This article was last updated on May 17
This article was inspired by a few of my older family members who have had a discussion that generally goes like this:
“Andy, I am hearing that Bitcoin and Dogecoin [or insert any Crypto currently in vogue] are the place to invest and have been doubling almost weekly. Is this true and how do I get in on this and where can I buy them? Don’t see them on my Vanguard or Fidelity IRA accounts?”
I respond, “Well, that’s not exactly true and they are highly volatile if you look at movements over a longer period. Also do you understand what is driving this price increase and what the underlying genesis of the actual Cryptocurrency [Crypto] is? E.g do you know what blockchain is or what a smart contract means? Further, you are right you cannot buy it through traditional brokerage accounts (which means not covered by FDIC insurance), but there are places to buy it in a simple and relatively secure manner. I recommend and use Coinbase or Robinhood, if based in the US. Just be aware of what you are signing up for and what you could be paying in terms of transaction costs and spread differentials with some of these Crypto trading exchanges or digital wallets.
After some more back and forth I get eventually this kind of question, “How much should I invest and do I have to buy a minimum of $50,000 if I want bitcoin?”
My answer goes along these lines, “For investors new to Crypto, always research first and get a basic understand how they work (see this article as an example). Then I suggest picking one and starting with a $100 to $500 initial investment for a few weeks to see how it works. You can dollar cost average in if you want to add more money. Further you can buy all the big Crypto’s like Bitcoin and Ethereum in fractional amounts. So even though Bitcoin is over $50,000 per coin at the time of writing this article, you can still buy a fractional amount to meet the investment you are looking to make. So for a $500 investment you get 0.01 of a bitcoin. My recommendation is to buy 50% Ethereum (since this also provides a platform and more than just currency), 30% Bitcoin (first mover advantage and the most well known) and 20% in new and fast rising Cryptos like Dogecoin or Ripple (XRP).”
I always go on to add that for anyone over 50 or in retirement, Crypto should NOT be a core holding as this asset class is still relatively nascent from a mainstream investing perspective. Further I would treat any Crypto investing as speculative and should at most be 5% of your total invested amount. While it is great to hear the news of certain coins, like Dogecoin rising by thousands of percent in a few months, many more have dropped by as much. Its purely momentum and highly manipulated in the social media. Further this is not a passive investment, you need to stay vigilant and keep a regular tab. Having a clear exit strategy is also critical.
I will explore the above in more detail via upcoming articles in my Crypto 101 series. You can get the latest updates via the following options and feel to free to leave a comment below if you have any questions you would like me to dig into further.