You’ve decided that you want to learn more about cryptocurrencies. A personal financial advisor might not be very helpful in this more recent space. Your banker will not be of much help unless they are one of the progressive Swiss private banks that facilitate crypto trading. What next?
This article offers practical information on passive vs. Active cryptocurrency investment, including how to buy, store, monitor, and sell cryptocurrencies. It also discusses tax regulations.
Active vs. Active Cryptocurrency Investing
It is useful to consider cryptocurrencies as an asset class. This allows us to compare the investment strategies of cryptocurrencies to those of more established asset classes, such as equity investments. In the equity investing space, for example, the debate is raging about the relative merits of active and passive. This article is not intended to debate the relative risks and values of the two investment approaches. Passive investing, on the other hand, is aimed more at long-term investing and requires a ” Buy-and-Hold mentality,” whereas active investing is much more hands-on.
In the context of equity investments, for example, you would need to decide if you want to purchase a broadly exposed fund, such as an S&P 500 Index Fund, or an actively-managed fund, where the fund manager is involved in Stockpicking. You can also actively manage your portfolio by picking stocks and monitoring them yourself. In the cryptocurrency world, similar approaches are used. However, many products and services are still in development.
The most popular method to trade cryptocurrencies, by far, is through a cryptocurrency exchange. Cryptocurrency Exchanges is a website where people can buy, business, or sell cryptocurrencies in exchange for traditional paper currency (“fiat currency”). The majority of companies allow you to convert cryptocurrency into another cryptocurrency. You can buy another cryptocurrency using but not fiat currency (like US Dollars). The largest companies are Poloniex, Bitfinex, Kraken, and GDAX. These exchanges trade over $100 million per day (equivalent).
Some exchanges still accept fiat currency, and you can fund your account via wire transfer. Some businesses allow you to buy crypto using your credit card, but only in small amounts and with high fees. (For example, Coinbase is the largest US-based cryptocurrency exchange.) Exchanges that accept fiat typically only offer a limited number of popular cryptocurrencies, such as Bitcoin, Bitcoin Cash, and Ether. You can use these exchanges to buy other lesser-known cryptocurrencies. This website can be used to find out which businesses accept a particular payment method or are accessible in a certain country.
There are also important differences between exchanges. Know Your Client (KYC) guidelines, whereby sales ask for certain information about users, may be more or less extensive. Most businesses today, and certainly those that deal with fiat currency, require proof of identification as well as residence. Fees vary by company but are usually between 0 and 0.5%. Some companies offer additional features such as Coinbase Vault, which stores coins that you do not plan to trade in the near future in a way they claim is more secure. Some user interfaces may be “cleaner,” while others “busier,” but this is all a matter of personal preference.
Let’s look at a real-world example. Let’s say you bought BTC on Coinbase for fiat currency and want to purchase NEO, which isn’t traded on Coinbase. Open an account on an exchange that trades NEO, such as Binance. Binance will give you an address (” public keys”) to use when transferring BTC from Coinbase into your Binance account. You can use the BTC that appears in your Binance wallet to buy NEO.
A final note: it is common to find significant price differences among exchanges. It’s therefore important to compare. Live in a place with special circumstances, such as foreign currency controls or a peculiar political environment. You may find that your local BTC is priced at a premium to the global BTC average.
Find a Counterparty
A “traditional” method is to find a counterparty yourself (buyer or vendor). To send or receive cryptocurrency, you will need to have a wallet. You can buy BTC with fiat by giving the seller the public key to your wallet. Then, you pay the order once the BTC is in your wallet. localbitcoins.com is a well-known way to facilitate peer-to-peer exchanges. You will obviously want to carry out such transactions in an open, safe environment, for example, at a meetup for a local cryptocurrency group.
The number of companies that are setting up cryptocurrency ATMs is increasing. These include BTC, Litecoins, Ethers, Dashs, and many more. Approximately 20 manufacturers installed these ATMs, and they are currently the most prevalent in North America (1,188), Canada (314), and the UK (104). Find an ATM by using This site.
The ATM will give you the private key to the cryptocurrency you have acquired. BTC ATMs look similar to traditional ATMs, but they connect directly to a BTC Exchange and not your bank account. You can then transfer the cryptocurrency to another exchange, such as a crypto-to-crypto one, once you have acquired it. The fees can be high and sometimes reach or even 7%. A virtual wallet is required, which can be set up online. Or, you may use an ATM to create a temporary wallet. Cryptocurrency Wallets enable users to send, receive, and monitor digital currency. Hardware wallets are more secure than software.
Directly through a Private Bank Account
Currently, Swiss banks Falcon & Swissquote offer cryptocurrency trading services to their customers. Falcon Private Bank, in partnership with Bitcoin Suisse AG, will allow customers the ability to trade BTC, Bitcoin Cash, Litecoin, and Ether as of August 2017. however, it is not clear how this affects preserving their anonymity. Swissquote, an online bank, offers trading of these four cryptocurrencies, plus Ripple. Has also released an exchange-traded certificate actively managed in BTC. This certificate was designed to help manage volatility in the market by allowing investors to switch between BTCs. , for example, might increase cash amounts during periods of downturns and uncertainty. The product uses an advanced algorithm, according to the manufacturer, to determine shifts in BTC and cash.
Some of the advantages of using a bank are not having to deal directly with a different bank, opening a separate account for exchange, or setting up secure storage for your cryptocurrency. I anticipate that more banks will follow suit in the future.