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Why invest in crypto?

Why invest in crypto?

August 2, 2022
5
 min read

Cryptocurrency is digital money that’s stored on a blockchain. We'll cover why you might want to own crypto and how.

By Peter, Ilya, Lee

Cryptocurrency is digital money that’s stored on a blockchain.

You can send and receive crypto...

  • ...without middlemen such as banks extracting fees
  • ...without revealing your personal information
  • ...at any time to anyone in the world in minutes
  • ...in fractional shares (e.g., you can send 0.00000001 bitcoin)

However, you do need to...

  • …pay network fees (e.g., Ether gas) which can be as high as bank fees
  • …deal with large price fluctuations
  • …be wary of scams and phishing attempts

That’s why it’s important to get educated. In this post, we'll cover why you might want to own crypto, what crypto you might consider buying, and where you can buy crypto.

What follows is not investment advice.

Why own crypto?

You probably have your hard-earned savings in the stock market, real estate, or a bank account. Short term, owning crypto is like being on a rollercoaster. Just look at the price of Bitcoin, the most popular cryptocurrency:

Long term, however, there are several arguments for owning crypto:

1. Crypto is a good investment long term

Let’s look at three popular cryptocurrencies - Bitcoin, Ethereum, and USDC.

Bitcoin is the best performing asset of the past decade:

Source: Charlie Biledo (ycharts)

It’s also the 5th largest “company” in the world with a market cap of $1.2 trillion:

Source: Coinmarketcap

Ethereum is the 2nd most popular cryptocurrency and has grown even faster than Bitcoin in the last five years:

Source: Google Finance

USDC is a stablecoin that's pegged to the US dollar (e.g., 1 USDC = $1). If you put your USDC in a crypto interest account, you can earn 10%+ APY. Due to its stable price and high yield, USDC is an attractive investment for institutional investors looking for less risk.

That's not to say that stablecoins don't have any risk at all. Learn more with our guide What are stablecoins?

2. Crypto is a hedge against the financial system

The traditional financial system has several drawbacks:

  1. Inflation is a real risk. For example, US inflation is at 6% as of November 2021. If you have your money in a bank savings account earning 0.5% APY, then you're losing 5.5% every year. Bitcoin is a particularly good hedge against inflation because it's capped at 21M coins vs. governments that can always print more fiat currency.
  2. Banks might not have your best interests in mind. Banks extract high fees, don’t work on the weekends, and could compromise your personal information (e.g., JP Morgan).
  3. Banks aren’t available to everyone. 1.7 billion people don’t have a bank account (World Bank).  2/3rds of these people have a phone and might own crypto as their first financial asset.
Source: World Bank

Nobody knows what cryptocurrency prices will be like in the future. However, if cryptocurrencies continue to appreciate in value, they could stunt the growth of more traditional assets (e.g., gold, real estate) long-term.

That’s why it’s a good hedge to own some crypto long-term.

3. Crypto is needed to get things done

You can use crypto to:

  1. Send money to anyone in the world with minimal fees.
  2. Buy a growing list of goods and services.
  3. Build and use decentralized apps that let people support creators, participate in communities, play games, and more.

Crypto is quickly becoming a utility in addition to an investment. At some point, you might need to hold some crypto just to participate in the economy.

What crypto to buy?

The global cryptocurrency market is $2.7T (November 2021). The top coins are:

Source: Coingecko
  1. Bitcoin | BTC (41% market share) launched in 2009 to be a “peer-to-peer electronic cash system” (whitepaper). Today, many people use Bitcoin as a store of value.
  2. Ethereum | ETH (19%) launched in 2013 to let anyone “write smart contracts and decentralized apps (dapps)” (whitepaper). Eth has the largest dev ecosystem in crypto.
  3. Binance | BNB (3%) launched in 2017 and moved to its own blockchain in 2020. You can use BNB to pay for fees on Binance, the world’s largest exchange.
  4. Tether | USDT (2%) is a stablecoin that’s pegged to the US dollar but also faces some controversy. Other popular stablecoins include USDC (backed by fiat currency held in reserve) and DAI (backed by other crypto collateral like eth).
  5. Solana | SOL (2%) launched in 2017 to be a “high-performance blockchain” (whitepaper). Solana currently offers higher transaction speeds and lower fees than Ethereum but is less decentralized.

We’re not here to give investment advice, but here are a few tips when choosing a cryptocurrency to buy:

  1. Only invest what you can hold onto long-term (e.g., several years).
  2. Most people start by investing in Bitcoin or Ethereum.
  3. Remember, you can buy fractional shares (e.g., 0.01 Bitcoin).
  4. Consider using dollar cost average or limit buys for price fluctuations.
  5. Be careful FOMOing into a new coin. It could go down as fast as it goes up.

The last point bears repeating. We do not recommend FOMOing into the latest hot token. An example is SQUID token, which lost 99% of its value overnight ($2,861 to $0.0007) as its creators scammed investors out of $2.5M.

Where to buy crypto?

Most people buy cryptocurrency through an exchange. When selecting one, consider:

  1. Security: Look for 2FA, offline asset storage, and insurance for your assets.
  2. Liquidity: Look for high volumes that let you complete transactions faster.
  3. Fees: Look for low transaction, withdrawal, and deposit fees.
  4. User experience: Look for easy-to-use UX both on the web and mobile.
  5. Customer support: Look for a reputation for solid customer support.
  6. Cryptocurrency selection: Look for the coins that you want to hold.
  7. Regional availability: Look for availability in your state or country.

Here are several popular exchanges that meet many of the criteria above:

  1. Binance: The #1 global exchange with low fees, but unavailable in the US.
  2. Coinbase: The #1 US exchange with great security, liquidity, and UX.
  3. Kraken: Offers 50+ cryptocurrencies and lower fees vs. Coinbase.
  4. Gemini: A popular US-based exchange that offers 10 free withdrawals a month.

The exchanges above are centralized in that you rely on a middleman to handle your wallet and transactions. You can also buy crypto from:

  1. Decentralized exchanges (e.g., Uniswap) that don't have middlemen.
  2. Consumer finance and stock brokerage apps (e.g., Cash App, Robinhood) that support both crypto and non-crypto transactions.

If you’re a beginner, we recommend that you start with centralized exchanges. They’re easy to use without having to worry about managing your wallet keys.

Let’s walk through buying some crypto on Coinbase, the #1 US exchange (link):

  1. Create an account on Coinbase
  2. Select buy on the upper right-hand side.
  3. Select the cryptocurrency that you want to purchase and the amount.
  4. Select your payment method (e.g., bank account).
  5. Confirm your purchase (note that there’s a small transaction fee).

Pretty straightforward, right?

Tips for buying crypto

Here are a few more tips for buying crypto on an exchange:

  1. Turn on security features: Enable two-factor authentication and whitelist withdrawal addresses. Be wary of phishing attempts from scammers pretending to be the exchange.
  2. Consider the pro version: Exchanges like Coinbase offer a Pro version that looks intimidating to beginners but offer lower transaction fees and advanced trading options like limit buys.
  3. Use dollar-cost averaging: DCA is a strategy where you invest the same amount in set intervals to smooth out crypto price fluctuations. Many exchanges offer a recurring buy feature.
  4. Track your portfolio and taxes across multiple exchanges: Use a platform like CoinTracker to see all your crypto wallets in one place and make your life easier during tax season.

To explore web3 beyond buying crypto on an exchange, you need to set up your own wallet. We'll discuss how to use a hot wallet next.

Up next: How to use a hot wallet?
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Why own crypto?

What crypto to buy?

Where to buy crypto?

Tips for buying crypto

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