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Okay, so in this article I’ll share with you why I started investing in cryptocurrencies.
In my opinion, being able to live a life of freedom requires some form of passive income. Because I honestly don’t think you can live the exact life you want if you’re still trading hours for dollars.
So, a few years ago, when I was fresh out of law school and started thinking about what I wanted to do with my life, I realized that working a job probably won’t be a long-term solution.
At that time, I didn’t really have a clue of what else I could do. But I had this spark in me that I wanted to make my dreams come true. And that meant: traveling the world, buying my dream house and being financially independent.
And so in summer 2017 I had heard about Bitcoin and cryptocurrencies for the first time. Well, that’s not entirely true. I’d heard about it before on the news. But I didn’t understand what it was. Nor was I the least bit interested in it.
But that summer, when my friend’s boyfriend started talking about it, I was hooked!
But, before I’ll tell you my story in full, let’s quickly cover the basics to make sure we’re all talking about the same thing.
What are cryptocurrencies?
Okay, so first of all, what are cryptocurrencies?
I’m sure most of you have heard of Bitcoin.
But is that the same as Bitcoin?
Cryptocurrencies are digital currencies that are secured by cryptography. They are essentially a mix between a virtual currency (meaning you can use them as payment) and digital assets (meaning you can invest in them). In my case, I’m only interested in the digital asset part of it. Although that might change once they stop being so volatile.
Cryptocurrency describes any kind of virtual currency, be it Bitcoin or one of the thousands of other coins out there.
What is Bitcoin?
Bitcoin is the most well-known cryptocurrency and the one with the biggest market capitalization. At the time of writing, Bitcoin’s market cap is over 1 trillion dollars.
It is built on the blockchain technology, which is a “technology to create, store and manage digital currencies that are public, secure and distributed.”
What are altcoins?
Next to Bitcoin there are several thousands of other cryptocurrencies. There are generally referred to as altcoins.
So, an altcoin is every cryptocurrency that is not Bitcoin.
The currently most common and biggest altcoins include Ethereum (ETH), Binance Coin (BNB), XRP (XRP), Dogecoin (DOGE), Cardano (ADA) and Polkadot (DOT).
You can look at all the cryptos and their market cap on coinmarketcap.com.
Why I started investing in cryptocurrencies
Alright, now that we have the basics down, I’d like to share with you why I started investing in cryptocurrencies.
So, as mentioned before, I had first actually heard of it in summer 2017 from my friend’s boyfriend. He had started investing in Ethereum (I’m not sure if he even had Bitcoin) and a couple of other altcoins earlier that year and was super excited about their growth.
My boyfriend (who had used Bitcoin before but never saw it as a store of value) and me got really interested. What was this new currency or technology that could make you so much money?
It sounded almost too good to be true. As a lawyer, I’m naturally more cautious when it sounds like you can get rich quick.
Well, luckily my boyfriend is much more tech-savvy than me and immediately started researching and investing. It took me a few more months to be bold enough to do the same.
But ever since I started, I have been fascinated by it.
Here are the main reasons why.
It’s a great option to invest with little money
Frankly, the idea of investing has always fascinated me. I remember my dad telling me a little about his stock investments when I was a teenager. I thought to myself: this is amazing, you can basically multiply money!
Unfortunately, I was convinced that I needed at least a few thousand dollars to start investing. So, I pushed that thought away pretty quickly and told myself I’ll get back to it when I’ve got this amount in savings.
This is why I’ve never really looked into investing up until 2017. Because till that point I was a broke law school student. I was barely getting by. So, having a few thousand dollars to invest was a daydream at best.
But then I learned that you can literally start investing in cryptos with just a few dollars. Up until that point I was convinced that the fees for investing are so high that it’s really not worth to invest less than $5,000.
With cryptocurrencies, that’s different. Which is why it’s such an amazing method to start investing early.
A word of warning: The number one rule of investing – especially in very volatile assets like crypto – is to only invest what you can afford to lose. So, even if you start investing with a few hundred dollars, be prepared to lose that money!
The potential is massive
So, in late summer 2017 I started putting a few hundred dollars in Bitcoin.
Boy, was I excited!
Even though the price had risen quite a bit over the previous couple of months, I still saw huge potential in it.
Okay, to be honest I didn’t understand a whole lot of the technology behind it. But I looked at the price history and that was enough to get me hooked. Bitcoin had started with a value of just a few cents in 2009. And when I first bought it is was about $5,000 per coin!!!
But not only that, it only has a limited supply of 21 million coins. This means there will never be more than 21 million coins. That in and itself makes it extremely valuable because it’s a scarce resource.
It’s one of the main reason, why it’s often referred to as digital gold. Whatever is scarce and that society has attributed some worth to, will automatically raise in price.
But it’s not just Bitcoin. Most of the other cryptocurrencies are building products or are running projects that will be used to replace part of our current financial system and probably some other industries as well.
Most of the projects don’t have a finished product, yet. So, if the prices have risen this much without any products, imagine what happens when they do launch and grow a finished product.
It allows me to generate wealth that I can then use for passive income
The other reason why I fell in love with BTC and co was that I saw the potential that this investment could generate wealth for me that I could then use for passive income.
In about 2018 I looked up what’s the average percentage you could get in interest from index funds. Now, I’m not sure if this is accurate but I read that you could get about 7% on average.
From that moment on I knew all I had to do was accumulate a million dollars and then invest that more conservatively to get 7% annual return. Because that would mean I’d get $70,000/year literally without doing anything at all.
I’d basically create a worker that would generate money for me while I can enjoy my life!
Now, becoming a millionaire with conservative methods like saving or investing in stocks, would probably take at least 10 years unless you can invest quite large sums of money.
But with cryptocurrencies, you can literally invest a few thousand dollars and become a millionaire with that.
I know it sounds too good to be true, but I’ve already had a more than 1,200% increase of my portfolio in the past few months!
What I’m doing is I take calculated risk. I honestly don’t care if I lose all that money that I’ve invested. But I’m willing to take that risk to have the potential of generating wealth that will support me for years to come.
You can generate passive income through staking
But not only that. Once you’ve got the amount of money you want (in my case at least a million dollars), you can then generate passive income through staking.
Staking basically means that you provide your coins to validate transactions. This only works on cryptocurrencies that work on proof of stake (unlike Bitcoin that works on proof of work).
Well, the technicalities aren’t that important.
What’s important for you to understand is that you can lock up your coins and therefore receive a certain percentage as a reward. So, it’s basically like earning dividends from stocks.
My current favorites to stake are Cardano and BNB. Both coins can be staked relatively easily, and you get at least 5%/year.
I already started staking those 2 coins even though I haven’t reached my wealth goal yet. Because the compounding effect will increase my holdings even more.
How do I start investing in cryptocurrencies?
Alright, now if I’ve piqued your interest as well and you’d like to start investing in cryptocurrencies, here are the easiest ways to get started.
Pick a few of the top 10 or top 20 cryptocurrencies on Coinmarketcap. I suggest you do your own research on the fundamentals of each coin. But if you stick to the big ones, your chances at investing in a scam are pretty low.
Then, make an account on an exchange that allows you to transfer fiat currencies (Dollars, Euros etc.) that you can then convert into cryptocurrencies.
My favorite option for Europe is Bitpanda. Super easy and safe.
Coinbase is probably the easiest and safest solution for the US.
Binance is a more advanced platform with tons of options. It isn’t as user friendly for beginners as the other 2 options. But you can buy almost any of the big coins on there. Plus, this is where you can also stake tons of coins, not just Binance Coin and Cardano.
Remember, only invest money that you’re willing to lose! This is a very volatile market and you never know in which direction it’s going to go next.
What’s the best cryptocurrency to invest in 2021?
Now, I’d like to address one more common question that I get a lot: what’s the best cryptocurrency to invest in 2021.
Quite frankly, I don’t know. I’ve made some good picks with Cardano and BNB, the latter grew over 2,000% since I bought it over the course of 2019 and 2020.
But I totally didn’t see Dogecoin taking off like a rocket (it grew by over 3,000% in 3 months!)
So, the best way to go about it is to diversify. I’d recommend to buy about 4 to 7 different cryptocurrencies and invest a little money in each of those.
There’s been an experiment where a monkey outperformed experienced trader by choosing stocks at random!
So, that’s probably the best way to go about it. Pick a few (but stay in the top 100 on Coinmarketcap for safety reasons) and then hold them for a certain period of time.
Alright, so this is basically why I started investing in cryptocurrencies, plus a quick beginner’s guide.
I’m not here to convince anyone to invest in cryptos. Yes, I’m a huge fan and I see huge potential to build wealth. But you have to be willing to take some risk and potentially lose your money.
However, I’m a huge fan of calculated risk. This means that I’ll only take risks as much as I’m comfortable to lose. None of my investing strategy will lead me into an existential crisis if it goes wrong.
And that’s the attitude you should also have if you want to invest in something so volatile as crypto!