The world of cryptocurrencies is massive and can be overwhelming. However, many people confuse cryptocurrencies and decentralized finance. Today, I will attempt to calm everyone down, separate these two different economies, and give you a way forward to start investing.
Cryptocurrencies Basics. Let’s review the basics of cryptocurrencies. We can consider cryptocurrencies money, stores of wealth, tokens, fees, etc. There are so many different use-cases for crypto, but you truly just need to focus on the basics.
The simple basics of crypto are to open an account on a centralized exchange such as Coinbase or Voyager (my favorite). Then buy and hold L1 coins (major coins like Bitcoin and Ethereum) while collecting interest.
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Decentralized Finance Basics. DeFi aims to co-exist with traditional finance (TradFi) by allowing trustless banking, lending & borrowing, options trading, insurance, etc. Trustlessness is a good thing and means that you don’t have to convince a banker or loan officer to facilitate a loan.
The primary way DeFi works is by over-collateralization. This term means that you can put up a certain amount of assets on the blockchain, then take a loan, trade options, and register insurance against this money.
The world of DeFi is vast and changes every day. To be up to speed inside this universe, you need to follow the news for at least 1-2 hours a day. The stock market moves slow compared to DeFi.
I have read two books on DeFi titled “How to DeFi -Beginner” and “How to DeFi -Advanced,” and I still need to read more to grasp this world.
The basis of this crypto investing. This article is to help newcomers separate the noise from the truth. Yes, people make a ton of money with cryptocurrencies. Yes, people lose a lot of money with cryptocurrencies.
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Cryptocurrencies are very similar to the stock market. You can go with the slow money like boring blue-chip stocks—these include McDonald’s and Starbucks. In the crypto-verse, the blue chips are Bitcoin, Ethereum, Polkadot, Chainlink, etc. These are the major smart chains that can double every year.
However, most people would instead become day traders and pray their tiny coins can 10X (go up 1000%) in a couple of months. The same happens in the stock market with growth stocks. Growth stocks haven’t even made a profit yet trade at huge multiples because of rampant speculation.
Enter DeFi. Compounding most people’s angst to get rich quickly from cryptocurrencies is the world of DeFi. Everything you can do on centralized exchanges becomes even riskier in DeFi.
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You are now in control of your own crypto-wallet, and people want to steal your information. There are chances to earn huge yields on new products and coins. However, there are also chances to “get the rug pulled” and have the liquidity snatched from under you. No liquidity means that someone took your money and left you with empty coins.
I don’t mean to scare you, but DeFi is a platform for adults. If you don’t know what you are doing, please stay away. I have been studying cryptocurrencies and DeFi at least ten hours a week for almost a year, and I still don’t have a decentralized wallet.
I know I will get my ass handed to me if I go into DeFi and start yield-farming random coins. I am focusing on my business right now, but once I retire, I will have more time to scout for great investments in DeFi.
The opportunity costs. The opportunity costs in crypto and DeFi are huge! These costs create FOMO and JOMO (fear of missing out and joy of missing out). Traders may spread their money across twenty coins, and one may earn 10X. All the others may lose money.
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However, all you hear about is the one that 10Xs (grows in value ten times). From the outside, it looks like everyone is succeeding in crypto and Defi. In reality, everyone is leveraged to their eyeballs trying to make plays.
A little secret. My most important advice for traders is first to become investors. Investors buy and hold with an investing thesis. Their thesis may require them to buy-and-hold for 6-8 months or 6-8 years; however, they have an end goal.
More importantly, you’ll need to understand the following concept once you are thinking like an investor. In “Rich Dad’s Guide to Investing,” Robert Kiyosaki says that you are either an insider or an outsider.
Outsiders are investing in big companies and coins, waiting for good news. Insiders create companies and coins and make decisions that directly affect their wealth.
When I rent rooms and my rental properties, I am an insider. I can raise the rents and add additional streams of income. I can add mobile homes, RVs, and storage units to my land in Florida.
I started Military Family Investing because I want to control the outcome of my business. I am an insider. If I want to create an MFI t-shirt for residual income, I can do this because I am the CEO.
You’re an outsider. For crypto and DeFi, you are an outsider. That doesn’t mean to avoid investing, but don’t attempt to become rich from the outside. I am an outsider for my crypto and stock market investments. I am okay with that, and it gives me solace.
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I know I am not attempting to get rich from these platforms. In fact, I make the ultimate return by renting rooms. I make 100% profit (called an infinite return) and then invest that money directly into crypto and the stock market.
Your investing thesis. When investing in crypto or getting into DeFi, understand your investing thesis. If you are using leverage, you better understand the risk involved.
Don’t take lightly using leverage (borrowing money to earn a profit). When crypto was ski-high in April 2021, everyone in my office was screaming from the rafters.
Once the bear market hit, now everyone is quiet. Yet, I am here, still earning royalties on my books and receiving dividends and rents. My monthly passive income continues to increase, despite both the stock market and crypto markets being a crapshoot.
How I invest. I haven’t got a decentralized wallet yet, and I haven’t played inside DeFi either. I am a buy-and-hold crypto investor on the centralized exchange, Voyager (affiliate). I invest in six major coins, and Voyagers pays me interest to hold these coins.
I am not trying to earn a fortune in crypto. I believe in blockchain, the metaverse, NFTs, and Defi, so that’s why I can still invest with a long-term mindset.
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I don’t lose any sleep when the crypto market (or stock market) is down. I don’t hold any risk assets in DeFi. I understand that investing in myself, my business, and growing an audience is the long-term path to true wealth and happiness.
The end game. Let’s say you bought 1 billion little coins and made $1 million profit in three months— age 30. How do you use that money to make yourself comfortable for the rest of your life?
I can use this money to buy a rental home, build an income portfolio, and start a rental car business. I would never have to work again with this $1 million. Can you invest your crypto earnings into long-term success?
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Or will you try to 10X your winnings again by spreading it across 30 coins? Do you genuinely want to spend the next 40-50 years trying to chase capital gains? The better way is to build wealth slowly, understand how money works and how to create more income.
Once your money creates more money, you can speculate and play with riskier assets. If you didn’t convert your major winning into a stable, cash flow retirement system, I would remove myself from the market for now.
To summarize, Crypto and DeFi can create massive amounts of FOMO and illusions of gangrene. Crypto investing can be simply buying and holding Bitcoin and Ethereum. DeFi is significantly more challenging to understand. DeFi requires much more time, trust, and risk management.
Don’t get swept away in the hype; most people aren’t making a ton of money in crypto. Learn how to invest $1 million safely into stable products, then put your money into the casino (crypto).
I have many articles on Cryptocurrencies and DeFi, so feel free to start learning! Be safe.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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