Disclaimer from Author
You undertake any and all transactions and investments at your own risk. This is not financial advice and is not liable in any way for decisions you may make. If you act like an impetuous idiot, you can expect to have things turn out accordingly, and that is entirely on you.
I am sure many of you, much like myself, are tangentially aware of the existence of cryptocurrencies —if not aware of the processes or the method of trading, you have surely at least heard of Bitcoin. When Bitcoin first started trading it was priced at around 6 cents per unit. At the time of writing it is valued at a little over €40,000 per unit. If you had stuck a tenner on Bitcoin in July 2010 you’d have around €6.5 million by now. Nothing in this article should be taken as financial advice, rather it was just how it was explained to me. Ultimately you’re the arbiter of your own decisions.
While it may look like a get-rich-quick scheme (and that is what kept me at an arms’ length for the last number of years), it should be said that there are solid fundamental reasons why blockchain technology isn’t a scam. I’m not saying that all coins being traded have some inherent value, most of them actually are scams, but there are also some which are not.
While it’s unlikely that another coin will emerge in the immediate future to replace Bitcoin (Bitcoin accounts for about 70% of the total value in all cryptocurrencies), there are coins with which you can make an eye-watering return on investment.
The value of cryptocurrencies fluctuate wildly, so the day to day trading should be avoided unless you know what you’re doing and are confident in yourself —there is always a risk that a coin will go flat or be de-listed or otherwise become worthless, so I cannot overstate this. Only invest what you are willing to lose. Don’t take out a loan, don’t pawn your grandmother’s wedding ring, don’t leverage. In short, don’t be an idiot.
I must say that this is highly addictive stuff —as someone without a gambling problem I find myself constantly wondering whether to drain my savings and put it all on red at least once a day. However a bit of self-restraint and impulse control and you’ll be able to put some money aside and have a good chance of coming out with significantly more than you could have saved if you just put the money in a savings account or current account but again do not be an idiot.
With those disclaimers and thanks to the hermit-knowledge of Lugh na Quillan on Twitter, here’s a Beginner’s Guide to Crypto-Trading.
There are two separate trading platforms that are recommended —Coinbase and Binance. There are significantly more trading platforms for more niche items but one of these are all you would need to start. For both Coinbase and Binance you will need to verify your identity and your address before you can begin trading —usually a bank statement and passport suffices.
Coinbase is the more introductory version —with a rather limited number of coins on its listing. It has the big ones like Bitcoin and Ethereum, so if you want to put your money into the larger coins (which have less dramatic swings in the long-run) this one would be more immediately user-friendly.
It does have greater commission fees for deposits though —if you’re moving small amounts of say €50 at a time you can expect to pay 6% (€3) which might not sound like much but will definitely add up over time, and that commission rate climbs higher if you’re a student with very little capital. If you’re putting in a tenner a week you’re paying about 10% in fees every time you deposit money.
This can be avoided by using SEPA transfers but that takes a little bit of setting up. Once you do set it up you will still run into the 1.5% transaction fee however.
Coinbase in my experience is also more jittery —I had changed phones recently and despite using the same number, it would not recognise my account —I had to simply start a new account (which thankfully had nothing in it).
In contrast, Binance has a much less user-friendly interface but has much greater options in terms of coin listings and much better fees charged. If you decide to deposit currency with a debit card, you pay 1.8% as standard on all transactions between €15 and €5000 in value. If you use a SEPA transfer you are charged no fees. The transaction fees are also a mere 0.1% value of the trade. Binance also has a system of Two-Factor Authentication (TFA) which allows you to sign in on new devices but requires you to confirm two codes —one sent to your phone, one sent to your email address. If you login on your laptop you can set it to remember the device so that if somehow your phone becomes disabled, you don’t lose the currencies you have saved and can cash out.
However Binance is more complicated to use —for most coins you cannot pay with fiat (euro, dollar, sterling, etc.) but you must first purchase an intermediary coin (bitcoin, ethereum, USDT, BNB, etc.) and then purchase the coin you originally wanted. Binance takes 0.1% off you each time but even then you’re unlikely to be doing fifteen-trades with the same initial deposit so the charges will always be lower than Coinbase. Coinbase does have a less user-friendly option called Coinbase Pro, but again the listings seem to be less attractive than Binance.
Binance also gives you access to other options and instruments —staking (where you give your coins to the market-holders to provide liquidity and in return they pay you interest in those coins), leveraging (where you are trading beyond your assets on hand) and the like. But I highly recommend not using most of these until you are comfortable and confident and are fully aware of the risks —if you’re leveraging up or trading futures you very well might end up like Melvin Capital and end up on the hook for stuff you simply can’t afford.
There are two forms of staking —one where you have access to your coins (so if their price is skyrocketing you’re not stuck waiting until the loan period ends) but which gets you lower interest and if you withdraw earlier you will be charged a certain fee —floating or open staking. The other is “locked staking” where you are giving your coin to the market for a fixed period of time and paid interest on those sums. You can’t withdraw your coin early but in return you are paid a higher commensurate rate of interest.
Why would a market pay you to take a loan of your assets? To provide “liquidity” to the market. Sometimes there will be more demand than supply at a given second or micro-second as transactions are processed – this could cause wild swings in the values being paid for a coin. One minute a coin might be worth 10 cent, the next 5 euro, the next 4 cent, all depending on volume. In order to stop these wild swings happening, the markets keep a certain reserve quantity of coins to keep the worst excesses at bay.
I only recommend staking when you know you are going to be holding a coin long-term, because the pay off involved in making it worthwhile is far below tolerance for short term lets.
Firstly to explain it: You lock up a certain amount of coins for a fixed time period and you are paid interest in the coin you staked. So if you for example stake 10,000 “XXX” (a made-up coin) with a locked stake for 15 days at 25% Annual Percentage Yield (APR), then at the end of those days you’ll have 12,500 XXX.
However the value of XXX can fluctuate wildly (a 40% swing +/- is pretty common for most coins), so you might end up with 12,500 coins that have fallen in value by 40%. Alternatively it could have risen 40%. But if the value of the coin is continuously falling, or has just reached a peak (and you want to cash out and make your mint) then you’re stuck holding the back until your staking contract is up. If XXX was valued at €1 per unit when you bought it but it fell by 40% in the 15 days you left it locked up then you’d have 12,500 coins worth only €7500. If it rose 40% you’d have €17,500.
Why it isn’t worth it in the short term is that the headline interest offered is per year —but the periods they offer range only from 15 days to 90 days. As it makes up such a small segment of time, the interest is also tiny. If you have 1000 coins and lock them up for 15 days @ 20% APY at the end of the 15 days you would only get ~8 coins.
You could constantly re-stake to get to that headline figure but that is, in my view, tedious and not conducive to short or medium term holding.
If you’re like me and you just want to put some money aside in the hopes it brings a reasonable return, then what I would recommend is simply buying some coins and letting them sit in your account. Forget about them and check in once a day or once a week to see how they’re doing and if the price has dropped, buy a little more.
Coin selection is incredibly important. Not only do you want to avoid “meme” or gimmick coins like DOGE or HODL (because there is no technology underpinning them), but you also want to avoid coins which are being flogged by disreputable founders. A lot of coins will be found to be nothing less than money-grabs by anonymous software engineers from India or Belarus.
Since you can buy fractions of a coin, the nominal value of one whole coin is rather pointless —i.e. if you have €50 and a choice between 2 coins (Coin A valued at €100 per unit and Coin B at €2) then it doesn’t really matter which one you choose (all other things being equal) —you can buy 0.5 coins of A and 25 coins of B.
What you should consider is instead the amount of total money holding those coins, and generally aim for the lower one. For example if Coin A has €100 million in market capitalisation and Coin B has €10 billion in market capitalisation, you should lean towards Coin A. While it has more risk in the short-term (if someone invests in €5 million it will affect the value of A a lot more than B), the potential for gains are much greater (if A was to double in value it needs €100 million more invested, but if B was to double in value it would require €10 billion more invested).
I must state it again, there are legitimate coins and there are scam coins, and your job is to try and identify the good ones. With low fees to access the market and the ability to make micro-investments, you should try to ignore swings of between 10% and 50% because they are by and large part of the chaos of crypto trading.
A strategy recommended to me was the dollar-cost averaging. If you believe a coin is worth investing in long term then when a price dips, you buy more, because this brings down the per-unit price of your investments.
For example: Coin A is worth €1 and you put €100 into it, so now you have 100 coins and your dollar cost average is €1.00
If the price goes down to €0.50, and you put another €100 into it, you’ve now got 200 additional coins. Your total investment was €200 but you have 300 coins, so your dollar-cost average now is €0.66 per coin.
If the price goes back up to €0.90 and you didn’t panic and sell off your coins at a loss earlier, then you have €270 worth of coins. You’ve made €70 in profit despite the per unit value of each coin being lower than your initial investment.
Now we have to be clear that the only time a profit or loss becomes real is when you cash out. Until then it’s just numbers on a screen and can change value at any time. You could be down a grand one month and up five grand the next. Once you cash out, that’s when you’ve made real your loss or your profit.
Again, don’t get spooked by a fall in the price of a good coin, and don’t think a coin is good just because the value is going up by 40-50% or more. These fluctuations are normal, as unnerving as they might appear. Don’t chase them. If you chase after them, you’ll just end up stressed with no added profit.
There are also “pump and dump” scams which are organised, where a group of people will push a lot of money into a coin, drive up the price and immediately sell, so that people who see the coins going up in value get the fear of missing out on making money and rush to buy in – they end up with having paid maybe 15 or 16 times the worth of a coin and end up holding dog shit. Stay away from them.
Do not panic buy and do not panic sell.
So what coins should I buy?
The list that was recommended to me as all being available on Binance, and which I and a number of others have had some success with, are the following:
Each of the coins have a relatively low market cap and have the potential for significant gains over the next one to two years.
You might be wondering what your liabilities are if you do make money off this, and yes, you are liable for tax on any profits gained.
Your tax comes due on October 31st and any profit you make from cryptocurrencies are liable to a 33% tax (“capital gains tax”). The first €1270 is exempt according to the Revenue Commissioners (this counts towards everything which is liable for capital gains taxes in a year).
Choose your investment portfolio carefully but don’t sweat the small ups and downs, and try to plan a year ahead.
A reminder that the views expressed in this article are solely the opinions of the author, and do not necessarily reflect the views of The Burkean as a publication, or any of its individual writers. This article is not to be taken as financial advice.