Carl Taylor

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This post is designed to be a quick intro to crypto investing, think of it as an overview beginners guide to help you start your own journey in learning about and deciding if and how you want to get involved in crypto investing.

My Journey with Crypto

I first heard about Bitcoin in 2010. I’d heard that I could install some software on my computer and “mine” a thing called a bitcoin that could be used to buy things online. After about 1 month (I can’t actually remember exactly) of running this software in the background “mining” as I used my computer I’d finally earned about 0.0001 of a bitcoin which was trading at around 20c at the time so what I had was worth less than 1 cent. To say I felt deflated is an understatement so I gave up and decided this internet money thing was a passing fad and forgot all about it.

In 2013, Bitcoin came back on my radar, it’s price had risen and after my past experience with mining being slow I discovered you could just buy some Bitcoin from someone who had already mined it. So with Bitcoin now trading at $948 AUD I decided to buy some.

In 2013, there wasn’t a central place you could easily buy bitcoin from in Australia, you had to find others who had some and have them send it to you in exchange for your AUD or USD (like actually meet a stranger with cash and they send you bitcoins). After a bit of fiddling around with wallets, finding randoms to buy from I managed to buy $190 AUD worth and I was excited.

Within hours of buying, Bitcoin had gone down from $948 to $686 AUD per bitcoin so I bought some more, I knew that when prices go down it’s often a good time to buy more, but then within hours again the price had dropped further to $475 AUD and I now thought I was an absolute idiot for buying more and getting sucked into this crypto thing again.

To give you context, in 2013 my cash was very tight, my business wasn’t going so great and I could barely afford to pay my rent that was only $200/wk so I couldn’t afford to keep gambling with this internet money thing that very few people had heard of and may well go to zero.

I won’t bore you with the whole story, but basically after a few days of angst watching the dramatic price swings, I decided it was too complicated to try and sell my bitcoins (I’d also purchased some Litecoin at this stage, an alternative cryptocurrency that was the second largest at the time) and so I just wrote it all off as money lost and I forgot all about Bitcoin, Litecoin and Crypto.

4 years later (2017), and this was the year when bitcoin started getting more mainstream coverage in the media, and it came back on my radar.

Now being a far more educated investor I decided to buy some more bitcoin which was now trading at $3,833 AUD. My plan was to just buy and hold, I was convinced that it would either be a thing in 10 years that I’d be so happy I bought or it will have gone to zero and been a fun little gamble. 

So now here we are in 2021, 11 years after my first foray into crypto currency, and 1 Bitcoin is worth $78,144 AUD (as at 26th November 2021).

I’ve had an overall 4,674% return across all the cryptocurrencies I’ve invested in and cryptocurrencies makes up just one portion of my diversified investment portfolio that also includes Shares, Property and Private Business.

Over the years people have asked me about what I invest in and in particular what I think about crypto, this intro to crypto investing is my answer to that.

Disclaimer: this is not financial advice, investing is risky, even more so in the unregulated markets of crypto. At the end of the day any investment you make whether it be crypto, shares, property or whatever you could lose everything you put in. Do your own research, seek professional advice and ultimately take responsibility for your own wins and your learnings.

What is crypto?

According to Wikipedia’s page on Cyrptocurrency, Crypto can be summarised as:

cryptocurrencycrypto-currency, or crypto is a collection of binary data which is designed to work as a medium of exchange. Individual coin ownership records are stored in a ledger, which is a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.

However over the years the ecosystem of blockchain and cryptocurrency has expanded and so saying you want to learn about crypto is like saying you want to learn about the internet.

What part do you want to learn? There are so many different areas and it’s changing and expanding day by day.

You’ve got…

  • Non Fungible Tokens (NFTs) – proving you own a unique digital asset
  • Decentralised Finance (DeFi) – digital currency lending and exchanges
  • Decentralised Apps (dApps) – software that runs on a decentralised network
  • Tokenomics (Tokens) – the monetary policy of cryptocurrencies
  • ICOs – launching a new token and raising funds
  • Bitcoin – the OG of crypto
  • Altcoins – all the other crypto coins
  • Mining – solving mathematical equations to validate and run Bitcoin and other Proof Of Work blockchains for a reward
  • Staking – providing consensus to the Proof of Stake blockchains, and earning a reward
  • Smart Contracts – programatically controlled contracts that are binding
  • and of course the blockchain ledger technology that underly’s it all
  • plus more innovation is happening every day

In this article I’m going to stick with the basics of investing in cryptocurrency for those looking to get exposure for either long term holding or buy/sell trades.

I encourage you to research the other aspects if they interest you, in particular NFTs I believe will have a big impact on society in the future and enabling things like fractional property ownership on the blockchain.

A brief history of crypto origins

Cryptography has been around long before Bitcoin, and many people have been playing with similar ideas for some time. 

However, Bitcoin seems to have taken from many of these ideas and combined them to form the blockchain-based currency we see today.

Bitcoin was forged out of the 2008 Financial Crisis, when in USA real estate market sent banks collapsing and governments started bailing out the banks.

On 31st October 2008, someone calling themselves “Satoshi Nakamoto” posted a paper in a cryptography mailing list titled Bitcoin: A Peer-to-Peer Electronic Cash Systemand proposed a peer-to-peer “system for electronic transactions without relying on trust”.

Who is this mysterious “Sataoshi Nakomoto”? No one actually knows. It might be one individual, it might be a group of people. Craig Wright (an Aussie) was claimed that he is Satoshi however there is much debate if that’s true.

What is clear is Satoshi Nakamoto’s motive to create a new currency. On January 3rd when Bitcoin officially launched they embedded the text “The Times Jan/03/2009 Chancellor on brink of second bailout for banks.” in the very first bitcoin block that was mined. This message is a headline from an article in the January 3, 2009 edition of The [London] Times that detailed the British government’s failure to stimulate the economy following the 2007–08 financial crisis.

A huge driver for Bitcoins creation was Nakamoto’s concern about “too-big-to-fail” financial institutions. Nakomoto wanted Bitcoin to be able to provide individuals a way to have full control over their finances, without a corporate middleman. 

This is what is meant when Bitcoin is described as “trustless”. Traditionally, parties sending money have relied on a middleman, usually a bank, to facilitate the transaction. 

With Bitcoin and blockchain technology, both sending and receiving parties don’t need to trust each other to make a transaction with Bitcoin. The protocols, or the code, of Bitcoin allow the system to work and achieve consensus without a third party. 

Without having to trust the entity with which you are transacting, true peer-to-peer transactions can take place.

You can learn more about the more complete history of Bitcoin here

What’s important to note here is within the crypto community you will come across diehard believers (known as Bitcoin Maximalists) who strongly believe and stand by this ideology and original vision of what Bitcoin could be and believe that Bitcoin is the only cryptocurrency of value now and in the future and that everything else that has been developed since is inferior.

Let’s talk about Bitcoin

Bitcoin’s original vision was to be a currency for the world, the internet, where you buy and sell everything that’s priced in Bitcoin or Satoshi’s (the cents component of a Bitcoin)

However the market due to the high price fluctuations has treated Bitcoin more like a digital gold.

No one wants to use their Bitcoin to buy a pizza, if within the next few months they could be buying a house with the exact same amount of Bitcoin.

This is at it’s core the major issue that has gotten in the way of Bitcoin achieving it’s original vision as a currency of the internet. There is an ongoing argument amongst crypto enthusiasts as to whether Bitcoin will eventually achieve its original vision as a transacting currency or will remain more of a store of value as most currently see it.

Some quick FAQ’s about Bitcoin…

  1. Do I have to buy a full Bitcoin? No, you can buy fractions of cryptocurrencies. So if the current price of a Bitcoin sounds out of your reach, don’t worry you can happily buy $10 worth if you choose
  2. I’ve heard Bitcoin is bad for the environment is it true? Bitcoin runs on what’s known as Proof Of Work protocol, what that means is it requires very intense computational power to “Mine” new coins and validate transactions on the network. This means it uses A LOT of electricity to run. So if that electricity powering the computers that are mining (in other words running the network) is coming from fossil fuels it means it’s not great for the environment, however renewable energy can be used and is used by many Bitcoin miners.
  3. People say Bitcoin has a limited supply and so it’s rare, what does that mean? Bitcoin has built into its core coding a limit that there can only ever be 21 million bitcoins in existence, this is in contrast to fiat money where new money can be created at any time by central banks. While this argument is true now, it’s worth remembering that Bitcoin is a computer program and that programming can be changed so while it may be limited now, and there is no talk of changing it, there is also no 100% guarantee it will always be that way.

You can go deeper on Bitcoin and how it works on the official Bitcoin Wiki here

The rise of Alt Coins

After Bitcoin’s success other developers got wind and saw opportunities to improve upon the idea and therefore they launched and released their own cryptocurrency blockchain systems. 

What is an alt coin? Altcoins are cryptocurrencies other than Bitcoin (the OG of crypto). They share characteristics with Bitcoin but are also different in other ways. For example, some altcoins use different mechanisms to produce blocks or validate transactions. Or they distinguish themselves from Bitcoin by providing new or additional capabilities, such as smart contracts or low price volatility.

As of November 2021, there are over 14,000 cryptocurrencies

The most well known of the alts is Ethereum, but basically any other cryptocurrency or digital asset you see online falls under the category of an Altcoin. 

You can see a full list of the top cryptocurencies here

Within the crypto market cycle there often what is referred to as “Alt Season” which you can learn more about here

A bit about Ethereum

Launched in July 2015, Ethereum is the largest and most well-established alt coin.

Ethereum enables the deployment of smart contracts and decentralized applications (dApps) to be built and run without any downtime, fraud, control or interference from a third party. Ethereum comes complete with its own programming language which runs on a blockchain, enabling developers to build and run distributed applications.

The potential applications of Ethereum are wide-ranging and are powered by its native cryptographic token, ether (commonly abbreviated as ETH). Ether is like the fuel for running commands on the Ethereum platform and is used by developers to build and run applications on the platform.

Ether is used mainly for two purposes—it is traded as a digital currency on exchanges in the same fashion as other cryptocurrencies, and it is used on the Ethereum network to run applications (it’s commonly referred to as GAS fees by developers who build on the ethereum network).

You see while Bitcoin focused on being a replacement for money, Ethereum built a platform that others could build on top of.

Many other cryptocurrencies you now see available are what are known as ERC-20 tokens. Meaning they are tokens that sit on top of Ethereum, rather than being their own blockchain technology. Some examples of this are UNISWAP and AAVE these both very popular cryptocurrencies you can buy, hold and trade are in fact built on top of the Ethereum network.

You can learn more about Ethereum here

How to spot a cryptocurrency scam?

I can’t tell you with 100% certainty what is a scam but in general in my experience these are some common signs to put your guard up and be extra cautious:

  • Guaranteed Returns – if a project or individual is promising Guaranteed returns then be wary and do your research well
  • Anything that smells like MLM / Network Marketing – generally when its a network marketing style pitch I run for the hills, someone is making money, it’s just usually not you.
  • Heavy Influencer pushing – if someone or a group of someones on social media are heavily pushing a particular project (especialy if you’e never heard of it) be wary and cautious. Do your research in the project and into what incentives they have for promoting it (eg. Commissions, Kickbacks, Pump & Dump etc..)

What is a Pump & Dump scheme?

Sadly this has historically been quite common within the cryptocurrency world. This is where an individual or a group of individuals comes together to promote a specific cryptocurrency with the sole purpose of pumping up the price.

Why would they do this? Because they will have bought into the project at lets say for example $0.05 per coin, so they promote it hard to their followers and in online forums telling people how amazing the project is, others who are are experiencing FOMO and want to achieve great riches buy in, as more and more people buy in, this pushes the price up (see Market Dynamics section below), once the price reaches a high. let’s say for example sake it’s now $0.20. The original promoter(s) will then sell (dump) their coins and make a 4x profit.

If you happened to buy in closer to the 5c purchase price and you manage to sell not long after the original promoter sells you could make some good money. However, if you happened to get in later at say 15c and don’t realise it’s been sold you could find yourself left with a bunch of worthless coins.

Not all pump & dumps mean the project itself is bad, I’ve owned coins that have been pumped & dumped numerous times (Bitcoin it used to happen a lot too) but if you’ve done your research on the underlying project of the coin and think it’s a good team, roadmap and solution then you can hold them.

MemeCoins

If you’ve heard about cryptocurrency then you’ve likely also heard about coins like DOGECOIN. If you haven’t DOGECOIN was a cryptocurrency that was created as a Joke currency. It was designed to make fun of Bitcoin.

However with Pump & Dump Schemes and the rise of Meme Stock investing, we’ve seen coins like DOGECOIN, SHIBU-INU and other joke (MemeCoins) actually make some people extremely wealthy, and others (often newbies) have been left scared of crypto either because they bought in due to FOMO without realising it was a joke coin, or because they know it’s a joke and think the whole crypto market is one big joke.

Ultimately, if you plan to play with MemeCoins, I’d recommend seeing it like going to the casino and playing the roulette wheel, it can be a bit of fun, you might make money, but you have a far higher chance of losing than winning.

Understanding market dynamics – What makes prices go up? (and down)

Cryptocurrencies just like the share market, the property market and even your local supermarket is driven by Supply and Demand.

When demand to purchase a coin is higher than the supply being sold prices go up.

When supply of a coin is higher than demand, prices go down.

So if lots of people are buying a particular cryptocurrency at one time then it’s price is going up.

If lots of people are selling a particular cryptocurrency this is increasing the available supply for people to buy and therefore if there aren’t enough buyers to buy it all the price goes down.

Price Drivers in Shares vs Crypto

When you buy a share you are buying a part of an actual company. This company has public records where you can see how it’s performing, what it’s revenues are, profit margins etc… so you can evaluate a share price based on some fundamentals of the actual business and decide that it’s a good price to buy. This is effectively what is referred to as value investing and investing based on fundamentals.

In crypto though right now there really aren’t any core fundamentals you can easily measure. What this means is that the price of Crypto is pure speculation. What makes one coin worth $1000 while another is $0.01 comes down to what someone is willing to pay for it Supply and Demand.

Which means the overall crypto market pricing works on the fear greed matrix. When fear is high, prices are lower, when greed is high, prices are higher.

This Fear/Greed Index for Cryptocurrencies is a great little resource I recommend you use to see where we are in the cycle.

Now of course the share market is just as much a speculation market as well as a fundamentals market too, so this is not something isolated to just cryptocurrencies.

In the share market if you could see the business is losing money and had no plans to fix the problem you would likely sell your shares if you had some, or not buy any in the first place as it looks like it’s headed for trouble.

In the crypto market, you have to look at the broader ecosystem and the team behind the project, and their planned roadmap to try to gauge if this project continues to have merit and is worth the price it’s trading at. Knowing full well that even if it’s a good project the price is completely subject to Fear/Greed price swings.

Where to buy crypto in Australia

To buy cryptocurrencies in Australia you either need to find someone who has some cryptocurrencies in their wallet who is willing to send you some in exchange for something else (like AUD or USD)

OR you can use a marketplace exchange which acts more like a typical share trading platform and brokerage.

Personally if you are a beginner I’d suggest start with an exchange.

CoinSpot has been my go to exchange for purchasing crypto coins in Australia.

Why? They have a huge plethora of cryptocurrencies available to purchase and they make opening an account super simple, they provide reports that make tax time easier, and they simplify the need to sign up lots of different wallets for newbies just starting out.

There are plenty of other options though…

Binance.com.au is probably one of the largest and most well known exchanges globally, however I recently tried to open a Binance account and their KYC process to get verified was so long and convoluted that I ultimately gave up (this was for a company account involving trusts though rather than just a personal account).

If you don’t plan to get into NFTs and just want to buy and hold or do some basic trading then Coinspot is a great solution.

What crypto should I invest in?

That I can’t tell you because that would be getting into advice.

I could tell you what I’ve invested in over the years the problem with that is the price today is different to the price I paid, so what may have been a good buy when I bought it may not be a great buy right now.

Here’s my suggestion for picking what to invest in

  1. Go to coinmarketcap.com and go through the top 10 coins
  2. Research each one via Google, Reddit and their official websites
  3. Pick 1-3 that you like and could get behind
  4. Throw some small starter fun money you can comfortably afford to lose in to each of them to get a feel and learn the ropes
  5. Keep researching and learning about these coins and cryptocurrencies in general, and before you know it you’ll have an idea of what and how much you want to invest

Crypto Terms you should know…

HODL = Hold On for Dear Life, fun fact this was actually just a misspelling on a forum where someone meant to say HOLD and accidentally spelled it wrong and now it’s a very specific crypto term for holding on to a coin for a long period of time and especially comes up when the price is down many people talk about HODLing.

FUD = Fear Uncertainty and Doubt, often used to refer to news articles conveying bad news about crypto or rival projects spreading bad rumours about a coin with the goal of creating mass panic in the marketplace. FUD can relate to Bitcoin regulatory issues, rumors about banning crypto, and more.

STAKING = Staking is like earning interest in a bank account or a dividend from a share. You put your coins up to help with liquidity and validation of transaction, this is called staking and how you do this differs per project that offers staking, then you earn a token/coin reward over a period of time.

ATH = All Time High, basically if someone says $18,000 ATH they are saying this is the highest its ever been, they may also say ATL which means All Time Low, the lowest it’s ever been.

BLOCKCHAIN = Blockchain can be described as a huge information file which lists all transactions that were ever made. Blockchain is the heart of the Bitcoin network and serves as a kind of ledger.

FIAT = Any currency that is backed by the state or country. Basically, it is all kinds of money we know and use on a daily basis (AUD, USD, Euro, CAD, etc.).

STABLECOIN = This is a coin that is “supposedly” backed by a FIAT currency like USD or AUD. The idea behind this was to provide some stability to the swinging prices that occur in cryptocurrency. There has been a lot of rising  doubt in recent times that stable coins are truly backed by what the projects claim they are and governments around the world are now looking to regulate these so called stablecoins.

CEX = Centralized Crypto Exchange, a crypto exchange is an online trading platform where cryptocurrencies and FIAT money can be traded. Centralized means that the exchange is operated by a specific entity that maintains full control over it.

DEX = Decentralized Crypto Exchange, this is an exchange operating without a central authority – no company operates it. Some of the advantages in DEX over CEX are in its security level – they are harder to breach, as well as the regulations.

DAO = Decentralized Autonomous Organization, This is an organization working without a central government, usually operated by shareholders, which has a transparent set of rules encoded on a computer program. Some believe this will be the future of companies.

dApps = Decentralized Applications, these are software applications built on top of blockchain technology, without a central operational authority.

Mining = Mining is the process of creating new Bitcoins. Mining is done by ‘miners,’ who are solving complicated equations. The miner that solves the fastest will receive the reward (fee) for the transaction and add it to the block.

Mining is not limited to Bitcoin only, but to PoW (Proof-Of-Work) type of cryptocurrencies.

WHALE = A person or entity that owns such a large amount of a coin that they can single-handedly affect the price by mass-buying or selling.

Once you’ve bought a coin what next?

Well if it’s a small amount you can choose to leave the coins you bought on the exchange like CoinSpot (if you do this be sure to setup 2 Factor Authentication on your account)

However, if you have a lot or are very comfortable with tech, then you may want to learn about hardware wallets such as Ledger

A Ledger Hardware wallet is a physical device that stores your cryptocurrencies on it, just like if you were to store cash in your physical wallet, or put money under your mattress, rather than leave it sitting on the exchanges computers where it could get hacked and lost.

REMEMBER… Crypto Exchanges are not regulated and don’t have the same protections from governments that a bank account does, that’s why hardware wallets can be useful.

How do I keep track of my portfolio?

I personally use Delta.app it’s a free mobile app that makes tracking my crypto portfolio easy, and it imports the transactions I make on Coinspot right in to it, so I can ensure I give the accountant the right info for calculating taxes, and so I can better understand my true average buy price.

Time to decide your investment strategy…

Will you be an active trader who buys and sells regularly, moving in and out of projects to get the best returns?

Or will you be a HODLer who buys a bunch of projects and lets it sit for years and hopes that at least some of them end up dramatically higher down the track?

Alternatively, will you build momentum with Dollar Cost Averaging on 1 or 2 key projects you believe have a long term growth opportunity?

or will you do something else entirely?

That’s for you to decide – happy investing 🙂

I hope you’ve enjoyed this intro to crypto investing. If you’d like more content like this let me know your biggest questions and I’ll endeavour to answer them in future updates or posts.

P.S A word on taxes

Depending on your country there will be taxes payable. In Australia and many other countries, crypto is subject to capital gains tax and treated as income.

So if you buy a coin, then sell it for a higher price, the gain you make will be treated as income and must be reported and will be taxed accordingly.

If you stake a coin, the new coins earned may be treated as income too, so be sure to seek accounting and taxation advice for your situation.

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