How To Become A Reluctant First-Time Cryptocurrency Buyer
We have finally arrived at the top of the cryptocurrency market. How do I know this is the top, you ask? Did the Coinbase public listing take crypto too mainstream? Or is it the recent explosion of a dog meme coin? Why no, my tried and true indicator is much simpler. It’s the fact that Impersonal Finances is now the proud owner of a fraction of a fraction of a fraction of Bitcoin. And we here at Impersonal Finances have a nose for getting in late and buying at the top. In spite of myself, here’s how and why I’ve reluctantly become a first-time cryptocurrency buyer.
A decade late foray in the cryptocurrency market
With the crypto market experiencing all-time high after all-time high, I finally decided it was high time for me to add a little bit of exposure to my own “fun” portfolio. This fun portfolio has gotten me in a bit of trouble lately, and I am once again going to get in my own way with some speculative action by finally dipping a toe into crypto. But keep in mind my financial house is relatively in order. The tinkering that I’m doing around the fringes of my portfolio will not alter by retirement picture. I plan to allocate a miniscule portion of my portfolio to the world of decentralized currency.
If you spend any time reading personal finance blogs (nerd alert!), you’ll see plenty of poo-pooing of the crypto bulls who incessantly post screenshots of their gains on Twitter. The crypto space is rampant with speculative egomaniacs, which, on second thought, does not exactly differentiate itself from any other corner of the financial world. But there’s plenty for traditional investors not to like about what they’re seeing in the crypto world, most of which has to do with risk management. Conversely, for those who are deeply entrenched in the crypto world, there’s plenty of poo-pooing the personal finance nerds as being behind the times. At the moment, the scorecard is in favor of the crypto diehards. The crypto gains over the last year, and even decade, are nothing short of ridiculous. Have fun staying poor, indexers!
When to buy cryptocurrency?
Given my own inclination to practical personal finance advice, I have done plenty of crypto poo-pooing myself. Partly out of ignorance, partly out of envy, but mostly out of instinct. Urging caution at that which seems too good to be true is a major tenant of personal finance. As such, I still wouldn’t dabble in crypto until after paying off debts, building a small emergency fund, and making traditional investments in my 401k and Roth IRA.
Many seem to be banking on crypto investments in order to solve their financial problems (getting out of debt for example) rather than as a supplement to their portfolio, which raises a red flag in the world of personal finance. But you know what? In some cases, that’s OK too! If you’re young and want to swing for the fences with crypto, time is on your side should the bottom fall out. It’s the long-term investor considering cashing out a Roth IRA for a 100% Dogecoin allocation that tends to sound the alarm bells.
Earning free cryptocurrency on Coinbase
As for actually becoming a first-time cryptocurrency buyer? I started with Coinbase. The recent public offering re-ignited my interest in the underbelly of polite financial society. And Coinbase provides a gateway drug in the form of some freebies. For someone who spends an inordinate amount of time trying to make a quick buck, I’m equally intrigued by the prospect of a quick coin. Similar to Robinhood’s free stock offering, I received a free $5 worth of Bitcoin when I signed up for Coinbase back in late January. I let that small fortune sit by its lonesome in my Coinbase account and, in the span of two months, it doubled to $10. Exactly the kind of 100% gain that the TikTok influencers promised me.
Little did I know, Coinbase had more freebies to offer me yet. By skimming some brief facts and videos and answering a couple questions, I received a total of $31 in a hodgepodge of random coins. Shitcoins, as we crypto bulls call them. I was then able to transfer these coins into the crypto of my choosing, which I split up between Bitcoin and Ethereum. As far as entry points into this brave new world go, Coinbase seems like a good way to experiment while getting rewarded with over 30 bucks of free crypto.
Why Bitcoin and Ethereum? Well, they certainly seem to be the most established currencies. Bitcoin in particular appears to have long-term value as a store of value similar to gold, if nothing else. Meanwhile, Ethereum is all I’ve seen transacted in my experimental foray into the NFT world (which has not resulted in my purchasing any NFTs).
Earning interest on Bitcoin and Ethereum at BlockFi
While Coinbase and Robinhood are popular options for retail investors to purchase crypto, another company incorporates just enough of a traditional banking element to tickle my fancy. The guys at Animal Spirits recently interviewed Zac Prince of BlockFi, a company that allows you to accrue daily interest on your cryptocurrencies. I’m on board. Bitcoin, for example, yields 6% annually. In the world of 0.50% returns on high-interest savings accounts, this is a pretty incredible deal. That is, if you’re willing to accept a tremendous amount of volatility and uncertainty in your actual holding.
As a crypto newb, there’s a lot more to it than my dumb brain can’t even attempt to explain (which is usually a reason not to invest in something). I know enough to know I don’t know enough. But, at last, I’m willing to keep an open mind and get a little dirty myself. As a result, I am slowly dollar cost averaging small amounts of cash into these two choice coins. There has been enough adoption by the financial industry for me to feel comfortable in dabbling. At worst, it’s a small entry fee for a first-hand learning experience.
Buying crypto to fight FOMO with YOLO
The Bitcoin bulls have been big winners, and big winners often like to let it be known when they’ve won big. As such, it’s tempting to follow the fearless Gen Z investors who laugh in the face of risk and YOLO their savings into decentralized currency. Typically, I watch all this take place from afar with an interested eye. I then continue going about my index fund-loving lifestyle without a second thought. If and when the market inevitably bubbles over, as it did in 2017, I simply hug my VTSAX extra tight at night and lend a sympathetic and knowing ear to those in need.
But 2021 has been a banner year for the dreaded FOMO monster. Possibly because the preceding year was filled with canceled plans and the missing-out-on of even the most mundane daily opportunities, FOMO has struck with a vengeance. I’ve come to grips with the fact that the only cure for FOMO is to finally YOLO into that which I feel I am missing out on. If this cure is executed to perfection, by the time you do end up investing, you will have successfully timed the top of any investment. As I’ve proven in the past.
Reluctantly becoming a first-time cryptocurrency buyer
In all seriousness, instead of continuing to curse the outsized gains made by this new wave of investors, I plan to simply allocate a very small amount into the investment du jour to satiate my appetite for the latest craze. Again, I’m talking very small amounts. I likely won’t be going any further than a single percent of my current asset allocation. After all, I don’t need to become a Bitcoin Billionaire–I just want to feel like I’m in on the joke. And if the joke ends up being on me, well, thank Bogle for index funds.
Bottom line here: If you can’t beat ‘em, join ‘em. And I’m finally willing to acknowledge that there is wiggle room in a well-diversified portfolio for some exposure to cryptocurrency.
In other words: welcome to the top of the cryptocurrency market.
I’ve recently jumped into the crypto fray, reluctantly after holding off for 7 years. Guaranteed its the top! lol
Top of the market to you! I am taking some very small bites out of the apple at these levels, but I figure this way I’ll have my ducks in a row when the inevitable crash occurs. No more excuses that I don’t have accounts set up and so on. Plus, I’ve discovered I really only need like $5 in something to feel like I’m in on it and prevent the FOMO from eating me alive.
Good luck. I have no idea how to value it, but it seems there are so many who think its value is limitless. Small allocation sounds reasonable. I hope you do well
Haha that makes two of us. I almost hope I don’t do well–my allocation is so small as to still be perfectly fine with a huge drawdown. But I finally reached my breaking point. I need some skin in the game!
Since I am still not buying any, crypto will continue to go up in price. You’re welcome 😁.
We shall see what happens when two powerful conflicting forces collide!
Haha! I am ashamed to admit I also bought into the crypto craze. I bought an overpriced single share of Coinbase. Now that our FOMO has been cured, we are in on the crypto inside jokes! Thankfully, the other 99.9% of our portfolio of index funds will actually do the heavy lifting for us.
The thing I like most about index funds is being able to say I do own whatever hot new stock is making waves, thanks to VTSAX. With Tesla, I didn’t own a ton of it, but I benefitted from its rise via the index. Crypto being excluded from that index hits me right in the FOMO bone!
Timely article in that I was taking to my buddy last night who got in on Bitcoin at $400. He was telling me to take a look and consider getting some. I asked my he didn’t do this when he originally got in as opposed to $60K. Then I remembered the he did!
The thing I like best about crypto is that it keeps all the total whack-ass, Tulip bulb type speculators out of the “real” market and, thus, not destabilizing my assets. However, I sill regret not picking up $10K or so back at that low price.
Haha yeah I mean, I could have at least taken a look at it. I just completely brushed it off. I wouldn’t even have known how to go about buying Bitcoin when it was $400 but it’s definitely easier now. I am so reluctant to lose even small amounts of money when I feel like I’m gambling, but now that I feel like I have somewhat of a plan (even if it’s a bad one) I can let come what may.
All the bubble characteristics are there, though now that there seems to be more acceptance from the financial institutions I think it will have a place as a long-term asset in some way shape or form. It just might be worth a LOT less than I’m paying for it now. Buy hey, tulips are still nice flowers.
ha, this was a funny one. what the hell? give it a shot! you said it best when you mentioned all that other rudimentary stuff you have in place like no consumer debt, e-fund, 401k/ira. i have had many people ask me to help them buy stocks and i always start with those questions to determine readiness.
p.s. please promise you won’t buy shopify stock. i own too much to have it tank.
I just need a little skin in the game. Some personality defect or something. While I’m late to the party, it does open my eyes to the fact that I shouldn’t simply ignore something because it’s new. I think I was a little pompous about my index fund ways because when you discover something that works for you, you can’t believe everyone else isn’t doing it. That’s how the crypto bulls probably feel.
I technically own just a bit of Shopify through the indexes & ARKK, but I will avoid a direct purchase for your sake!
My favourite part is that Crypto is like the previous manias. I know this because everyone tells me that “this time is different”.
Also, how did index funds, equities!! become a safe haven asset? If equities are now safe and boring, then we sure moved way to the right on the risk spectrum, lol.
I blame low interest rates. With such low bond yields investors are looking for alternatives, and in most cases speculative ones. I am in 100% equities and feel like I am not taking enough risk. It’s insane! Surely this won’t end well, but that’ll make a good blog post when the time comes…
Hey IF! Thanks for letting us know crypto is at the peak. Next, can you tell me when you’re about to sell? (assuming you’ll choose the worst possible time to sell, then that would mean it’s a good time for me to buy? haha.)
Hey Joel–Absolutely! Stay tuned for the “Why I’m selling my Crypto” post when it hits bottom. Buy high sell low, like they always say!