The cryptocurrency universe is crazy…literally. Overnight there can be enormous moves in value, up AND down. It is why the term HODL caught on. A typo of HOLD became the acronym for Hold On for Dear Life.
Anyone holding Bitcoin over the last few years has ridden a rollercoaster from below $1000.00 to nearly $20,000.00 followed by a crash to something like $3000.00 only to be making an assault on a $50,000.00 peak in 2021.
The aforementioned is a small slice of what cryptocurrency investors go through trying to make and hold gains in the space. There is a lot of work and intestinal fortitude required.
Most likely, you need to find an exchange that is reputable to start doing anything. The US government has "blessed" both Coinbase and Kraken which means they report your transactions to the IRS. These exchanges let you move cryptocurrency off and online from your hardware wallet. They just report the activity.
Some crypto traders of course do not want to have their transactions reported to the IRS. They can have a good reason for this point of view because regulatory guidance on cryptocurrency from the US government has been confusing.
It is not "wrong" to wait for regulatory clarity before putting one's cryptocurrency into the "system". However, it could be painful when the regulatory guidance does come. Every crypto investor has to make their own choices here.
In any case, one can enter the cryptocurrency universe without using an exchange. The first step here would be obtaining a hardware wallet. I think the Trezor hardware wallet is a good option.
Satoshi Labs was the first hardware wallet maker of any note and continues to lead the pack, in my opinion. The Nano Ledger and KeepKey are reasonable alternatives. With the hardware wallet of your choice configured and updated, you can do business.
What does that really mean, "doing business"? How are you going to get Bitcoin or other cryptocurrencies into that wallet without going to an exchange and giving them your identity? You can start accepting cryptocurrencies for odd jobs, like writing essays on Hackernoon under a pseudonym for example.
You can try to talk a "whale" (large holder of a specific currency) into selling some of their crypto-stash to you for some of your fiat currency, like the sawbucks in your pocket. Good luck with that one.
There are Bitcoin ATMs though. You can simply go to one of these ATMs, like CoinHub. Most big cities in the United States have a few of these around. You can literally stand there and feed the machine C-notes without identifying yourself except by giving the machine the Bitcoin address of your hardware wallet.
Well, up to twenty-nine C-notes anyway because after that even CoinHub wants to know WHO you are. This is the United States of America remember and the IRS will have its slice.
In any case, you can see there are some hoops to jump through. Cryptocurrency investors do not just sit on their hands and watch their digital gold mines spit out coins.
It takes real work and some sleepless nights to keep up with events. HODL is a real thing. It is fun while you are going up, but going down is SCARY!
Some of the readers are probably saying to themselves, but what about Robinhood? That seems like an easy way to buy cryptocurrencies at first glance.
The fact that apps like Robinhood or PayPal do not even allow you to move to a hardware wallet the cryptocurrency you "buy" from them is not a favorable situation.
Even though it feels like you can easily play the crypto space, these new apps tend to "freeze" during times of high volume. Because Robinhood is such a new entity, they are literally making up some of the rules as they go along. Those sudden rule changes rarely favor the retail investor.
Robinhood stock investors cannot even get out the door with their gains on a particular stock like GameStop. The situation is even worse in the cryptocurrency world.
If you ride the cryptocurrency rollercoaster in one of Robinhood's cars, you could get pitched out on a sudden downturn. Robinhood can get into a cash crunch at any particular time. History shows those times are most likely inconvenient ones for the retail investor.
The SEC is going to be looking closely at how Robinhood does business going forward after the "GameStonk" debacle. The idea of Robinhood empowering the retail investor is great but they themselves are too new at the game.
There are other larger brokerage houses like TDAmeritrade, ETrade, or Schwab which have been doing business for decades. These players do not suffer Robinhood-like "hiccups", historically.
Yet, a SANE person can get involved in cryptocurrency and still sleep at night. You will pay a premium for these investment vehicles but you can "play" in the cryptocurrency space without losing your mind. As you read above, it is a very complicated place.
The rules are being made up as I write. Do not forget the number of ne'er-do-wells looking to spear naive fortune seekers. Stodgy old brokerage houses should give one a warm and fuzzy feeling.
Companies are seeing cryptocurrencies as a place to put their cash to work. These companies are doing the research for you. They have their normal business models and they also are doing cryptocurrency investing.
Some companies have done so well in the cryptocurrency space, their traditional revenue streams may be eclipsed, like MicroStrategy (MSTR) or Square (SQ). Tesla recently announced putting over one billion dollars into Bitcoin.
(Full Disclosure: I currently own shares of Tesla)
Fortunately, you can easily sift through the companies with large cryptocurrency holdings. BitcoinTreasuries.org is a nice resource where large Bitcoin holdings are documented. You probably noticed there are some quasi-ETFs in there if you visited the link. In fact, the largest single holder of Bitcoin listed at Bitcoin Treasuries is Grayscale Bitcoin Trust.
Yes, there are cryptocurrency ETF-like vehicles out there. They made it into the financial world. ETFs allow you to trade stock ticker symbols like you would GE, F or AMZN but still be "directly" connected to the price of cryptocurrencies. You are abstracted away and pay a premium for this, yes.
Sanity is not free. All the rules and regulations about the settlement of these transactions are in place. Buying these vehicles are like any regular stock market transactions.
Grayscale has several investment vehicles that you can invest in. GBTC is a Bitcoin quasi-ETF and ETHE is the Ethereum vehicle Grayscale offers. There are others like the Litecoin Trust (LTCN) and a diversified crypto vehicle as well.
Grayscale is not the only one offering quasi-ETFs in this space. Do some research you may prefer others. These vehicles can even out the rollercoaster ride for the average investor wishing to dip their toe into the cryptocurrency space without losing their foot in the process.
All the normal rules about the settlement will apply. When you decide you have had enough and want to get off the rollercoaster, there will be a process. How you get your money is a well-worn path in this slightly more sane space for the retail investor.
Full Disclosure: I currently own shares of ETHE, but otherwise have no connection with Grayscale or its subsidiaries. I do not work for Grayscale in any way. They were simply one of the first movers successfully doing business in a heavily regulated space. Grayscale's reputation is easily researched and I urge you to do so before giving them any of your hard-earned fiat currency.
Disclaimer: The opinions in this article belong to the author alone. Nothing in this article constitutes investment advice. Please conduct your own thorough research before making any investment decisions.
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