We've reached a point in bitcoin and cryptocurrency history where we're now dealing with something that was never meant to live or survive. Yes, as I'm sure you're already aware, war has broken out between Russia and Ukraine and I fear this situation is only going to get worse and worse. My heart goes out to those involved and I hope that everyone can stay safe. But when it comes to bitcoin and cryptocurrency, this is something new to deal with. Coincidentally, at just the right time when bitcoin is becoming a big player in the macro investing world. In situations like this, it's important to take a step back and think about what's really important, what your goals are, and why you're doing the things you're doing.
Why invest in bitcoin and cryptocurrency?
Just like many of you, I initially got into bitcoin for the potential monetary gains. I saw it as the next big investment opportunity and my chance to finally achieve financial freedom. To get away from the tedious 9-5 job, be able to provide for my family and retire early in a beautiful place. Many people come to bitcoin for the potential gains, but will go down the rabbit hole and stay for the technology. At least for me it's these recent macro events with Canada freezing people's bank accounts. And now even more so with the ongoing situation in Ukraine where people are evacuating and trying to gather as much of their wealth/personal belonging as they can. There is a limit on ATM withdrawals and people are generally forced to leave their savings behind. This is where the bitcoin and cryptocurrency magic kicks in. Even more so than gold, which is heavy and difficult to transport. It is also easily susceptible to theft or confiscation. Bitcoin, on the other hand, is much harder to seize. In fact, you can take your bitcoins out of your country without even keeping your cold storage device. Just by remembering a secret key phrase of 12 or 24, you can travel anywhere in the world and still have access to your crypto. A fact that many are learning the hard way right now. Just by memorizing a secret key phrase of 12 or 24, you can travel anywhere in the world and still have access to your crypto. A fact that many are learning the hard way right now. Just by memorizing a secret key phrase of 12 or 24, you can travel anywhere in the world and still have access to your crypto. A fact that many are learning the hard way right now.
So you came for the money and the profits, you stayed for the technology and the freedom that crypto has to offer. But what now?
In the past this is when I tried to do everything to accumulate more. And I still am to some extent. I'm still averaging the cost per dollar every day I get paid. Keeping cash on hand to take advantage of big dips. I still lend bitcoins, ethereum and a few other coins. And I'm still gambling.
But I'm much more careful with what I do. Many people think that crypto funds held on exchanges, or crypto lent to third-party companies, are relatively safe. But you're actually taking a pretty substantial risk, especially with the later option.
With exchanges, people in the past have been mostly concerned about possible hacks that would result in the loss of cryptocurrency from these companies. While this will always be a potential risk, the newer fear is that governments will freeze accounts that are on these exchanges. Jesse Powell, CEO of Kraken, was asked about this very issue. He acknowledged that if asked, Kraken would be forced to comply with the government and that if you were concerned you should absolutely pull your funds and take self-care. If that was the end of the story, that would be something to consider. But after he announced that and the CEO of Coinbase also agreed, the Canadian government wanted to take punitive action against these CEOs. While it can sometimes feel like a tinfoil hat conspiracy theory group, the fact is that many times the worst possible scenario will play out and you need to be prepared for that. I can't imagine how I would feel if I suddenly lost all the crypto I had worked so hard to build up. It would be devastating.
Finally, concerns about lending your cryptocurrencies to third parties. BlockFi was recently fined $100 million for handling "securities" by offering a loan product. They then blocked all US users from depositing funds into their interest-bearing accounts for the foreseeable future. Ledn and Nexo will then follow suit with the same rules for US consumers. The thing is, not many of these companies will be able to survive being fined such a large amount of money. Then add to that the fact that there are already major doubts about how these companies make money and whether they actually make a profit. Becoming insolvent, especially if there is a recession or a Great Depression, is a real risk. These companies have it written into their terms and conditions, essentially saying that if they go belly up, they have no obligation to pay you any money back. During this economy and world geopolitical situation, that should give you great pause. And just like with the exchanges, funds can be frozen at any time.
This gives even more significance to the following sentence. Only give or post the amount of cryptocurrency on exchanges that you are willing to lose. Because there is a non-zero chance of that happening.
I still have a small amount of crypto on the exchanges, and I also have a decent amount of bitcoins I'm still lending out. But I'm starting to reduce and limit my risk for the time being. When the world gets crazy, it's important to keep what you have. With that said, I'm ready and waiting to give it my all if there are deep dips my way.
What about you? What is your thinking in these crazy times? Have you changed your approach to investing in cryptocurrency or your strategy for allocating bitcoins?