How to Buy, Store, and Generate Yield with Crypto
Building your freedom machine
Once it clicks that crypto is worth investing in, the next hurdle is around how to actually get started. While this does typically take some knowhow, and it certainly carries risks of theft that investing in the stock market does not, this is fairly easy to learn how to do. It is also a great learning experience, and there are plenty of resources to help you.
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Side note: Technically, you do not have to actually buy crypto directly to gain exposure. The safest and easiest way to gain crypto exposure would be to buy the Grayscale Trusts, like the Grayscale Bitcoin Trust (GBTC) or the Grayscale Ethereum Trust (ETHE), which are traded on the Stock Market. These are not ideal from a returns perspective, as they are not true ETFs, and do not perfectly track the market. They will always trade at either a premium or a discount to the assets they hold. There are Bitcoin Futures ETFs now available as well, like BITO, but just be aware they are based on futures only, and do not hold any actual Bitcoin.
While the Grayscale funds are imperfect, they’re probably your best options right now if you’re uncomfortable buying actual crypto, or are buying in your 401k. These funds will likely become less desirable once a true ETF option comes out for Bitcoin & Ethereum, but Grayscale is also looking to convert these to ETFs whenever they can. The future is bright! 😄
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If you just want some basic crypto exposure, feel free to just go with the options listed above in your brokerage. However, if you’re looking to get started buying crypto directly, the section below is for you! There are broadly two things you need to think about: 1) buying crypto, and 2) storing crypto.
Buying & Storing Crypto
To get you started, let me direct you to a few great videos from Coin Bureau:
Self-custody (i.e. cold storage, private wallet, etc) is the preferred route for true crypto initiates, and I would highly recommend learning how to do this if you are technical enough. Using a hardware wallet like a Ledger or Trezor is the safest route. This self-sovereignty is essentially the whole point of crypto after all! However, the crypto community often misses the fact that for true mainstream adoption… unfortunately, most people will never custody their own funds. That’s ok, as (some!) custodians have come a long way from the options available even a few years back. If storing your own crypto gives you anxiety, then a quality custodian is fine. However, please realize there are still risks involved with a custodian — as we have all learned yet again in 2022. As the saying goes, “not your keys… not your crypto!”. There is still a risk of theft, and if the exchange itself were to collapse, so would your funds. If you start to build up a decent portfolio and don’t want to custody yourself, it’s not a bad idea to spread funds between a few quality custodians, just in case the worst happens, you don’t lose everything at once.
As always: This is crypto, there is no FDIC to bail you out. Once it’s gone, it’s gone!
Please remember, this is the internet, trust no one. If you do use a custodian: Don’t click on email links that “look official”, check the URL whenever you’re doing something on an exchange, use complex passwords that aren’t reused, etc. In addition: use an authenticator app (never SMS/text!), whitelist addresses or turn off withdrawals, turn on all the security features, and if an exchange has a “vault” feature to further restrict withdrawals like Coinbase does, use it! Also… anyone that asks for your private information, crypto keys, or for you to “send your crypto to them” in exchange for some reward (i.e. “crypto giveaways”)… it’s almost guaranteed to be a scam.
Here is a great article by Coinbase on tips to keep your crypto secure!
Pro tip: Start small and learn the mechanics. There is nothing wrong with a $50 purchase to learn how things work. Same thing whenever you go to send crypto somewhere, always send a small “test amount” first!
My Personal Recommendations
Trusted Exchanges:
Very straightforward user interfaces, trusted, and secure. However, limited selection of cryptos for more advanced users & poor staking product offerings.
Intermediate: Kraken
Not the best user interface, and may be confusing for some. However, this is an excellent exchange, and has both a broader crypto selection and industry leading Staking products for cryptos like Polkadot, Cardano, Solana, and others. If you’re not technical enough to set up Staking on your own, this is probably your best option to generate Staking yield.
As a general rule, if there’s anything shady with an exchange, stay away!
Generating Yield with your Crypto
Generating yield is optional, you are welcome to just HODL (hold) your crypto and wait. But, if you’d like to generate some additional yield in the meantime, there are endless ways in crypto to generate cashflow. Some of the simplest options are listed below.
Staking Yield: 5-15% APY
If it is a Proof of Stake cryptocurrency, these are rewards you receive from the blockchain protocol itself, for your participation in the network.
Beginner/Intermediate: Kraken
Best option for beginners to generate Staking yield. Cardano, Polkadot, Solana, and more are supported, just a few clicks and you’re set up. Rewards are still generated through the blockchain, but managed and distributed through the exchange. There are always custodial risks trusting any exchange, but Kraken is one of the best, and risk here is lower than most other places.
Intermediate/Advanced: Self-Custody Staking
For more advanced users, and specific to each crypto project. There are risks associated with self-staking most crypto projects, but these are very minimal if you know what you’re doing.
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Crypto Interest: 5-10% APY
Crypto Interest Payments: These are interest payments you receive from your crypto being lent out on your behalf. There are Centralized and Decentralized options here, but I will only be covering the “safest” Centralized options below.
Side note: CeFi lending platforms like BlockFi, and NEXO are not without risk! They are not FDIC insured, and I would certainly not recommend you keep all your funds there. As the 2022 Celsius lockup/collapse has proven — There is always the chance they over leverage themselves, since their lending actions are effectively a black box.
So, please don’t store all your funds here until there is something like FDIC insurance in place!
**Talk with your tax advisor and ensure you are following IRS guidelines on all crypto income**
