost their jobs. There was a sudden urge from individuals world over to re-evaluate work, money, investments etc.
Which gets me to the topic of this podcast. Different ways you can invest your cryptocurrencies.
But I think before we get into how you can invest, it’s important to know to select a crypto that you’re confident investing in.
If you queried 5 people on the streets of Palo Alto and asked them what crypto to invest in, you’d likely get 5 different answers.
It’s important to understand that picking a good cryptocurrency is not like picking a good stock. A stock represents ownership in a company that creates profits for shareholders—or at least has the potential to do so. Owning a cryptocurrency represents ownership in a digital asset that has no real value.
What makes a cryptocurrency increase or decrease in price is basic supply and demand. If there’s increased demand and a limited supply increase, the price goes up. If supply becomes constrained, price goes up, and vice versa. So, when evaluating a cryptocurrency, the most important questions to answer are how the supply increases, and what will drive demand for the coin higher.
A great way to get the answers to this question is by reading the white paper that a cryptocurrency team publishes to attract interest in their project. And make sure when you’re on their platform, check and see if things are spelled correctly or that the copy actually makes sense. This is not to say that scam cryptos always look sketchy — some platforms might be polished. But in most cases, if something doesn’t look or feel right — trust your instinct.
Also, analyze the roadmap for a project and see if anything could spark an increase in demand. Research the team behind a project and see if they have the skills to execute their vision. Try to find a community of people already investing in the cryptocurrency and gauge their sentiment.
It’s also important to consider how much money has already flowed into a cryptocurrency. If the market cap is already very high, there may not be much potential growth left. A high price will curb demand and increase supply as early investors look to take money off the table.
It’s no secret that right now at MyConstant, we’re getting ready to launch a cryptocurrency on our platform called MCT (MyConstant Token). If, hypothetically, you had never heard of our platform, someone touting our token might sound a bit fishy.
But, as a company, we do have a whitepaper and on top of that, our new coin is beneficial to anyone who uses MyConstant. Lower interest rates when you borrow and higher rates when you invest and receive interest in MCT.
These points alone underscore real world applicable use. And since we’ve been on the scene for 3 years now, there is stability behind the coin and the project itself.
Compare the MC token to, say, The Squid Game coin that came on the market in a hot minute and was ultimately a scam.
Once you’ve found a cryptocurrency you think will make a good investment, it’s time to start buying.
The first step is to open an account with a cryptocurrency exchange. Most stock brokers don’t support trading in cryptocurrency. Coinbase is one of the most popular and beginner-friendly exchanges in the US. Other options include Gemini, and newer brokers such as Robinhood and SoFi support crypto. Just be sure the exchange you want to use also supports the cryptocurrency you want to buy.
Once you’ve funded your account with fiat (government currency), you can make an order to buy your cryptocurrency. Orders on an exchange work the same way as orders in the stock market. The exchange will match your buy order with someone making a sell order at the same price and make the trade.
Once your trade is complete, the exchange will hold your cryptocurrency for you in a custodial wallet.
On the other hand, as of October 2021, you can invest in crypto ETFs. There are now several cryptocurrency-themed Exchange traded Funds out there, and that number continues to grow.
Mind you, however, that these ETFs can also charge high management fees. You can learn more about crypto ETFs in a podcast I recorded on October 25th of last year.
One of the reasons that people like ETFs is that they can invest in a basket of cryptocurrencies and not feel the volatility as strongly, compared to buying a single crypto. As I’ve said on this podcast before, crypto, in general, is more volatile than traditional asset classes like stocks. Price swings of 10% or more in just a few hours are very common.
Not only that, you should consider how much of your portfolio you ultimately want to give to a specific cryptocurrency and to the asset class in general. With the volatility of crypto, be sure to give yourself a wide array of allocation.
You own cryptocurrency. Now what?
In the early days of cryptocurrency, there wasn’t much you could do with it to increase its value outside of hoping that demand for the crypto would rise. It was much like owning a piece of art or a vintage car.
Nowadays, things have changed.
For one, you can leverage the value of your crypto by lending it on an exchange. Think of it more like a savings account for your crypto.
If you head over to the platform Aqru (that’s spelled A Q R U) you can deposit your coins and earn 7% APR on non stablecoins such as Bitcoin or Cardona. However, stablecoins typically get a better interest rate.
At the moment, on MyConstant and on Aqru, if you lend USDC or USDT you can earn 14% APY.
It’s important to note though that interest rates will go up and down based on the market demand.
You might be wondering, why would a platform want to borrow my crypto? Well, platforms like MyConstant link lenders and borrowers — much like a bank. If you need money, you can take the crypto you have on the platform and use it to collateralize a loan. And the more crypto and fiat that we have on the platform, the more money can be lent out. Essentially leveraging the value of your crypto currency.
Beyond lending your crypto, you can also mine for crypto yourself.
I spent the early part of this year in the US. My closest friend there is something of a tech geek and when you walk into his office, he has three big computer screens. And I walked in there at one point and the screen in the middle and to the right, he was using for work. And then the screen on the left, was a crypto mining application called XMrig which mines for menero (XMR).
This application only works when your computer is turned on, and it’s obviously not using the same mining system as Bitcoin. And not nearly the same amount of energy.
But when his computer is on (which is most of the day) the app makes him 1 to 2 dollars per day. And then if he gets enough value from the crypto, he can go and exchange it for a different one on an exchange.
He joked that it basically pays for the gas in his car. Or at least, at one point in time it did. This app for him is more just for fun, this is not a necessity for him.
As with any Investments there are pros and cons to weigh. Cryptocurrency has some unique advantages that separate it from other investments.
For starters, it’s a great way to diversify your portfolio. The value of cryptocurrency doesn’t appear to be correlated with the price of stocks, bonds, or other asset classes. That said, cryptocurrency has only existed for about a decade, so the data is limited in this way. Theoretically, though, it makes sense that the price of crypto is unrelated to the price of traditional assets.
There is an excellent possibility of returns. Cryptocurrency has produced extremely strong returns as adoption increases. We’ve gone from a time where crypto was seen as fringe and now increasingly major companies are accepting crypto as payment. There are even bitcoin ATMs in many countries. Most people agree the expected return for a sound cryptocurrency investment is greater than that for stocks.
Lastly, you have utility. Unlike stocks, some cryptocurrencies provide utility. As I just mentioned, bitcoin for example, can be used to pay for goods and services. Other tokens may provide access to projects or discounts on a project’s services.
But as with investment, and one in particular that poses a higher risk, there are some disadvantages to think about.
For one, you have limited regulation in the cryptocurrency industry, which means you don’t have the same protections as you do when investing in the heavily regulated stock market.
If your account gets hacked, for example, you could find your investment completely gone without any recourse. If the coin you invest in turns out to be a scam, there’s nothing you can do. On top of that, the increased regulation may decrease the demand for some cryptocurrencies, adding a risk to the investment.
And lastly, of course, The prices for cryptocurrency can swing wildly on a day-to-day basis. Such massive price swings can be hard for some investors to stomach. For me, when I first bought bitcoin I told myself I was going to buy it and just leave it.
I wasn’t going to check my Binance balance on a daily basis. I wasn’t going to leverage it or predict futures. Personally, I just want to hold some and see where it goes in the future. The amount I invested in, I was comfortable with if it didn’t bring me anything or disappeared.
That’s something I mention often on this podcast is to only invest what you’re comfortable with.
What are some of the top cryptos to invest in right now?
Of course Bitcoin and Ethereum are the top one and two cryptocurrencies in the world today. But because of their popularity and utility they are now quite expensive to invest in.
As with any investment, you’re looking at what is less expensive now, that will eventually pay in dividends in the future. You also want to look at the utility and the background of the coin — who’s behind it?
Now I’ll preface this by saying, this is not financial advice based on my research, Cardano is a coin to look out for. The team behind Cardano created its blockchain through extensive experimentation and peer-reviewed research. The researchers behind the project have written more than 120 papers on blockchain technology across a range of topics. This research is the backbone of Cardano.
And because of this rigorous research, Cardano seems to stand out among its PoS peers (proof of stake relates to a consensus mechanism which is a method for validating entries into a distributed database and keeping the database secure — in this case, it’s blockchain).
Cardano has also been dubbed the “Ethereum killer” because its blockchain is said to be capable of more. That said, Cardano is still in its early stages. Though it has beaten Ethereum to the PoS consensus model, it still has a long way to go in terms of DeFi applications.
For a traditional cryptocurrency, Cardano is my pick to look out for. But if you wanted something a little more stable, then a stablecoin could be a good investment. Stablecoins are pegged to the US dollar 1 to 1.
Tether (USDT) was one of the first and most popular of these stablecoins. Because most digital currencies, even major ones like Bitcoin, have experienced frequent periods of dramatic volatility, Tether and other stablecoins attempt to smooth out price fluctuations to attract users who may otherwise be cautious.
Because it’s tied to USD, the system allows you to more easily make transfers from other cryptocurrencies back to US dollars in a more timely manner than actually converting to normal currency.
Launched in 2014, Tether describes itself as “a blockchain-enabled platform to make it easier to use fiat currency digitally.” Effectively, this cryptocurrency allows you to utilize a blockchain network and related technologies to transact in traditional currencies while minimizing the volatility and complexity often associated with digital currencies.
As of March 14, 2022, Tether is the third-largest cryptocurrency by market capitalization, with a market cap of $80.1 billion and a per-token value of—you guessed it!—$1.
Well, I hope this podcast has been informative. In the past Chris and I have spoken about cryptocurrency and I’m always looking for new topics to discuss but in the DeFi world, crypto is always on everyone’s lips. So I want to bring more of you into the fold — especially if you’re new to cryptocurrency.
I hope you all have a wonderful week and you’ll hear from me again in early May.
As always, if you have any podcast suggestions, drop me an email at [email protected]
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