My Cryptocurrency Plan

For several weeks I have been mulling over how to properly invest in cryptocurrencies. I have been invested in cryptocurency since July 2017 and plan to be in the future. However, I have had some trouble deciding on best methods to do it. As I mentioned in my previous post there are many ways to invest in cryptocurrencies. I think I have settled on a mix of solutions that make me feel comfortable and ready for whatever future cryptocurrency has.

GBTC: The Grayscale Bitcoin Investment Trust

Right now there is no ETF for Bitcoin or any other cryptocurrency available to me in brokerage accounts. But GBTC is a trust that holds Bitcoin and is available. It holds 0.00098 Bitcoin per share of the trust. Therefore, buying shares of the trust is somewhat like buying Bitcoin. The concern I have had with this is that it almost always trades at a premium of 20-40% or more compared to the price of buying Bitcoin directly. While historically this premium has never disappeared I am concerned that it would disapear shortly after investing.

When a Bitcoin ETF eventually gets approved I suspect that the premium will shrink on GBTC because an ETF should be better able to track Bitcoin’s price movements. To mitigate the loss of this 20-40% premium I have decided to trade GBTC using an intermediate term trend following strategy.

I am willing to take the premium risk and 2% annual fee on GBTC because it give me access to more funds to invest, makes taxes easy, and reduces taxes by the use of IRAs.

Holding Coins in Brokerage Accounts

Currently I have no brokerage account that allows the purchase of cryptocurrencies directly. I do have Robinhood, but they do not allow me to purchase it in my state. When they eventually do I will use it. This will allow me to buy coins directly but only in a taxable account. The money here will be traded using a long term trend trading strategy.

Holding Cryptocurrency For Real 

The above methods of investing in cryptocurrency are great, but they still miss out on one of the main benefits of cryptocurrency: total personal control (and liability). I like holding some cryptocurrency directly because it is mine. I don’t have to trust Grayscale, Interactive Brokers, or Robinhood to behave responsibly. With this portion I plan to hold until I need to sell to spend, rebalance my total portfolio, or to give away. Basically, this method of holding is not for me to act as a true long term investor. The downside is that it requires much more detailed record keeping on my part. 

Diversification

I like all of the three above methods and couldn’t decide on doing just one. I was oddly stressed out trying to force myself to do just one or none. Eventually, I came to the realization that diversification would help.

I think doing a little bit of all three makes me feel much more comfortable and prepared for whatever the future of cryptocurrency holds. Plus if one method tends to be pretty terrible the others should be okay. The more I invest, the more I realize that a little bit of multiple investment methods make me feel more comfortable. It feels like there is always a portion of my portfolio ready to be the silver lining for the rest of my investment losses.

 

PS

If you are intersted in investing in cryptocurrency the easiest beginner methods are to buy GBTC in a brokerage account, use http://www.Coinbase.com to purchase them easily, or Pro.Coinbase.Com to purchase them cheaply.

 

 

 

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