the humble libertarian

out of many one

Friday, June 8, 2018

Guide to Investing in CryptoCurrency for Beginners

The first of many globally successful private cryptocurrencies over the last decade, Bitcoin is history's most profitable investment so far.

To understand why, we first have to fundamentally understand what money is and why it's so valuable.

If you want to start investing in cryptocurrency, it's important to understand these fundamentals first.

One of the easiest ways to lose a lot of money investing is by not having a deep understanding of what you're putting your money into.

"Invest in what you know."

Peter Lynch is the legendary American investor and mutual fund manager who averaged a 29.2% annual return (more than doubling the S&P 500 stock index) from 1977 to 1990, the best performance of any mutual fund over that period in the world.

The assets under his management grew from $18 million in '77 to $14 billion by 1990.

He's famous for saying, "Invest in what you know."

CryptoCurrency Is Private Money

If you can't give a technically precise definition of money and its function in the economy, you are not ready to invest in cryptocurrency– yet.

Money is a product with certain features that solve problems people have– just like any product.

1. One of those problems is that many people produce far more than they can consume, and need a way to save the extra value they've created.

Money provides a store of value so that people can save, and have an incentive to produce even more.

2. Another problem is that everybody has too much of something and not enough of something else, but may not be able to find someone who has an excess of exactly what they need, and a lack of exactly what they have too much of to directly trade for it.

Money provides a universal medium of exchange so that everyone can trade what they have too much of for payment in money, knowing that they can trade money in payment for what they don't have enough of.

3. The third problem money solves is foundational to a modern, hyper-productive economy.

The problem is that in order to make useful calculations for advanced and complex economic undertakings, we need a way to understand and express the relative value of all goods in terms of each other.

Money provides a unit of account so that we can value goods and services, record debts (which is essential to the credit and capital markets, massive drivers of economic productivity), and make precise calculations to understand, manage, and grow our businesses as well as our personal finances.

Monopoly Money and Free Market Money

Up until the advent of Bitcoin, the world's money has been provided by central banks with legally-granted monopolies over money, under the pretense of providing it as a socialized good under the heavy-handed control of bureaucratic central planners with the best interests of "the general welfare" in mind.

In America the monopoly private bank in charge of the nation's money is the Federal Reserve.

It was founded in 1913, and is headed by a chair appointed by the President of the United States.

I'm going to get to some practical investment and financial advice with specific steps to follow to invest in cryptocurrency, but this next part is important to understand if you're just getting started.

It's the backstory and context to why the market for private cryptocurrency has emerged in the first place, and explains its meteoric rise, as well as its continued promise as an investment vehicle.

The Federal Reserve and U.S. Dollar

The Fed and U.S. government have exercised a tightly-controlled, legally-sanctioned monopoly over the market for money for over a century now.

And as with all coercive monopolies, the legally privileged few who operate it profit excessively and unfairly at the expense of everyone else.

When new entrants are not allowed to compete in the market for any product, the product stagnates.

The business that holds a monopoly over it can dictate terms to those who use it. The needs of the customers take a backseat to the profits of the monopoly.

The result is a product that costs those who use it more while providing them with less value.

This is the history of the U.S. Dollar since 1913.

Inflation Is Theft

The Federal Reserve system is constantly making every dollar we've earned worth less every year through inflation by creating massive amounts of new dollars and lending them to borrowers at a profit.

Because the U.S. government has actually made it a crime to create a private currency and aggressively prosecuted those who've tried, consumers and businesses have no choice but to use their funny money, and the entire monopoly monetary system has stolen trillions of dollars from everyone:

...and given all that stolen money to the owners of America's monopoly banking system.

(That's why the top campaign contributor to both Donald Trump and Hillary Clinton were both Wall Street hedge funds, and why Wall Street banks, which are essentially branches of the Federal Reserve, always number high among the top contributors to presidential candidates of both parties.)

In other countries like Venezuela, Greece, and Zimbabwe, the monopoly central banks stole so much so fast from economies that were not stable enough, that they completely collapsed their currencies and their entire economies.

But when multiple businesses in any product segment actually have to compete for willing customers in a free market instead of coercing them, their profits are dependent on serving the customer.

If they don't treat the customer fairly and if they don't continually innovate to improve their product, they will lose market share to competitors who do.

Previous attempts at creating private currencies (such as Liberty Dollar, E-gold, and Liberty Reserve) have been violently shut down with armed raids, prison time, and seizures of the private money by the incredibly corrupt government money monopoly.

But the creators of Bitcoin found a way to create a private, Internet-based currency that could not be stopped by making the entire system completely decentralized and peer-to-peer.

Unable to stop it, the U.S. federal government had to relent to the new reality that it could no longer aggressively hold onto its monopoly over money.

Cryptocurrencies like Bitcoin are legal in the United States, with the U.S. Treasury classifying bitcoin "as a convertible decentralized virtual currency in 2013. The Commodity Futures Trading Commission, CFTC, classified bitcoin as a commodity in September 2015. Per IRS, bitcoin is taxed as a property."

Now that you have an overview of what money is, and a good sense of the problem of government money monopolies (for more in depth study on the history of the Federal Reserve, I recommend The Creature from Jekyll Island by G. Edward Griffin), a brief overview of the solution is in order before diving into the specific steps to start investing in cryptocurrency...

Bitcoin, history's most profitable investment.

So far Bitcoin has been the most profitable investment opportunity of all time. And it happened in a flash.

In 2011 you could buy one bitcoin for 30 cents apiece, so for $100 you could buy 333.33 bitcoins in 2011.

If you didn't touch it during the wild ride up...

You could have sold your initial $100 investment of 333.33 BTC on Dec 17, 2017 for $6,594,267.

During that time, over a thousand other cryptocurrencies have emerged.

The market capitalization (or total value) of all cryptocurrencies exceeded $800 billion in 2018.

What drives the price of cryptocurrencies?

The demand for a product like Bitcoin appears insatiable, and in its wake, many other private digital currencies like Ethereum (ETH), Ripple (XRP), and Steem (SBD) have created massive fortunes.

The technically skilled software engineers who design them, the major companies that use them, and the speculators who invest in them have created the fastest growing part of the global economy.

Now everyone has many currencies to choose from. Private digital currencies can be customized to meet the needs and interests of those who use them.

As competition in the free market for currency intensifies, so will product innovation.

Private currencies like Bitcoin have features that are highly valued by the market: Many are open source, decentralized, peer-to-peer, secure, anonymous, and non-inflationary (unlike the U.S. dollar and other fiat currencies). They held instant appeal to a market place that has spent hundreds of billions buying them.

So investing in cryptocurrency is really not a bad idea.

But that doesn’t mean that people don’t have bad ideas about how to go about investing in cryptocurrency.

Like those people who took mortgages out at the height of Bitcoin’s price in December 2017 to buy massive amounts of BTC and then found their investment dropped by a gut wrenching amount overnight.

Most of them were probably terrified and sold their bitcoin at a massive loss. They’ll be traumatized over that for a long time if not the rest of their lives.

Which is a shame.

Because the problem wasn't cryptocurrency, the problem was they made an impulsive speculative gamble hoping to get rich quick, and worse, they did it with money they didn't even have!

And also because the growth of cryptocurrency, like the growth of broadband Internet and the World Wide Web in the late 1990s, saw a predictable early rush of premature over-investment (the “Dot Com Bubble” in the case of the web), but the World Wide Web continued to be a powerhouse engine of economic growth, and crypto is just getting started too.

So if you want to take advantage of this incredibly promising investment opportunity, follow these steps to ensure that you think and go about it the right way.

Despite the promise of easy millions that has happened for many fortunate people who were lucky enough to know about Bitcoin and other highly profitable cryptocurrencies, and invested in them early, you should not think of investing in cryptocurrency as a get rich quick scheme. It should be part of a broader financial plan and sound money mindset.

Even if you were to be so lucky and make millions of dollars' worth of cryptocurrency profits almost overnight, what do you think would make you so different from all those people who've won the lottery and gone from rags to riches and back to rags in no time because they didn't have good financial habits?

If you don't already have an overall financial plan, that's the first place to start as a foundational basis for getting into cryptocurrency and having the right financial mindset to protect and grow your wealth.

Step 1: Manage Debt First

(If you're already debt-free, have money to invest that you can afford to lose in a volatile, high-risk / high-reward market like cryptocurrency, skip to Step 2.)

Don’t finance your private currency portfolio with debt. Not even indirectly. That means if you have debts, and you’re interested in becoming wealthy by investing in cryptocurrency, start by whacking at those debts relentlessly. There isn’t enough space in this article for a truly in-depth guide on paying off debt and becoming debt free, but I can provide an overview.

First, write everything down. Get a nice notebook and a pencil and list your assets (how much money you have in checking accounts, savings accounts, retirement funds, etc.) in one column and your liabilities (credit cards, student loans, etc.) in another.

Then list all your monthly cash inflows and all your monthly expenses or outflows. If you want to become the kind of person who attracts money and accumulates wealth, you have to become an individual who produces more than they consume and invests the excess instead of spending it. It really is as simple as that, though it's not easy for everyone to do.

For many people, their time horizon is so short, that they are unable to delay gratification for future gain. Though luck certainly has something to do with it, and some poor people have just had extremely bad luck, if you are living in a relatively stable country with a lot of opportunities, and you're at least average of intelligence and in good health, the difference between the rich and poor is mostly that the poor spend their time and money, while the rich invest theirs.

Cashflow is king, and if you cannot balance your spending to stay within your income while increasing your income, you will never have enough money even if you win the lottery. That's why people who get suddenly rich through winning the lottery or overnight success in sports or entertainment end up in serious debt with a lot of zeroes on it even though they had millions to start with. If you want to invest in cryptocurrency to become wealthy, you have to learn how to think like the wealthy do.

So if you have debts, you must learn this financial discipline now, by making it your absolute mission to crush those debts as fast as possible. That means insanely decreasing your expenses and increasing your income. Everything non-essential that you're paying for has to go. Netflix is $12 a month. Kill it and spend the extra time reading to learn more about investing and cryptocurrencies. If you have cable, cut it. It's making you stupid anyway. Don't even think about eating out or drinking alcohol or soda pops.

If you smoke, quit now. What's the point anyway of becoming wealthy just to die an early death in pain and discomfort and not get to enjoy it?

I don't say this flippantly. I'm writing this guide to investing in cryptocurrency for myself first and foremost, to organize my thoughts and make a plan to start doing this. To pay off my two credit cards ($3600 and $2600 as of June 8, 2018) as fast as possible, I'm going to buy no more groceries until I eat every last canned good and pack of ramen in my cupboards.

Then I'm only eating bulk rice, beans, whole grain rolled oats, onions, potatoes, and eggs until my credit cards are paid off and I'm done bleeding $200 a month in interest and fees. I could be investing that, but I'm not because I haven't taken my debts seriously.

If you're in debt, I highly recommend you do the same. You might even get physically as well as financially healthier at the same time, so that's a big double win for you! You might find you can think more clearly too if your brain isn't full of all the junk sugars in bad food, nicotine, carcinogens, and cable television.

If you keep wasting money on instant gratification, which causes you to waste even more money on servicing debts you're dragging behind you, that next pizza you order could be costing 2028 You thousands and thousands of dollars of foregone cryptocurrency earnings. If it helps, that's how you have to view the price tags on all the little mindless pleasures that keep you in debt for a moment of fleeting pleasure today.

That pizza isn't going to cost you $12. It's going to cost you $12,000. Not worth it! I'm not saying there's no point in enjoying life, but not if you're in debt (i.e. indentured to a bank) and trying to become wealthy. So long as you have your daily bread, you will be fine.

Those animal pleasures like salts and sweets and smokes are not good enough for you. Instead you could be building your own empire and a fortune that lasts generations. If you miss Netflix and eating out, gorge yourself on useful information to fill the void instead. Man can not live by bread alone, but by every word that proceeds from the mouth of God.

Now the next step, and this is especially important if you have bigger debts than I do, like a millstone of student loans hanging around your neck, is you have to increase your income. Clear out Netflix, video games (unless you are a pro gamer, sell your consoles and put it toward your debts)– whatever it is that takes up your time– and get a second job or a part time job.

Take all the extra money you're making and the money you're saving from cutting back expenses and just repeatedly punch your debts in the face with it, until they're on the ground and down for the count. Use notorious financial advisor, Dave Ramsey's "debt snowball" method of paying off your smallest debt first, and then adding the monthly interest savings to your assault on the next biggest debt.

You may have to modify that a little based on which debt is costing you the most in interest and fees. Do what makes sense. Dave Ramsey is hardly bullish on cryptocurrencies, but he's an expert at helping people get out of debt (and he'll come around on cryptocurrencies when everyone else does).

Listen, I know you came here looking for a cryptocurrency investment guide for beginners, and not for advice on getting out of debt or becoming a better person, but if you look at cryptocurrencies as an easy way out of becoming smart with money, you are likely setting yourself up for a bad time, even if you do luck out on the next meteoric ICO (initial coin offering) and get dollars back for pennies overnight.

Maybe especially if you do. It'll pass right through you and burn hot and fast if you are the kind of person who turns all the gold you touch into things instead of turning all the things you touch into gold. And the crash after flying so high will be absolutely miserable.

Now the next steps are still a work in progress. They will be detailed and specific, but completely readable to a normal person. I'm not sure when I will have it completed–– I've got many ongoing writing projects related to The Humble Libertarian in addition to posting daily news updates about politics and business from all over the world. If you would like an update when this guide is complete, subscribe to my email list and I will be sure to let you know when it's published!

Thanks for reading.