With the huge expected returns publicised in the press over the last few years (Axie, Bitcoin etc.), there are equally important stories of how people have lost their life savings (e.g. Squid Game Token)!  Most people advise that investment in cryptocurrency, that it’s risky but there are ways to mitigate those risks.

This page deals with longer term investment (at least a couple of years) rather than day or swing trading (buy and sell within a day or within a week or two). Cryptocurrency trading requires a different approach as you are typically taking in increased risk based on more complex criteria in a very volatile market.  It isn’t impossible to do, but many experts argue that 60%-80% of all day trades for example, lose money.

If you are new to investing in cryptocurrency, the following points may help you avoid disaster…….

• • For the foreseeable future, Cryptocurrencies will be more volatile than traditional investments in stocks, bonds and precious metals – there will be wild price swings up and down.  You should only invest what you can afford to lose and whatever you do, never borrow to invest in crypto…. NEVER!
    

• • Your investment in cryptocurrency requires you to do some research to find an exchange that is suitable for your needs. This is where you will buy and sell your coins (sometimes called on and off-ramping).  You need to know that you can buy and sell easily and convert back to your national currency without hindrance.  You should test the exchange of your choice before making any significant investments. It’s really important to do this! My favourite exchange for instance, is Binance, but my bank wouldn’t let me transfer money from my bank account to the exchange. Such problems are common. Banks and financial institutions (noticing that money is leaving their customers’ accounts for crypto) are attempting to stop transfer to exchanges to ‘protect’ their users from unscrupulous deals. I personally believe that the real motive for this is to reduce the flow of money to financial institutions outside their control.

• • Store most of your investments in Hard/Cold wallets (see the Security section, Crypto Security – Protecting Digital Assets). Only keep crypto on exchanges when you are looking to make trades.  Exchanges can be hacked and accounts looted. If it’s not your wallet, it’s not your crypto!  Some crypto exchange customers have lost considerable amounts of money.  I transfer crypto to and from exchanges only when I am about to make a trade.  

• • Watch for scammers.  Scammers love crypto because most people don’t do due diligence when investing.  Your investment in cryptocurrency is important enough to carefully undertake your own research before deciding to part with your money. Why do you believe that the team behind your favourite the crypto project are honourable and are you sure that the project will still be around in a year or two?

• • Make sure you have an Investment Strategy and stick to it!

• • Don’t succumb to psychological pressure.  This may sound silly but it’s probably the most important rule.  Don’t suffer from Fear Of Missing Out (FOMO) which will cause you to prematurely invest without doing the necessary research and due diligence work.  And, just as importantly – Don’t sell because of Fear Uncertainty and Doubt (FUD) when the market plummets – don’t have weak hands, trust in your original research and decisions – you will have considered what you need to do in such circumstances, deviating from your strategy (after all that research), is counterproductive.  After an investment in cryptocurrency when the price has dropped significantly, it is very normal for the price to go back up again, we just need patience. Carefully consider the status before exiting your investment.  Bitcoin, as an example, has had numerous crashes (some by as much as 80%!) and always bounced back.

If you think you can do all of the above, let’s look at some cryptocurrency investment options.

Basic Investment – Major Cryptocurrency (currently)

Crypto currencies are usually listed in order of market cap (total value of all the coins minted).  This changes regularly because of popularity, perceived use case and media hype. New currencies and tokens come and go and with over 10,000 cryptocurrencies it can be a difficult job to find the right ones to invest in.

Let’s take a look at some of the most popular by market cap:

Bitcoin (BTC)

Market Cap: $880bn.  This is the most obvious choice as a store of value (i.e. it’s like digital gold). Bitcoin’s price has skyrocketed and it has become a household name. In May 2016, you could buy a Bitcoin for about $500. As of Jan. 3, 2022, a single Bitcoin was priced over $46,000. That’s growth of about 9,200%.

And yet, it’s not been an easy ride for Bitcoin. The number of people in the media that believe it’s a scam is considerable.  This year, I saw a video of a guy asking people if they would rather have a hundred dollars or a bitcoin, a large proportion would rather have the dollars!  Some noteworthy headlines from ‘reputable’ publications over the years show similar sentiments (note the price per bitcoin in 1st Jan of that year (in brackets)):

• • • 2010 “Why Bitcoin can’t be a currency” – The Underground Economist ($0.09)
    • 2011 “So that’s the End of Bitcoin Then” – Forbes ($0.30)
    • 2012 “Wired, Tired, Expired for 2012: Bitcoin” – Wired ($5.27)
    • 2013 “A Prediction: Bitcoin is Doomed to Fail” – The New York Times ($13.30)
    • 2014 “Bitcoin revealed: a Ponzi scheme” – The Washington Post ($770.00)
    • 2015 “Jamie Dimon: Bitcoin Will Not Survive” – Coindesk/Fortune ($313.92)
    • 2016 “R.I.P. Bitcoin.  It’s time to move on” – The Washington Post ($434.46)
    • 2017 “The Great Bitcoin Scam” – Forbes ($997.69)
    • 2018 “The Bitcoin Pyramid scheme continues to collapse” – New York Post ($12,414.75)
    • 2019 “Bitcoin will soon be worth zero” – New York Post ($7,188.00)
    • 2022  On January 1st Bitcoin was worth $47,743.22

Bitcoin has recently been made legal tender (can be used to pay for goods in shops and businesses – by law) in El Salvador with other countries lining up to do the same. Adoption is increasing a a speedy rate but as yet, the super large investment portfolios don’t include Bitcoin.

It’s true  that Bitcoin still has a number of hurdles to overcome in terms of mass adoption, but advocacy has increased considerably in recent months and Bitcoin is widely considered the safest investment potential of all digital assets.  I was interested in getting some Bitcoin in 2013, I decided against it because I couldn’t be bothered.  As many bitcoin advocates will argue, it is never too late to get in.

Ethereum (ETH) 

Market Cap: $445bn.  A Layer 1 crypto with the ability to operate smart contracts.  It’s currently the most popular option for the development of applications including Decentralised Finance.  It is very expensive to buy and sell on Ethereum at the moment because of high transaction fees. There are many other faster and cheaper layer 1’s ecosystems out there.  I should say though, that most analysts believe that Ethereum is a very safe investment currently.

Binance Coin (BNB) 

Market Cap: $72bn.  Binance Coin is the native token issued by the Binance cryptocurrency exchange and trades with the BNB symbol. Binance is the largest cryptocurrency exchange in the world. In 2020, it recorded a high of $3 trillion USDT in total trading volumes. Governments and financial institutions are keen to impose restrictions and regulations on the exchange which can be prohibitive to users wanting to trades. But the fact is, dispite this, Binance is still the most popular exchange because it’s infrastructure is feature rich.  Many new projects are supported and Binance have investment funds of their own to promote projects on their ecosystem.

Tether (USDT) 

Market Cap: $70bn.  This is the most popular stablecoin.  It is linked to the US dollar and mostly used by people like you and me to trade other crypto-currencies.  Many traders are changing to other stablecoins as Tether is mainly backed by debt rather than actual dollars. Despite this, it is still the leading stablecoin in an increasingly competitive area. You would typically buy Tether with your fiat currency in preparation to invest in a cryptocurrency on an exchange.  However, there are an increasingly large number of people buying USDT to invest in DEFI as they would get a better interest rate than their bank.

Cardano (ADA) 

Market Cap: $44bn.  Another powerful layer 1 coin that was one of the first to embrace the Proof of Stake consensus mechanism.  It has recently released its smart contract functionality which will also have cheaper and faster transaction speeds than Ethereum (although it is still struggling a little with performance issues).

These are relatively low risk cryptocurrency investments.  Other higher risk (but with greater expectation of rewards) are some of the small market cap ‘altcoins’:

Dogecoin (DOGE) 

Market Cap: $7.5bn.  The infamous meme coin has no value other than as a store of value.  It was initially developed as a tipping coin that would never gain high value but then declined in popularity and price.  Recently Elon Musk has taken an interest in it and it has regained much of its early popularity.

Dogecoin is widely considered a favourite cryptocurrency investment of Elon Musk who has recently purchased Twitter.  Many expect the coin to rise in value as it is thought the Musk will increase it’s utility and use case as part of his activities regarding Twitter.  Do you own research before investing though, this may just be hype and until we see a good reason why Dogecoin should be valuable, it should continued to be considered a meme-coin.

Cosmos (ATOM) 

Market Cap: $10bn.  This is a cryptocurrency that powers an ecosystem of blockchains designed to scale and interoperate with each other. The team aims to “create an Internet of Blockchains, a network able to communicate with each other in a decentralised way.” Cosmos has a proof-of-stake blockchain consensus mechanism.

Axi Infinity (AXS)

Market Cap: $4bn.  A token that can be earned while playing a game or purchased on an exchange.  This is currently the most popular and most famous ‘Play to Earn’ game. It’s accompanied by the other Axi Infinity token called SLP (Smooth Love Potion). These tokens can be used to create characters in the game or buy items and virtual land.  Price fluctuates depending on the popularity of the game or service and scarcity of its resources.  The price has taken a dive recently and is currently a tenth of the price it was in 2021 and has not been helped by a huge hack that cost the company $650million!

These major crypto currencies are part of 10,000 plus cryptocurrencies.  Some will go nowhere, some were created as scams, some are poorly designed and others are currencies that will make you a millionaire!  The only way to tell which is which is by doing your own research (i.e. trust your own judgement rather than others).  

When purchasing coins, determine your desired risk to profit ratio.  It may be that you want to gamble on higher returns by investing in crypto with a higher risk.  Or you may, like most of us, decide that you simply need a store of value (ideally, that can’t be manipulated by the government or those naughty bankers).

In section eight of this awareness course, we start our cryptocurrency investment journey by looking at developing an Investment Strategy: Developing Your Crypto Investment Strategy.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this useful, please consider a small donation to help fund the site:

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Thank you.

Your crypto strategy will be one of the easiest things to write and one of the hardest to implement.  90% of us invest emotionally. We FOMO (Fear Of Missing Out) into a trade and we exit a trade because of FUD (Fear Uncertainty and Doubt).  Your Investment strategy will help you avoid these mistakes – but trust me, investment decisions based on FOMO and FUD are very hard to avoid! 

Investment Strategy – Types of Investment

Before I start, I’m seriously not a financial expert and cannot tell you what your strategy should be.  I believe that your investment strategy will be unique to you and one that is only going to be useful only to you.  You will have a different risk tolerance than I do, you are less or more wealthy than I, and you will probably believe in different investments than the ones I believe in.

There are, however, some useful tips that may help you in the development of your investment strategy and take some of the guesswork out of it.  These are a good place to start and make the whole process of developing a strategy less daunting.

You will make money in cryptocurrency by buying when the price is low and selling when the price is high. But, perhaps you would like to get involved in short term buy-low-sell-high Swing or Day trades or even the exciting sounding Scalp Trades which are undertaken minute by minute?  Or, will you make large single investments that you will hold long term.  There are lots of ways to invest in crypto:

Crypto Investment Strategy – Short Term Investments 

Day and Swing trading. This is the buying and selling of cryptocurrencies in the short term.  Day trading, as the name suggests, is when you get in and out of a trade within a day or so. Swing trading is when you buy a crypto currency and wait for the price to go up over a period of a few days or weeks before selling (hopefully at a profit). As mentioned above, Scalp Trades are those that are entered and exited within a few minutes. 

Crypto Investment Strategy – Long Term Investments

This is where you would hold and not sell your investment, perhaps for years!  The term HODL has become popular after an on-line early Bitcoin trader was explaining that he would HODL on for dear life no matter what happened to the price!  In his excitement he mistyped the word HOLD. Hodlers do not make investments for a quick profit.

Your crypto currency portfolio may contain a range of crypto currencies which you would trade on a regular basis and some currencies that you would hold long term.  You need a cash reserve that you use to buy cryptocurrencies (enter your trade) when the time is right.  It will be replenished with the money you earn when you exit your trade. 

Your investment strategy may have a range of crypto currencies which you would hold long term (usually the ones with the least risk).  You may also have riskier, short term  investments in the hope that they would realise a profit more quickly by closing the trade early yet still able to make some money.  Such a strategy would help you grow your portfolio more quickly but at a higher risk.

Crypto Investment Strategy – Three Parts to Your Portfolio

Your portfolio will only contain money that you are prepared to lose – you will not have gone into debt to buy crypto and you would not suffer any significant hardship if all your crypto investments were to crash to zero.  Sure, you would be upset but you would not be in a position to lose your house/flat or suffer financial hardship.

I would therefore suggest that the three elements in your portfolio should be: Long Term investments, Short Term Investments and Cash Reserves.

Your Portfolio Management

First of all, you need to work out how much your portfolio will be worth when you begin investing.  For simplicity’s sake, we will look at portfolio investment values of 1000 dollars/euros/pounds representing a small portfolio and 10,000 and 100,000 representing medium and large portfolios respectively.  Of course these figures are relative, some might consider 10,000 to be a small portfolio.  The determination of classifying small, medium and large portfolios is therefore based on risk tolerance rather than monetary amount.

For instance, if you have a portfolio value of over 100,000, you will most likely want to secure a larger portion in longer term, less risky investments (let’s say Bitcoin or Ethereum).  If you only have 1,000, you are more likely to want to invest it in higher risk investments which would hopefully yield higher returns.  When you take profits from these returns, you will put them in your cash reserves or use them to purchase currencies for the long term holding pot.  This sort of activity is what we mean by portfolio management.

You will regularly manage your portfolio to ensure the same percentage values are regularly maintained.  You would, of course, determine the percentage values based on your own objectives and risk tolerance. The guide below is for indicative purposes only.

In section nine we will take a look at options for deciding on which cryptocurrencies to invest and also include facts and stories of the some of the more unscrupulous crypto projects: Choosing Your Cryptocurrency Investments.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.

New crypto currencies and tokens are being created each week. There are lots of opportunities to get in on the action early.  Choosing your cryptocurrency investments at the right time will increase your likelihood of a higher return. Unfortunately investing right at the start means that there is also a greater risk.

ICO’s (Initial Coin Offerings) or ITO’s (Initial Token Offering) are definitely worth considering if you want to try this high risk form of investment.  Websites like the Coinmarketcap ICO Calendar,  Foundico blog and ICOShock are useful sites if you are trying to ‘get in early’.

The safer investments are made once the coin or token is better established.  These, of course,  are likely to be less volatile and more likely to be profitable.  Unfortunately, they are less likely to provide the largest returns. There are some exceptions, but generally, as with stocks, the riskier the investment, the greater the profit – or loss.

Lets look at some of the riskier opportunities:

Cryptocurrency Investments – ICO’s and ITO’s

These are the very earliest stages of investment.  Typically they allow investors to ‘get in’ before the product has even been developed. At this point your cryptocurrency investment is in the team, an idea and its perceived likelihood of becoming successful.

An ITO’s team, if things go their way, can earn huge returns for their investors and if the ‘use case’ is robust enough, send the value of the tokens and coins to unimaginable highs.  I’ve seen returns double, triple and increase by factors of over a hundred making initial investors very rich.  The big investors and venture capitalists will spend most of their time checking out the team behind the project. If they believe in the team, the project is 80% towards achieving their funding goal.  It is by far the most important consideration when researching your investment options. 

The use case is usually published in the form of a whitepaper from the project website.  Going through this very carefully and checking and corroborating each sentence if possible, will help you understand the project and how credible it is.  And, importantly, how will your investment be re-coupled?  What is the likelihood that you will see a return on your investment?

You should always remember that ITO’s can provide some of the biggest returns and the biggest losses.  Some are downright fraudulent in fact, some of the biggest frauds ever mounted were Cryptocurrency Initial Coin Offerings (ICO’s):

	Scam Name	Amount Lost($)
	Pincoin	660,000,000
	Onecoin	350,000,000
	Plexcoin	15,000,000
	Bitcard	5,000,000
	Ebitz	2,900,000
	Bitconnect	700,000
	Confido	375,000
	REcoin	300,000
	Ponzicoin	250,000

Some experts believe that up to 80% of all new coins and tokens are either scams or just don’t have the necessary use case, management team or technology to succeed. Personally, I would call them ‘Chancers’, groups of developers that are simply ‘having a go’ at putting together a project and encouraging investment based on platitudes and lofty ideals but no real substance.  

A few years ago, it was very easy to do this and people were so frightened of missing out (FOMO) on a seemingly sure-fire investment opportunity that they would take a chance and hope for the best. Most cryptocurrencies  just faded away. These token and coin offerings are sometimes called ‘Shitcoins’.

Cryptocurrency Investments – The Prodeum Scandal

Other Token offerings as a cryptocurrency investment are brazen and ruthless. Prodeum.io for instance:

This group raised a huge sum in ETH tokens and engaged legitimate team members – they even paid freelancers from Fiverr to pose with their name on parts of their bodies:

The project was to help manage fruit and vegetable distribution more effectively using the blockchain. Then, suddenly, one weekend, the Prodeum project ‘pulled the rug’.  They closed social media accounts and left investors with a single-page on their website….

A lot of people get hurt by making poor cryptocurrency investment decisions and for many people, investing in digital assets is like staking a new frontier of personal finance. Many reputable organisations wouldn’t invest in cryptocurrency – even if you paid them to – because it suffers such a poor reputation – as did internet in the 1990’s.

Some professional investors simply see this is a better opportunity, they have the opinion that only fools would invest in a cryptocurrency if they hadn’t properly researched it – all it needs it a little bit of extra research:

“Such people deserve to be ripped off, it is they who give cryptocurrency a bad name.”  

“Who in his right mind would give their hard earned cash to a  stranger that said ‘gimme all your money and I’ll make you millions’ without at least checking it out first?”  

Alas, some cryptocurrency projects are very persuasive and thousands of people have been taken in.  Some of those people have lost fortunes!  If you are one of those, please remember that money can be made back, even when you feel that you have lost everything – such things have happened to people who are now millionaires.  And, no matter how dark things get, speaking to someone about it really helps, truly!

Cryptocurrency Investments – Conclusion

It can be argued that if you follow basic principles of investment and carefully negotiate the safe avenues of due diligence and risk management (and frankly, demonstrate some common sense), you will be ok.

Recognise that you will be your own worst enemy when it comes to investment in crypto.  Being an emotional investor is very easy because we want to achieve success.  We are more likely to make allowances for something we want so much at a time when we should be the most sceptical. You therefore need to ensure that you are being as objective as possible when deciding the crypto you want to invest in or the investment amount – typically, the higher the risk, the smaller the investment.

These comments are based on my own cryptocurrency Investments experiences, this is basically what I tell myself when I look to invest in crypto.  It looks easy to do as I write this, experience tells me however, that cryptocurrency investments are actually quite difficult to get right. Before you invest, make sure you undertake your own Due Diligence and Tokenomics research  – don’t trust anyone else.

Which brings me on to the next section where we will go into a more detail.  Section Ten: Investment in Cryptocurrency – Due Diligence

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful recourses and links. To find out what we do, checkout the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that al information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.

Before you invest in any crypto you will need to undertake some research in the currency or token to satisfy yourself that it is legitimate and worthwhile.  This systematic process is called Due Diligence and your investment is at risk if this process isn’t followed.  

Due diligence is the investigation/audit/review that you should undertake to confirm facts or details of a coin or token that you are considering as an investment. Personally, I like to think of the following scenario when I’m about to start  the process: I met this guy in a pub who told me about this crypto token/coin.  It sounds great but I need to check it out properly before I put any money into it or the wife/partner will be very annoyed!

That simple statement should at least make you stop and think a bit.  It’s very easy to jump in armed with nothing but a few positive statements, the promise of making money and a lot of hope.  Reality though is that many people lose money because they didn’t stop to consider the most important steps. 

Some of these steps are obvious and some not so.  The first consideration is by far the most important and Venture Capitalists (people who invest very large sums of money in new start up projects) will base at least half of their decision to invest in crypto on this first point alone!

Quality of the team 

Who are they?  Are their names publicly viewable, can  you check them out on LinkedIn.  If so, what is their experience in the field, are they new to crypto, are their achievements believable, is what they are saying corroborated on other websites?  What makes them so special that they can create such an awesome cryptocurrency that you need to invest in? You should try and get answers to any question about the teams credentials  that you think is relevant.

When researching Cryptocurrency Due Diligence, you are mainly looking to see if the team is public.  If they aren’t, you should ask yourself why?  Is it because they are dishonest?  Maybe they are hiding because they don’t want you to see how much they don’t actually know. Maybe they are a one-man-band or trying to pull off a scam?  A non-public team is difficult to believe in and most people would avoid projects led by such shy people. 

Remember to check the team out – some scams aren’t quite as obvious as the 2018 Ryan Gosling, graphic designer swindle. Miroskii, a blockchain banking startup project, claimed to have raised more than $833,000 from 389 investors. As you can see, the project’s graphic designer, “Kevin Belanger,” was a fake as were the rest of the team – which ran off with the contributors money as soon as they were spotted. Swindlers do actually get away with this stuff so it’s always important to check if the team are who they say they are. 

Quality of the Information

Is it professionally produced and is there sufficient information available to keep your interest? Watch out for pages without tangible facts or proof.  Ones full of platitudes, flowery phrases and buzzwords are typically not trustworthy – how plausible is what they are trying to say? Are they some sort of con-artist or are they genuine (and can you prove it to your partner)?  If they are genuine but can’t articulate what it is they are trying to do, maybe the team is not up to the job and they are not worthy of your investment.  Look for poorly formatted documentation, whitepaper, web pages etc.  If there are a lot of spelling and grammar errors, their code or business ethics may be just as poor. 

It would be good to see clear concise information about the cryptocurrency project presented in a way that looks professional and trustworthy.  It’s surprisingly easy to put up a professional looking website to at least appease some basic form of due diligence, but it’s considerably more difficult to put details of the project in a clear and concise way that can be corroborated.  Imagine you are an auditor – where is the evidence that what they are saying is true? If they can prove it, trust me, they will take every opportunity to do so.

What does it actually do?  

For many people without a technical background, researching such things can be a challenge.  However, you may still be able to get an understanding of the project on social media or blogs posts etc.  It’s important that you believe in the value of what  you are investing in and understand how it works. 

The best way to approach this is to ask yourself ‘what problem does this coin/token solve and how?’?  Usually this can be found in a Whitepaper which will be downloadable from the project website. This is a fundamental part of Cryptocurrency Due Diligence – whatever the project, it should have a whitepaper that you can read.  In fact, projects without a whitepaper should be considered more risky by a high order of magnitude. 

The whitepaper is the window into the project and it should fill you with confidence that what they are trying to do will succeed. 

The first few lines of the original Bitcoin Whitepaper from 2008

A whitepaper needn’t be overly complicated.  The project will appreciate that investors aren’t always so tech savvy.  Well worded whitepaper is a big indicator or a well-formed project. I couldn’t understand the technology when I read the bitcoin whitepaper, but it was still very impressive! – In their defence, it was posted to a cryptography forum full of mathematics nerds (that’s my excuse anyway).

Once you have a clear understanding of what the project does, write it down so that your mum, after reading your description, could understand it enough to make a decision on its worth.  Be as objective as possible, include the good points and the bad points for which you have knowledgeable, carefully considered answers. 

Which brings me on to the next point…..

What do others think? 

Research the project on as many websites or social media as possible, try to see what people like and what they don’t like.  Imagine that your friend is questioning your decision to invest in this, how would you prove to him/her that this is worthwhile.  Better still, imagine he/she is interested and you are explaining the pros and cons of the project to help them make an investment decision.  Stepping back and seeing the project from someone else’s perspective may help you be more objective.

This step is particularly important when trying to determine how the coin/token will be adopted and income/profit generation sustained.  Why will you and other investors remain with the project through thick and thin? Perhaps your friend will not invest in the project and may actually challenge you for investing at a later date if the price drops.  How would you reply to the inevitable challenge, ‘I told you so’?

Active and Vibrant Project Community 

Most crypto projects try to set up a community of followers and investors.  Many have Discord servers, and are active on Social Media.  

Try to find their social media channels and ask questions.  If they are reasonable answers and not just comments from moonboys (fanatics who believe that the price will go to the moon without much knowledge – they are typically full of ‘hopeium’) it should help you on your way in determining the to your investment.  I personally find this a very important part of due diligence for new projects.  A team who are here to stay will want to develop a large community and, as the saying goes, ‘you can fool some of the people all of the time and you can fool all of the people some of the time but you can’t fool all the people all of them all of the time.’  Most projects will have a Discord channel.  It’s a great place to ask questions.  Explain that you are undertaking some cryptocurrency due diligence before making an investment and politely ask your questions.  Normally the people in crypto discord channels are very helpful.

Partnerships and collaborations

It is very likely that the project will need to work with other teams from other projects.  It is even more likely that a reputable team will want to be linked with other reputable projects to help give them credibility.  When I look at these, I generally can’t find many that I recognise and so I need to research each of them too. It’s a laborious process which will also help you understand the technology behind the project, any necessary collaboration and the role of other critical parties.   

An important thing to remember is that anyone can say they are collaborating or in partnership with another project.  For instance, did you know that lead partners in this website are Google and Facebook? – I use Google to search for stuff all the time as part of my cryptocurrency due diligence research for the information on this website and I am in communication with Facebook (a member of their staff sent me an email to say that they didn’t handle partnerships at Facebook and that I should contact another department). 

I’m also thrilled to announce that Mr. Twitter is also likely to sign up as a major player on Wednesday next week!

The Competition  

Hasn’t this already been done?  If so, why is this project better than the others?  For instance:

Ethereum is a Layer 1 Coin with a huge infrastructure and a very good reputation – it was the first major cryptocurrency with smart contract capability.  It also uses a somewhat clunky programming language (Solidity) that isn’t particularly security friendly. At the moment, Ethereum suffers from huge ‘gas’ fees which you need to pay to do business on the Ethereum blockchain.  It also has a number of competitors such as Avalanche, Solana, Cardano, Polkadot and others  – all of which are better than Ethereum in many different ways.  Personally, therefore, I only hold a little Ethereum as I don’t think it is a particularly good ecosystem. I hold most of the others which, in my opinion, are much better. 

The point is, just because a project is the first doesn’t make them the best. It’s important to understand what the competition is and why the project you are interested in is better.

Cryptocurrency Due Diligence is important but it’s only half the work! The next section follows on from this – it’s just as important and deals with the economics of you prospective cryptocurrency investment. Section Eleven: Investment in Cryptocurrency – Tokenomics.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful recourses and links. To find out what we do, checkout the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that al information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.

Cryptocurrency Investment Tokenomics is the economics of a cryptocurrency coin or token. I.e. all the features that make you want to invest in it. This is much easier to do with a good search engine.  I’m sure you are thinking ‘hang on, Tokenomics, that will surely be in the Whitepaper!?’ and yes, you would be right but even better is to simply type “[coin/token name] tokenomics” into the search engine and see what pops up.

Tokenomics is a bit of a broad term but it’s defined as the study of the factors that impact the demand and supply of tokens for a crypto project.  We will look specifically for the following:

Initial Release Allocation 

Another important consideration for cryptocurrency investment tokenomics is the threat that investors may dump their initial investment once their perceive their profit can be recouped.  For instance, if an initial allocation of 10,000,000 coins was made to a venture capital company it may be that as soon as they reach a point that their original investment was recouped at a profit, they would look to sell all their tokens which may put pressure on the price and drive it down. A large number of institutional investors at the start of a new project is not good.  It would be better to see a larger number of smaller, retail investors at the start so that you could be sure there wouldn’t be too much selling pressure once the project started to become profitable.  

While we are on the subject, many investors will tell you that it is very important to take profits at the right time.  That is, when it is profitable to do so.  The hard part is determining when.  You may be tempted to let your investment ride and hope that the price goes up a lot more.  This is ok sometimes, but it’s good to get into the habit of getting a return on your investment as soon as feasibly possible.  Some suggest that your investment strategy would be based on a % profit value that you should stick to.  Such a percentage would be one that you would be comfortable with while still being realistic.  

Utility

How the coin/token will be used? How useful to the world is this coin/token?  If, for instance, you need to use this token to undertake a task that is important (to you or others) then the coin/token has a use case.  If it is a store of value then it isn’t very useful as Bitcoin is pretty much covered by becoming ‘digital gold’.

Maybe it is simply a token to raise money –  A project raises capital by creating a token that provides voting rights  for the future of the project.  That’s ok if you want to manage the activities as part of a Decentralised Autonomous Organisation (DAO) but not so good if you want to sit back and wait for the token/coin price to go up in value.  You may, for example be expected to be more active and vote on key management decisions).  DAO investments were quite popular towards the end of 2021 but are considered less so in a bear market.

When considering cryptocurrency investment tokenomics you should consider how you will interact with your investment and the project team. It is quite possible that you will be expected to regularly communicate with them and other investors to help shape the progress of the project and provide feedback.  Most projects have a discord channel to help with this. In other cases you may have to pay regular fees to the project (e.g. with DEFI projects). Become familiar with the utility of the coin/token and make sure you are comfortable with how it will work at the start of the project and what your responsibilities will be as the project grows.

Inflationary or Deflationary? 

Bitcoin (BTC) for instance is inflationary (it is minting new coins all the time) but the rate at which it is inflating is decreasing all the time until, in a hundred years or so, no more coins will be minted.  Bitcoin is an engineered cryptocurrency with a fixed, declining inflationary rate. 

There weren’t any Bitcoins until Satoshi Nakamoto mined one because of the proof of work activity (it’s like toiling all day in a bitcoin mine and getting paid for it in Bitcoin).  Subsequent mining activity got much harder and the coins given out as a reward are fewer. As a result, the rewards are worth more.  This is by design.

It is also worth looking at investing in deflationary cryptocurrencies since they have inbuilt mechanisms/processes to become more scarce therefore valuable over time. A good example of a deflationary crypto currency is Binance Coin (BNB) which uses the ‘Buy-back and Burn’ approach. Binance repurchase BNB coins periodically from their pool of investors and then send those coins to an un-spendable wallet address. Initially, BNB had a total supply of 200 million coins. The plan is to burn half of its supply. A recent burn (16th BNB burn) happened in June 2021 and a total of 1,296,728 BNB (roughly $395,000,000) was burned.

Generally, the more scarce the resource becomes following your purchase, the more chance it has of increasing in value.

What is the Circulating and Diluted Supply? 

Circulating supply is simply the amount of coins/tokens that are publicly available to buy or sell.  Diluted supply is the total expected number of coins or tokens that will eventually be released. The higher the Diluted supply, the higher the pressure for downward price movement since the asset will be less scarce over time.

As of April 2022 the amount of Bitcoin in circulation was 19,000,000.  The diluted supply is 21,000,000, there will never be more than 21 million Bitcoins.

The bigger the difference between the circulating and diluted supply, the more chance there is that the price will lower over time.  Scarcity is in important factor in crypto investment – there needs to be a very clear and believable use case for a currency to increase in value as more of it is minted.

Risk Management  

Cryptocurrency Investment tokenomics isn’t an exact science and it’s unlikely that you would have positive answers to all the points above and this may be for many reasons.  For instance, you may be unhappy with the experience of the team.  Or there may have other niggling doubts.  

In such cases, more research will help.  It would be best, at this point to re-investigate the information gained in the Investment in Cryptocurrency – Due Diligence section, ‘What do others think?’ 

One of the best places to get more answers is to check the latest posts on social media and specifically, the project community.  Key places to visit are twitter and Reddit (people love to hate in Reddit but there can be some good articles too). Ask questions in the Discord community if they have one. Don’t be afraid to google your questions, others may have had the same worries and published the answers you seek.

It’s important to mitigate your risks and not invest based on faith.  Aim to be as objective as possible, don’t rely on gut feeling as it can be a fickle friend.

Future Plans.  

It is very rare that a project starts and finishes at the same time – That isn’t as  silly as it sounds – Bitcoin, for instance started with only 50 coins and it wont finish minting until around 2140!  Cardano had a very clear roadmap with set phases and milestones.  

The phases of the roadmap are named after key science and literature figures.  Cardano is seen by investors as a project that is based on important research and development decisions and careful planning rather that the quick exploitation of an idea.  You can see this clearly in the Cardano project roadmap.  The project is considered (despite it’s current performance problems) to be a safe longer term cryptocurrency investment.  It’s future plans are clear.

Future plans may include a plan for additional use cases. It may be that the project (or community if they have voting rights for their token) may have plans to release one or a number of high value applications or hold a significant event (e.g. the burning of a large proportion of tokens etc.).  Additional use cases and detailed future plans increase the case for investment (provided of course, that you believe the project team are capable of delivering them).  

Cryptocurrency Tokenomics – Conclusion

These are just a few of what I would consider the most important tokenomics.  There are many more and it would be better to pay particular attention to those that are important to you.  I’m not an expert, but these are a good start. Can you think of additional tokenomics that would be important to you?

Most experienced crypto advocates recommend that you do your own research.  Cryptocurrency is all new, I’m personally not convinced that anyone can say they are an ‘expert’. One of the worlds most respected scientific societies is the The Royal Society.  I think their motto is useful when it comes to crypto investment, ‘Nullius in verba‘ meaning ‘Take nobody’s word for it‘.

Doing your own research is to help you consider (objectively) if the investment that you are about to make is worthwhile.  You are trying to take the emotion away from the investment process and although much of the above seems laborious, it’s your money to lose.  It’s up to you how much research you undertake.  When it comes to crypto, try to aim for Warren Buffetts (famous US investor) investment principal; “Rule Number 1. Never lose money.  Rule Number 2.  Never forget Rule Number 1.”  

Doing your own research is a no-brainer for all successful investors. Hopefully you have also read through and understood the first part, Cryptocurrency Investment – Due Diligence. I believe you will need to undertake both studies before making any profitable cryptocurrnecy investment.

In section twelve we will stop to briefly take a look at how governments and central banks want in on the action: Are CBDCs Good or Bad?

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.

Buying cryptocurrency as an investment is quite convoluted.  At the moment, we can’t just go into a shop and buy crypto in the same way we can go to the bank and buy holiday currency.  There are steps that need to be followed and although it sounds complicated, it isn’t difficult. It is however, important to do it correctly for security and regulatory reasons. 

Crypto is usually purchased on-line from a CEX (Centralised EXchange), a Broker or a DEX (Decentralised EXchange) using your fiat currency. You can also sell your crypto back to that exchange or broker for Fiat currency of choice. This is sometimes known as on and off ramping. 

Banks simply don’t like cryptocurrency and they regularly resist allowing you to move money to and from your account for cryptocurrency trades. Your exchange too, may have a restriction of some sort in allowing you to place your money on their exchange (e.g. an amount limit or verification delay). Worse still, your bank may refuse transfers to and from a specific exchange (e.g. Binance as is currently the case with many European banks at the moment). 

A bank may refuse to accept your currency once it has been converted back to fiat currency because they think you may be money laundering! Again, this happens regularly so you need to ensure you can easily move money between your cryptocurrency exchange or broker and bank.  Try with small amounts first.

Choosing a Broker or Crypto Exchange

Consider your priorities. When buying cryptocurrency, do you want to leave your crypto on a secure website or hold it in your own wallet? Would you pay a small premium to buy from a marketplace without the possible interference from banking institutions and government agencies (i.e. safer but more expensive).  All these things need to be considered carefully and not rushed.  Lets look at three different methods of acquiring Cryptocurrency.

Buying Cryptocurrency from Brokers

The easiest way to buy crypto is by using a Broker.  There are quite a few and they are generally well regulated and secure. They work by charging you fees to help you purchase crypto with your fiat currency from their on-line service. This can be at a much higher rate than crypto exchanges. Some brokers claim to be free and make their money by providing your trade information to other brokerages or by selling at suboptimal prices.

You should also note that some brokers have restrictions on the ability to move crypto on and off their system.  They may say that this is a security benefit for you but it is nevertheless restrictive. The most popular brokers are Robinhood and SoFi and, at the time of writing, they do not allow you to transfer your crypto purchases off their site.  This could be a problem if you want the ability to secure your own cryptocurrency!  

For these reasons, I believe that although brokerages are easy to use, they are one of the most expensive ways to buy crypto and the least flexible when it comes to personal financial security.

Central Cryptocurrency Exchanges (CEX)

These are centralised cryptocurrency exchanges owned and operated by organisations/companies from central locations. They are platforms where buyers and sellers meet to trade crypto. A CEX will usually have low fees and more complex interfaces with multiple types of trades and services including performance charts which are updated in real time. All very exciting and very intimidating if you are new:

When buying cryptocurrencies, you would first convert your fiat money into a stablecoin (lets say USDT), and use that to buy, in the above case, Bitcoin. This simple trade is known as a ‘Spot’ trade. The exchange lets you see the current price, the price trend, market volume indicators and high and low price differences. When I first saw this screen it looked very intimidating. There are however lots of videos available to teach you how to trade crypto on a wide range of exchanges. The graphic above is a screenshot of one of my favourite exchanges, Binance.

The chart in the middle is called a candle chart and it lets you see at a glance how well (or badly) the currency is doing.  You can change the timescales from minutes or seconds to days, weeks and even months. Lets say that each candle in the chart represents an hour of trading. Each candlestick shows the open, high, low, and close price for each hour. The green or red colour indicates if the price closed lower (red) or higher (green). The thin lines represent the candle ‘wick’ which shows the highest and lowest prices for that time period.

A candle chart is very useful for determining the current trend for the cryptocurrency you are about to purchase.  If you can see that it is on a downward trend, you may want to hold off a little until the price gets lower before you buy.  It’s very difficult to guess where the lowest price will be before you purchase and can be quite frustrating while trying.

A key Central Exchange (CEX) service is the opportunity to undertake leveraged trading. If you are new to trading then the simple advice about leveraged trades is DON’T DO IT!  – Seriously, 95% of the leveraged trades you make (no matter how good you think you are) will likely be very destructive to your bank balance there are very sad stories of people losing all their possessions because of leveraged trades that went wrong! 

The leveraged trading definition from Wikipedia should discourage you sufficiently: “…. is the collateral that a holder of a financial instrument has to deposit with a counterparty to cover some or all of the credit risk the holder poses for the counterparty.”  Basically it refers to the buying of securities (crypto) with cash borrowed from a broker (the exchange), using the bought securities as collateral. It enables you to magnify the effect of any profit or loss made on the securities. The securities serve as collateral for the loan.  The element that most people fail to realise however is  that the leverage is inversely proportional to the investment.  If you short-sell leverage trade an investment for 1000 dollars by 10x. and the price goes up by 10%, your trade will be ‘recked‘!  and your 1000 dollars will be taken by the exchange.  Central Exchanges make a lot of money from people who think they can trade the crypto market and they have many financial incentives for you to give it a try!  

Market volatility is often linked to the huge losses (or gains) that are made by leveraged traders. Some consider Cryptocurrency Exchanges as betting halls and it should be noted that some Central Exchange owners are now amongst the richest people in the world!  It seems the ‘house’ usually wins!  Some of the most well-known cryptocurrency exchanges are:

• • • Coinbase (CEO Brian Armstrong worth $13 Billion)
    • Gemini (CEO Winklevosss twins worth $4.1Billion)
    • Binance (CEO Changpeng Zhao worth $77 Billion…. erm ….. that means that he is worth more than 82 of the worlds countries!!)
    • Crypto.com (is very new but the CEO (Kris Marszalek) is already worth $150Million).

While a CEX may seem complicated for the beginner (sorry for the pun) there are some really fun and interesting options to explore (sorry for the pun). Crypto.com for instance offers a really nifty set of credit/debit cards for you to spend your crypto or fiat! The main features of four of the most popular Central Cryptocurrency Exchanges are:

	Coinbase	Gemini	Crypto.com	Binance
Buy/Sell Fees (Maker/Taker fees)	1.99%/1.99%	0.4%/0.4%	0.4%/0.2%	0.4%/0.2%
# Cryptocurrencies	100+	50+	170+	600+
Ease of Use	Easy	Easy/Medium	Medium	Medium/Complex

Figure: Comparison of the more popular Cryptocurrency Centralised Exchanges

The largest Cryptocurrency Exchange is Binance and it is continuously under fire and scrutiny from government institutions and banks. I think that they feel threatened by it’s success. Banks for instance, have restrictions on depositing money to Binance – for our own protection no less! I wonder if the real reason is because they are seeing large amounts of money withdrawn to buy crypto.  A Central Exchange is in direct competition with banks.  Lately, Exchanges have also been providing staking services that give annual percentage rates (APR) of interest that are ten to twenty times higher than high street banks!  

Figure:  Not all exchanges are reputable, the green indicator above is provided by CoinMarketCap website and is a reputation indicator.  There are some in the list which have a very high volume reported daily, but their figures simply aren’t believable!

Figure: Although the Hoo exchange is reporting very high daily turnover, their reputation brings such claims into question. Cryptocurrency Exchanges deal in very large sums of money and that doesn’t make them trustworthy.  When trading, remember that it’s the exchange that usually benefits the most! I personally don’t trust exchanges and make it a point to transfer my money off their systems and into my own hardware wallet as soon as I’m able.

There are many Central Exchanges to choose from and as long as you use one that is established (and know how to get around restrictions your bank may place for transferring money) you should be ok.  I would strongly recommend that you do not keep your crypto on an exchange unless you intend to trade it. For security reasons, it is always best to use your own wallets to store crypto.

Decentralised Cryptocurrency Exchanges

One of the biggest issues with buying and using cryptocurrency financial services is that they are managed and controlled by central entities or organisations and regulated by central authorities or governments.  These institutions have very poor reputations, especially after causing the recession in 2008 and after all the problems caused by money printing in the last two years. Many are even seen as corrupt or at the very least extortionately inefficient and not cost effective.  The simple task of transferring fiat money from an account in your country to an account in another country is time consuming and expensive. Buying cryptocurrency from your bank is a service that is currently not available in most countries.  

The alternative is to use a Decentralised crypto EXchange (DEX). These exchanges allow for autonomous, cheap and very efficient forms of  exchange. They allow hundreds or maybe thousands of different currencies to be traded. It is vital that they are  outside the influence and control of individuals, institutions and governments and therefore seen to be incorruptible and free from bureaucracy.  Some believe that buying cryptocurrency via a DEX is one of the most exciting innovations in finance since the checkbook!

When buying a cryptocurrency, a decentralised exchange (DEX) allows for very simple exchanges between cryptocurrencies using a basic interface.  Importantly, a DEX is non custodial so it doesn’t actually take your money/currency and store it on the exchange for trades.  It makes exchanges directly to and from your wallet. 

Figure: Exchanging BNB Tokens for Cake Tokens using the Pancakeswap Decentralised EXchange

Because it’s decentralised, the DEX uses smart contracts to perform the exchanges. Party A has a specific amount of currency X and gives it to Party B  provided Party B gives a specific amount of currency Y in exchange.  Simple!  There are no third parties taking fees off-the-top, no opportunities of bureaucracy or fraud and because the application is not centralised, it is free from interference.   

DEX’s are used by up-and-coming crypto projects that can’t easily get their coins traded on Central Exchanges. In my experience a DEX is very easy to use and absolutely trustworthy. There is at least one Decentralised Exchange for each of the major Layer 1 Blockchain Networks that can utilise smart contracts.

Figure: Comparison of the top 5 Decentralised Exchanges.  Note that they (at the time of writing) have around $4 Billion trading volume per day which is still less than 3% of all the crypto traded. It is definitely becoming more popular, last year it was less than 1%.

When buying cryptocurrency, Decentralised Exchanges are somewhat anonymous and there is nothing institutions or governments seem to be able to do about it. Users can trade immediately without logging in and retain their private keys at all times.  It’s easy and fast and more and more people prefer doing spot trading this way.  Centralised Exchanges are certainly the most used but they are keen to take on some of the efficiencies and trust-less services that the DEXes offer.

The whole decentralised thing is very exciting for crypto enthusiasts because of its trustless. Binance for instance, is a central exchange that turns over billions of dollars each day. However, I challenge anyone to find out where the head office is located?  Sure, there are offices in all major countries but not an obvious head office? Although Binance has a registered HQ in the Cayman Islands, in 2020, Changpeng “CZ” Zhao famously said, “Binance doesn’t have a headquarters because Bitcoin doesn’t. Wherever I sit, is going to be the Binance office.”  This is not seen as a trustworthy trait for a global company – especially by governments that want them to be regulated.

When buying cryptocurrency, both DEX’s and CEX’s have their advantages and disadvantages. The decentralisation of an exchange is in line with what many believe Satoshi Nakamoto hoped for Bitcoin. For many traders however, the performance, flexibility and huge number of financial services and tokens available is a compelling factor in the continued use of central exchanges like Binance. Centralised Exchanges however, have recognized the advantages of DEX’s and are working on their own variants and other trust-less decentralised innovations.

This may be a little too intensive for people new to crypto so in section fourteen we will show you some alternative ways you can still be part of the crypto revolution without actually using crypto exchanges. Section Fourteen: Blockchain & Cryptocurrency Investment Alternatives.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before buying cryptocurrency. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.