Although the focus of this post is to outline why and how I invested in Bitcoin and other Cryptocurrencies, I feel I need to start with an apology: I’m sorry it has taken so long to write a new post! As you can probably imagine, I have been completely swamped moving from Montreal to Atlanta and ramping up into my new role as VP of Marketing for a $600M division of a Fortune 500 company. Plus, my travel schedule has been punishing. That said, I expect the next few weeks to be relatively quiet so I hope to get back into a rhythm of more frequent posts.
Anyway, back to the topic at hand. As I mentioned in previous posts, I loved living in Montreal but it is a very (very!) expensive place to live. Plus, there are multiple complications for Americans living in Canada that mostly revolve around incredibly high taxes as well as a complicated tax environment. Because of this it really did not make sense to invest money while in Canada as any investment gains are taxed as income (ie. there is no separate rate for capital gains as in the US), there is an “exit tax” where any unrealized investment gains accrued while living in Canada are treated as actual gains when you leave (even if you have not sold the investment) and any money transferred to US accounts are charged a 3% fee as well as any losses from exchange rates. Because of this I found myself in an investment “holding pattern” until I could figure out what to do. I eventually decided to take the plunge and purchase some Cryptocurrency, which is all the rage these days.
The most important thing to know about Cryptocurrency is this: It is not controlled by a government. You might say at this point: “If it is not backed up by a government, what possible value can it have?” Good question. However, for any type of “fiat” currency (which is any currency not tied to an underlying asset ie. silver or gold) the only value is the belief by holders of the currency that it has value. Think of it this way: If tomorrow everyone believed that US currency is worthless, it would actually be worthless… nobody would want it. Sound far fetched? Look at what is going on in Venezuela and Zimbabwe right now. Their currencies have completely collapsed because people lost faith in them as a store of value. Because Cryptocurrency is so new, the big question is whether they will mature into full blown fiat currencies in their own right or if they are a passing fad that people will abandon (and hence the value will go to zero).
So, back to my situation: I was living in Canada was looking for an alternative investment class I could manage across national borders so I invested $5,000 CAD (about $4,000 USD) in Cryptocurrency. This bought me 1 Bitcoin (for $2000), 5 Ethereum (for $200 each) and roughly 4000 Ripple ($0.23 each). I initially wanted to use Coinbase which is the largest exchange in the US, but I had a lot of issues as Coinbase requires a high level of authentication (which many argue is contrary to the entire spirit of Cryptocurrency as it defeats the purpose of anonymity) and I was disqualified as I was an American living in Canada. As such, I used a much smaller exchange called Kraken. I made the initial investment then basically forgot to even track it given the new job, relocating, etc. Sometime in late October I logged into my account and nearly fell out of my chair: My initial $4,000 investment was worth over $12,000! A 3x return in less than three months, driven mostly by Bitcoin which rocketed from $2,000 to $7,000.
Now I started paying very close attention. I was tracking Bitcoin prices daily as it steadily rose from $7,000 to $16,500. Being a conservative investor I put in a “stop loss” order (ie. you set a limit where once an asset hits that price you automatically sell) and, after a brief pullback, my single Bitcoin sold for $14,500, over a 7x return in five months!
Insanely, the story doesn’t stop there. I took $5,000 of my $12,500 gain off the table to “lock in” my initial investment with a gain of 25%. I then reinvested $7,500 of the gain into more Ripple, Bitcoin Cash, ZCash, and more Etherium. This “double down” was wildly successful as it doubled the very next week, largely driven by Ripple which was up 88% in one day. My initial $4,000 is now worth $26,000 after only 5 months of being invested.
Its worth noting at this point that Cryptocurrency is wildly speculative, meaning it is extremely volatile and risky and is closer to gambling than investing. I am following the advice of the legendary investor Benjamin Graham and limiting my exposure to no more than 1% of my net worth. I strongly suggest anyone considering investing in Cryptocurrency follow this advice as well.
From the story above you can see that Cryptocurrency has been very good to me. However, I hesitate to recommend to others due to its highly risky and complicated nature. I will continue to update you on my adventure in Cryptocurrency going forward (good, bad and ugly) and am planning a additional posts over the next few days that outline in detail my understanding of what Cryptocurrency is as well as some of the complexities of using a bitcoin exchange (spoiler alert: it is not easy). No matter what happens to my investment I am hoping you can learn from my experience to understand if Cryptocurrency is for you before you commit your own hard earned money.