What’s the deal with Cryptocurrencies?

And is it too late to join the party?

Not at all. Actually, you’re early!

Less than two percent of the world own cryptocurrencies. This nascency in adoption is a main reason individuals can make so much money in this space right now. Call it first mover’s advantage.

Early crypto adopters have faced a high barrier of entry navigating the space. It can take a certain degree of finance and tech savvy — with a healthy dose of suspicion for government tomfoolery — to get involved.

As a technology, blockchain — and associated cryptocurrencies that lubricate their networks — form part of the next generation of disruptive technologies terraforming finance and the internet towards decentralisation.

As a political ideal, blockchain and cryptocurrency enable a decentralised world that gives economic power back to ordinary people. Traditional banks and large corporations will be disrupted. Governments and central banks will find their power under threat.

In this article I’ll explain the need for crypto, why its price is exploding, and where to buy them — from bitcoin and ethereum down to micro-cap altcoins with 100x potential.

Right now there is no other asset class that rivals cryptocurrency for insane capital gains and passive income.

Why buy cryptocurrency

There are two theses for getting into cryptocurrencies:

  1. Invest to get rich. This is the most common reason. All your mates and their dogs are getting wealthy—why not join the party?
  2. You believe in a blockchain-based decentralised future for finance and the internet. You believe in curbing the power of central banks, corporations and governments. You believe in putting economic power back into the hands of ordinary folks.

These reasons feed into each other to generate a positive feedback loop.

Reason 1: Invest to get rich

biggest cryptocurrency is bitcoin, created by Satoshi Nakamoto in 2008.

It has seen a mouthwatering annual return of 200% since 2010, making it the best-performing asset class of any investment by far.

Standardising the starting price highlights these jaw-dropping returns even more. A hundred dollars invested in bitcoin 10 years ago is now worth $6.6 million dollars.

Bitcoin’s long-term price action is mathematically predictable. Its price fluctuates in four-year market cycles.

During each cycle, there is a year-long bull run where the price explodes (2013, 2017, 2021) and three-year long bear markets when savvy investors accumulate bitcoin for the next bull run.

These cycles exist because of the ‘halving’ events baked into bitcoin’s source code, whereby the mining reward for verifying new blocks on the bitcoin blockchain halves every four years. This makes bitcoin a scarce asset like gold and ensures there will only ever be 21 million BTC in existence.

As a result, there is a supply shock in bitcoin every four years. In economic theory, fixing the demand while halving the supply of a commodity should double prices.

We are halfway through the 3rd post-halving bull run, which started around Oct 2020, when bitcoin was around $10,000.

Back then, I said to get ready.

Six months later, in Apr 2021, the bitcoin price now sits at around $60,000.

According to the popular stock-to-flow model, BTC’s prices are expected to hit $100,000 to $350,000 by the end of the year.

This is life-changing money.

In 2021, bitcoin solidified its use case as a store of value asset akin to digital gold. The deflationary and scarce nature of bitcoin is integral to this adoption.

As central banks around the world continue to print record amounts of stimulus and debt, ordinary investors and an increasing number of large companies are scrambling to park their assets into safe haven reserve assets like bitcoin.

Why let your fiat money bleed its value away in bank accounts when you can preserve it in bitcoin? While trillions of fiat currencies continue to be printed at a whim to combat COVID-19, the supply of bitcoin will continue to dwindle. Mathematically, there can be no more than 21 million bitcoin.

Cryptocurrency adoption in general is exploding. You can now buy crypto in PayPal, settle transactions on Visa and pay for goods in Apple Pay via the MasterCard network.

There are over 8,000 other cryptocurrencies besides bitcoin.

Collectively they are called altcoins.

After surges in bitcoin prices, capital often flows into altcoins — pushing up their prices even faster than bitcoin.

The biggest altcoins include

  • Ethereum (ETH)
  • Cardano (ADA)
  • Polkadot (DOT)
  • Binance Coin (BNB)

All of these coins are native tokens for competing blockchains.

The reasons for altcoins performing even better than bitcoin are two-fold.

  1. Altcoins have a smaller market cap, so it takes less money to pump the price.
  2. Altcoins like ETH, ADA, DOT and BNB generate value through the creation of blockchain-enabled products and services. Unlike bitcoin which has found its use case as a store of value asset, altcoins are building the next-generation decentralised internet. That’s where the real future value of blockchain and cryptocurrency rest.

This brings us to the second reason for why people invest in crypto.

Reason 2: Invest in a decentralised future

Ark Invest’s Cathie Wood includes blockchain being among the five disruptive innovation platforms to shape our world in the upcoming decades.

A blockchain is a digital ledger that records transactions between parties in a permanent and verifiable way without the need for a middleman like a bank.

Blockchain technology will enable finance to become a decentralised and peer-to-peer affair.

Blockchain technology will be a driving force of the next generation internet, known as Web 3.0, which dismantles the client-server and centralised data management model of the current internet infrastructure.

Cryptocurrencies serve as the oil that powers decentralised activities on blockchains.

Bitcoin (BTC) is the world’s first commercial application of blockchain technology. Bitcoin is digital gold.

When middlemen like central banks, corporations and governments control the supply of money and information, they exert economic and political power over us. Bitcoin evens out the playing field.

As fiat money is printed at a whim by central banks the world over, the dollars in your bank account bleed away their value through inflation. Call it for what it is — wealth confiscation. If the central bank ever discontinues your currency, you’ll suddenly be left holding what is effectively a bag of worthless paper.

Bitcoin bypasses this centralisation of control. Its scarcity hedges against inflation. It cannot be counterfeit. It cannot be banned. And it’s truly global.

Ethereum (ETH) is the next-generation internet where developers can build decentralised applications on top.

In just eight years, ethereum:

  • pioneered Smart Contracts that enabled digital transactions eliminating middlemen like Airbnb, Uber, lawyers and recording companies;
  • created a successful dApp (decentralised app) ecosystem that spurred the booming Decentralised Finance (DeFi) and Non-Fungible Token (NFT) spaces, leading to the creation of thousands of new altcoin cryptocurrencies;
  • created Initial Coin Offerings (ICO) as a means for developers to fund their own projects; and
  • spawned a healthy array of competitor blockchains, such as Cardano, Polkadot and Binance Smart Chain.

Soon I’ll show you how to get into DeFi and make insane capital growth and passive income by using ETH and Binance Coin (BNB) to buy cryptocurrencies/tokens from smaller projects and startups.

Many of these crypto projects have important use cases, from improving supply chain management (VeChain) and video streaming (Theta), to ensuring artists get a bigger cut of royalties from their work.

Through continuous innovation, blockchain and cryptocurrencies are improving our world at a rapid pace.

Where to buy cryptocurrency

The crypto market in 2021

In 2010, bitcoin was the only show in town and buying BTC was notoriously difficult. One had to log on to an enigmatic internet forum, wire funds to an obscure account based in Japan, and pray for the best.

In 2021, crypto is way more accessible, and getting easier by the day.

Popular fintech companies like PayPal and Square, and centralised crypto exchanges like Binance and Coinbase, allow you to buy large-cap cryptos like BTC, ETH and ADA. This would please most people.

However, bigger gains are made with the smaller cap altcoins. You’ll find them on decentralised exchanges.

To realise the biggest profits in the shortest amount of time, you need to play venture capitalist and get in on the new startup altcoins — that’s where launchpads and IDOs come in.

Finally, you can stake many cryptocurrencies and provide your own liquidity to generate passive income, akin to dividend investing.

Understanding how money moves in the crypto space is important.

The majority of people entering the scene will start with bitcoin.

Capital then moves into the larger altcoins like ETH, ADA and DOT — particularly when bitcoin trades sideways for awhile.

Some money then trickles to the small and micro-cap altcoins over time. As these projects explode, profits are taken and then poured back into the bigger coins like bitcoin and ethereum, starting the cycle anew.

This is known as the crypto money flow cycle.

Understanding how capital slushes around the space will inform where you go to get the cryptocurrencies you want.

In short, bitcoin and the larger cap cryptocurrencies can be bought on fintech apps and centralised exchanges, while the small & micro-cap altcoins (with the highest profit potential and risk) are found on decentralised exchanges.

Let’s dive into each of these.

Fintech brokerages

One of the easiest ways to buy crypto is to use a fintech brokerage. These include:

  • PayPal
  • Square
  • eToro
  • Robinhood.

I personally use eToro, which offers a very friendly user interface for buying and trading crypto, stocks and commodities. It’s a great and intuitive all-in-one platform for anyone looking to get into the markets for the first time.

I have a good amount of BTC, ETH and ADA on my eToro account. You can try eToro with my referral code, which will provide you a bonus $100 for your first trade.

The drawback of fintech brokerages is you don’t own the private keys to your wallet.

The good news is Square and Robinhood allow you to transfer your newly-bought crypto into a cold storage wallet like the Ledger Nano, ensuring you retain full custody of your coins in case anything goes wrong with the brokerage.

Another current drawback with fintech brokerages is the limited selection of smaller cryptocurrencies.

This is where dedicated cryptocurrency exchanges come in.

Think of these as like the good old currency exchanges at the airport — except instead of exchanging fiat currencies, like US Dollars for the Japanese Yen, or Great British Pounds for Australian Dollars — you’re exchanging cryptocurrencies instead. There are two types of exchanges: centralised and decentralised.

Centralised Exchanges (CEX)

Centralised exchanges are the most common form of crypto exchange, making up more than 90% of trading volume. They’re very user-friendly.

The world’s biggest CEX by far is Binance. The biggest exchange in the US is Coinbase, which recently went public on NASDAQ.

Binance offers an extensive suite of cryptocurrencies for buying and trading. You can buy crypto and hold it in your Binance wallet, transfer it to cold storage, or use it as collateral for margin trading. Feel free to try out Binance using my referral code to get 5% off your trading fees.

Margin trading involves borrowing money to buy even more crypto than you can accord.

Margin trading is also known as leveraged trading.

In the property market, using leverage is the same idea as taking out a mortgage, because you’re borrowing money to buy a house.

For the majority of people, a centralised exchange like Binance or Coinbase would fit the bill. You’re able to buy all the popular cryptocurrencies, transfer them easily and even trade with leverage.

However many small cap cryptocurrencies, representing some of the most promising startup projects, aren’t found on these exchanges.

This is where decentralised exchanges come in.

Decentralised Exchanges (DEX)

Using a centralised exchange is akin to doing currency exchange at a bank.

In contrast, decentralised exchanges allow you to conduct trades directly with other users.

The die-hard crypto believers will tell you to eschew CEXs like Binance and Coinbase — which is centralised to some degree — for DEXs.

Main benefit of using DEXs from an investment point of view:

  • Wider selection of the smaller cap altcoins. This means you can find those hidden gems with massive upside potential.

Main con:

  • High learning curve to get started.

The majority of the booming decentralised finance (DeFi) space is built on the ethereum blockchain, which means UniSwap— the largest DEX for ethereum— has been the go-to place to buy small altcoins. Here, you use ETH to buy altcoins and use ETH pay transaction fees (‘gas fees’).

However, the gas fees on the ethereum network has become absurdly high since the beginning of 2021 — often $50 or more for a single transaction. Transactions may also fail, whereby you also lose that gas fee! That’s pretty rough.

As a result, we have seen the explosive growth of competing DEXs and their native blockchains, such as PancakeSwap on the Binance Smart Chain (BSC). On the BSC, you use Binance Coin (BNB) to buy altcoins and use BNB to pay gas fees.

The great news is BSC gas fees are significantly cheaper than the ethereum network — usually less than 50c. However UniSwap still offers a bigger selection of coins.

The ethereum developers are working hard on fixing the blockchain’s scalability issues. Coin Bureau made a comprehensive video on all the solutions that’s concurrently being developed.

In any case, DeFi is exploding and it’s a great time to join the action, whichever blockchain you prefer.

Sheldon Evans made a great tutorial video on how to get your fingers dirty in DeFi with the biggest player UniSwap. I’ll summarise the general process now:

Step 1: Set up an online wallet like MetaMask.

This is pretty easy to do — it’s essentially a browser plugin.

You’ll be given a seed phrase serving as your private key.

Do not lose this! Store it somewhere safe offline.

Anyone in the world who gains access to your seed phrase can anonymously take all your crypto in an instant.

Step 2: Buy some ETH or BNB (e.g. from Binance or Coinbase) and transfer to your MetaMask wallet.

Remember:

  • Use ETH to buy coins/tokens on UniSwap.
  • Use BNB to buy coins/tokens on PancakeSwap.

Step 3: Connect to the decentralised exchange (DEX) of your choice.

I’ve included some screenshots of what both UniSwap and PancakeSwap look like.

Spoilers: they look almost identical besides aesthetic themes. This is because most DEXs have essentially copied the open-source code of UniSwap. Not very original, but great for a consistent swap experience across different blockchains!

Out of interest, here’s the current DEX landscape. You can see, UniSwap and PancakeSwap are the two biggest players.

I imagine once Ethereum fixes its network congestion problems, many retail investors will flock back to UniSwap. Until then, it will continue to bleed retail capital to Binance’s BSC and its biggest DEX (the outrageously cute) PancakeSwap.

In summary, ethereum (ETH) and Binance Coin (BNB) lubricates and runs the respective ethereum and Binance Smart Chain blockchains currently powering the booming DeFi space. The value of both ETH and BNB have exploded in 2021 as you need them to trade altcoins, pay gas fees and provide liquidity in their respective blockchains.

Using DeFi to make strong passive income

One of the most attractive perks of crypto is its passive income opportunities in the DeFi space. Forget about parking your money in a bank account earning 1–3% per year, or buying dividend stocks that typically pay out 2–4% a year. One can do much better than that.

I have written a dedicated article on generating high-return passive income on the Binance Smart Chain here.

Staking

When you stake your Proof-of-Stake (PoS) cryptocurrencies, you‘ll be able to grow your coins at an annualised rate between 5–20% for the larger cryptocurrencies (e.g. ETH, ADA, DOT), and oftentimes significantly higher for the smaller altcoins (bought from UniSwap, PancakeSwap etc.)

To provide an example, I’m currently staking CAKE (PancakeSwap’s native token) on the platform for an annualised return of around 100%.

It gets even better: the price of CAKE and many other altcoins are exploding due to the current bull market. CAKE is a particular beneficiary of the rise of the Binance Smart Chain.

In the stock market, high dividend growth stocks are a misnomer — they don’t exist.

In the cryptoverse, they do for now. And best of all, they can both grow at a rate an order of magnitude better than typical growth stocks and pay a dividend yield (stake rewards) an order of magnitude better than the best high-yield dividend stocks. It’s incredible.

Yield Farming

DEXs operate on liquidity provided by its users. Another way to generating passive income is to participate and provide your own liquidity to the DEX’s liquidity pool.

This is called Yield Farming.

To provide an example, I’m currently providing my Enjin (ENJ) and wrapped Ecomi (wOMI) coins to UniSwap’s liquidity pool, which is returning approximately 50% per year.

There are, however, risks associated with liquidity provision.

Liquidity Mining

It gets even better for farmers. You can combine liquidity provision and staking to get what’s known as Liquidity Mining.

When you add liquidity to a pool, you’re given a liquidity pool token (LP token), which you can trade, and most importantly, stake! This means you’ll be earning double rewards: fees from users trading on your liquidity AND staking rewards.

Let’s look at an example. CyberFi is a platform that offers Initial DEX Offerings, where you can buy into a new crypto startup like a venture capitalist. I’ll talk more about this in the Launchpads section below.

To get involved, can stake CFi tokens on CyberFi’s site, which currently returns less than 10% APY. But there’s a far more lucrative option. You can add ETH-CFi liquidity to UniSwap, which will provide you with some ETH-CFi-LP tokens. You can then stake these LP tokens instead for an APY that’s currently 60%. Bare in mind that the usual risks of yield farming apply.

Check out here, here, here and here for more information on farming and liquidity mining on DEXs.

Play Venture Capitalist with Launchpads & IDOs

The holy grail to getting rich quick with crypto in DeFi is participating in Initial DEX Offerings (IDO), which is akin to playing venture capitalist in the stock market. Here, you get to invest in new tokens and crypto startups in a pre-public sale.

In traditional finance, the opportunity to invest in startup companies before they go public are typically afforded only to well-connected venture capitalist firms and rich angel investors.

In the crypto space, any one of us can participate in VC with a far lower barrier or entry. What a time to be alive!

There are a number of crypto Launchpad platforms that vet crypto startup projects and launch their IDOs— one of the most popular being TrustSwap. To partake, you need to buy and stake 4,000 SWAP tokens on the site. As a bonus, the staking generates you passive income too.

TrustSwap generally runs a few IDOs each month where eligible participants can buy a small amount of new cryptocurrency before its public DEX launch.

Here’s the best part: the price of the new coin usually skyrockets upon public listing on UniSwap. Many of the projects launch with an immediate 10 times or greater profit, which you can sell a part of to immediate recuperate your principal.

Another launchpad platform that’s hot off the press is CyberFi, briefly mentioned earlier.

Currently I regularly participate in both TrustSwap and CyberFi launchpad IDOs. I believe IDOs will be a good way to continue to earn fantastic income even in the coming 2022–23 bear market.

CyberFi’s IDO launch of the ARTX token immediately returned netted me a 1,000% profit. This is because I was able to buy ARTX tokens at 35 cents at the pre-IDO launchpad sale, with the token jumping to $4 upon public launch on UniSwap a day later.

Nice, isn’t it?

Here’s a rundown of how a typical IDO goes:

  1. The Launchpad platform (e.g. TrustSwap or CyberFi) will make an IDO announcement on Twitter, and provide instructions on their Medium account.
  2. Make sure you’ve staked enough tokens to participate. Right now that’s minimum 4,000 SWAP for TrustSwap IDOs and 50 CFi for CyberFi IDOs.
  3. Complete some KYC before the IDO.
  4. On a certain nominated day (see detailed instructions on their Medium), you’ll be able to log onto the launchpad platform site and buy a certain allocation of the new token at pre-public prices. You usually have a 12 hour window to do this. Put the date and time in your diary!
  5. Once the new cryptocurrency officially launches (e.g. on UniSwap), you can then claim them into your MetaMask wallet. The price of the new token typically explodes on the day, allowing you to make an immediate profit.

Some caveats about launchpads and IDOs:

  1. There are normal launches and flash launches. Normal launches guarantee an allocation — this is what all IDO participants look forward to. The latter involves a lottery to see if you’ll get an allocation. Normal launches are ran for crypto startups looking to raise a lot of money (e.g. over a million dollars), while flash launches are used for smaller capital raises (e.g. $60,000), where there isn’t enough tokens for everyone who wants to buy — hence the lottery. Both TrustSwap and CyberFi run normal and flash launches.
  2. Almost all IDOs have vesting periods on your newly-bought tokens. For instance, I was able to cash out 25% of my new ARTX tokens on CyberFi upon the UniSwap launch — the remaining 75% slowly vests over 90 days. The good news is most tokens explode on public launch day, so even the minor amount you’re able to cash out — including paying the gas fees — will already pay off the initial principal you put in.

Conclusion

As a technology — blockchain and its lubricating cryptocurrencies will transform finance and the internet towards centralisation.

Many believers of crypto — wary of government intervention and the authoritarian hand of big tech — are eager to adopt a vision where economic power is returned back to ordinary people.

Alongside AI, energy storage, genomics and robotics — blockchain and cryptocurrency will be a major platform of innovative disruption in the upcoming decades. We’re looking at a combined $50 trillion opportunity.

We’re in early days.

As investors, a way to hop on the ride is to buy and hold the most promising cryptocurrencies, which offer capital growth and passive income returns an order of magnitude better than any other asset class out there.

You can’t go wrong with the large-cap tokens like bitcoin and ethereum, which you can now buy on a number of popular apps and fintech platforms like PayPal, Square, eToro and Robinhood.

If you want to explore the true spirit of decentralised finance, I’d encourage you to look into DEXs like UniSwap and PancakeSwap, where you can peruse the wealth of small and micro-cap startup altcoins, of which some will inevitable become the next big thing in DeFi.

I write about data science, modelling and investing. I shoot short films on the weekends. Always learning.