The Crypto Bubble Lands at the Dinner Table

My wife recently had a milestone birthday, so I did what any good husband would do … I flew in her family and threw a mini-surprise party for her!

And as I’m pulling food out of the oven, I hear, “Hey Keith, do you have any of that dog coin?”

“Dog coin? Do you mean Dogecoin?”

I explained Dogecoin is a crypto that was created as a joke. It has no “real application” in the world, yet it has a market cap of more than $7 billion (yes, 7 BILLION dollars)!

Don’t worry though, that could be worth $0 one day!

I was then asked about Bitcoin. So I shared how I bought some about four years ago and promised myself to only add to it over time, but not sell.

Which means that I really want it to be part of my legacy.

Because I believe in Bitcoin. It has REAL application. It has a finite number of coins that can be mined. And it’s becoming a “digital gold” and an accepted form of e-commerce. It certainly fascinates me.

But back to the dinner questions I received …

“Do homeless people in China and Japan really ask for Bitcoin instead of cash? How can that be a good investment?”

“I heard McDonald’s has a crypto ATM. How does that even work?”

“How do I know these cryptos won’t just be outlawed overnight and I lose my whole investment?”

That, my friends, typically spells B-U-B-B-L-E … when people who don’t know anything about cryptocurrencies and investing are asking questions at dinner and proclaiming their opinions on buying something.

Maybe Bitcoin is currently in a bubble, maybe not. It’s possible we could see another parabolic rise and then a major drawdown like we saw back in 2017 and 2018.

But we also know there’s a real chance that Bitcoin could rise to well over $1 million per coin within the next 20 years.

So, my advice is to ignore the hype and have a plan…

What I want you to do is continue to be a real investor. One who seeks out investing in businesses and assets that have real application and will grow over time.

That’s how you found TradeSmith in the first place, right?

Think about cryptocurrencies the same way you think about publicly traded companies. You should be able to talk about the business and its fundamentals before investing in it.

Do the same with alternative investments (commodities, real estate, etc.).

Start with Bitcoin.

Avoid cryptos like Dogecoin that have no real application.

Get killer advice from real analysts, like my friends Eric Wade, Teeka Tiwari, and Matt McCall. Those guys will look for great cryptos with real applications, tell you all about them, and make a recommendation for investing.

We also have some great crypto software here at TradeSmith, too, that you can access right on the web.

Use real analysts and real tools to build your legacy.

I started writing about cryptocurrencies a few weeks ago.

I thought it would just be a one- or two-week series, but we got so many questions that I just had to keep going.

Over the first couple of weeks, I’ve done my best to convince you that Bitcoin deserves a spot in your portfolio today. (And depending on your goals and risk tolerance, that adding a few up-and-coming crypto assets could be a worthwhile speculation, too.)

But I also know that for many folks, this is only half the battle.

There’s a good chance you’re still a little unsure — and maybe even a little anxious — about how to actually make your first crypto purchase.

Well, I’m here to tell you there’s no need to be worried.

If you’ve ever bought or sold a stock through a traditional online brokerage account, there’s absolutely no reason you can’t buy Bitcoin, too. And today, I’m going to show you how you can do just that.

Now, let me be clear….

As I mentioned before, the crypto industry has come a long way in the last few years. There are now easily a dozen or more liquid crypto exchanges available to U.S. investors alone, each with its own user interface, funding options, fee schedule, etc.

Even a brief review of these various options would require far more space than I have here in this column.

Instead, I’ve chosen a couple of my favorite beginner-friendly options to get you started.

If you just want to buy and hold a little Bitcoin for the long term, these options may be all you’ll ever need. But I think they’re a great starting point for any aspiring crypto investor.

Alright, let’s get to it…

When it comes to buying cryptos, by far the easiest option is Robinhood, the popular (and free) stock-trading app.

With Robinhood, you can literally buy and sell cryptos as easily as buying or selling stocks. The process is virtually identical, including their commission-free trades.

This makes it a great choice for those who want to keep their crypto investing as simple and inexpensive as possible.

However, there are a couple of limitations you should be aware of.

First, Robinhood only offers trading in Bitcoin and six other cryptos currently: Ethereum, Litecoin, Bitcoin Cash, Bitcoin SV, Ethereum Classic, and Dogecoin.

This isn’t a concern for folks who just want to own some Bitcoin, but it could be for those who want to speculate on other cryptos. You see, other than Ethereum — the second-largest and best-known crypto after Bitcoin — none of these other cryptos have particularly compelling real-world use cases today.

Litecoin, Bitcoin Cash, and Bitcoin SV are all “forks” (or spinoffs). While each was designed to improve on some aspect of Bitcoin’s performance, none has garnered a large-enough network of users to even begin to threaten Bitcoin’s dominant role.

It’s a similar story with Ethereum Classic, which is essentially a fork of Ethereum.

And as I mentioned earlier, Dogecoin — which is also an early fork of Bitcoin — has no real use case at all. It was created entirely as a joke.

Second, Robinhood currently doesn’t allow users to send or receive cryptos to or from other exchanges or wallets. This could change at some point, but for now, the cryptos you buy on Robinhood must stay in your Robinhood account until you decide to sell.

Again, if you’re just buying a little Bitcoin and want to keep things as simple possible, this may be an acceptable tradeoff. But it does come with some potential risks.

Unlike stocks and cash, cryptos held with Robinhood and other exchanges are not insured by the Securities Investor Protection Corporation (SIPC) in the event of a business failure or cybersecurity breach.

Now, the chances of something like this happening are generally very small. The company also says “most” customer assets are held in offline “cold” storage and claims to carry “crime insurance” that would protect crypto investors from theft. But it’s possible your crypto assets could still be at risk.

More importantly, if you’re as bullish as I am — and believe Bitcoin still has the potential to turn a relatively small investment into generational wealth you can leave behind — you’ll probably want the option to take possession of your investments at some point down the road.

For these reasons, I generally recommend most folks get started with Coinbase.

If you’re not familiar, Coinbase is one of the first and largest “mainstream” crypto exchanges in the U.S. In fact, the company recently announced plans to go public at an expected valuation of $100 billion.

(TradeSmith has no affiliation with Coinbase, and I receive no compensation for mentioning it here. I’ve just found its platform to offer a good balance of features, selection of cryptos, and ease-of-use for beginners.)

Like Robinhood, Coinbase makes buying and selling cryptos relatively painless. Plus, it currently offers trading in more than 40 popular cryptos, and it gives you the option to send and receive cryptos to and from your account as well.

The “tradeoff” for these additional features is higher fees. (More on this in a moment.)

Signing up for and funding an account on Coinbase today isn’t all that different than opening a new bank or brokerage account, so I won’t go through each of the steps in detail. But there are a few important things to keep in mind.

First, be sure to choose a strong password you don’t use on any other site or application. Some good rules of thumb include making it as long and complex as possible (random phrases can work well and be easier to remember); using upper and lowercase letters, numbers, and symbols; and avoiding personal information and common words and phrases.

It’s easy to overlook this step, but it’s one of the most important things you can do to protect your account.

Next, once your account is set up and approved for trading, I urge you to add another layer of security with “2-step verification.”

This security process requires you to enter an additional code when logging into your account or making transactions. It’s a simple step, but it can prevent a thief from accessing your account if your password is compromised.

The most common form of 2-step verification is via text message. In this case, Coinbase will text you a temporary code that you must then enter on the login page to gain access to your account.

This is certainly better than nothing. But there have been some cases where thieves have successfully impersonated mobile phone customers and gained access to their phone numbers. So, I would recommend downloading an “authenticator” app — like Authy or Google Authenticator — on your smart phone or computer instead.

These apps provide a time-based, one-time code that resets every 30 seconds or so, making it much more difficult for anyone but you to gain access to your account.

Each of these apps provides step-by-step instructions for setting up your account. Just be sure to safely secure your password or backup codes, as you’ll need them to access your account if your phone or computer is lost.

Finally, when your authenticator app is up and running, you can easily add it to your Coinbase account under the “Settings” page.

Once your account is secure, you’re ready to add a funding source. Your options currently include standard bank (ACH) transfers, wire transfers, or a credit or debit card.

Again, this is similar to funding any new bank or brokerage account today. Just be aware that both credit and debit card funding carry additional fees of up to 3.99%, which can really add up if you’re not careful. In addition to the fees, your bank may consider credit and debit card transactions as cash advances.

Ok, now that your account is approved and funded, you’re ready to make your first crypto purchase. I’ll walk you through an example with Bitcoin, but the process is the same for any crypto.

First, we’ll head over to the “Prices” page, and click the “Trade” button next to Bitcoin.

This will bring up a window where you can enter the amount of Bitcoin you’d like to buy and select your preferred funding source.

Earlier I mentioned Coinbase charges fees for purchases made with credit or debit cards. But these aren’t the only fees you need to be aware of.

Unlike Robinhood, Coinbase also charges a trading fee, which is the greater of 1.49% or a flat fee based on the transaction amount.

Currently these flat fees range from $0.99 for transactions up to $10 (roughly 10% of the transaction amount!) to as much as $2.99 for transactions up to $200 (roughly 1.49% of the transaction amount).

In other words, you’ll get the lowest rates at Coinbase when buying at least $200 or more of a specific crypto.

Of course, this doesn’t mean you can’t use Coinbase for smaller purchases. But you’ll definitely want to be mindful of these costs if you do.

Once you’ve made your selections, you can click “Preview Buy” to see exactly what the transaction will cost and how much Bitcoin you’ll receive.

And finally, if everything looks good, you can click “Buy now” and your cryptocurrency will be available in your account.

That’s all there is to it.

Now, technically, holding your Bitcoin and other cryptos inside your Coinbase account carries the same potential risks I mentioned earlier with Robinhood. Specifically, your investments are not covered by the SIPC in the event of a loss.

However, Coinbase’s security measures are a bit more transparent than Robinhood’s.

For example, the company clearly states that at least 98% of customer crypto assets are kept in offline “cold” storage. It also says that all remaining online assets are fully insured against loss due to a breach of Coinbase’s “physical security, cyber security, or employee theft.”

(Neither Coinbase nor any other exchange we’re aware of insures against individual loss due to compromised login credentials. This is why it’s so critical to use a strong, original password and 2-step verification process like I mentioned earlier.)

Because of this, I have no worries about holding a small amount of cryptos right inside my Coinbase account.

Coinbase also offers another option (called “Vaults”) for folks who want a little more protection, but don’t want to deal with the hassle of setting up and managing a standalone crypto wallet.

Coinbase Vaults can send and receive cryptos like your normal trading account. However, all withdrawals require an additional confirmation step and a 48-hour waiting period before completion, ensuring no one can move your assets without your knowledge. (If you’re interested, you can learn more about Vaults on Coinbase’s website right here.)

Well, that’s it for this week.

As I mentioned when we kicked off this series earlier this month, even a basic explanation of all the ins and outs of crypto investing would require far more space than I have in this column.

But I hope this introduction has given you the confidence to take your first step and buy a little Bitcoin. (Seriously… let me know if you’ve done it at [email protected]!)

I have received SO MANY great questions from you all, thank you very much.

Next week we’ll wrap this series up with a Q&A featuring some of the most important questions you’ve sent me over the past few weeks. (And I’m also finishing up a special crypto e-book I’ll send to you for free next week!)