I’ve Been in Crypto Since 2011: Here’s What I’ve Learned

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Vault’s Viewpoint

• Cryptocurrency prices are often volatile, which can feel risky to many investors.
• There are thousands of cryptocurrencies, but Bitcoin and Ethereum (ETH) dominate the market and are considered the main “investment grade” cryptocurrencies.
• When adding digital assets to your portfolio, consider viewing them as speculative and limit your exposure to them.

My First Bitcoin

I’ve been writing about money on the internet for a long time—since 2006. New money angles have always fascinated me, and I’d been casually interested in the concept of Bitcoin since 2010. I followed some of the stories and dipped my toe in the waters of financial coverage, but didn’t take it too seriously. Then one day in 2011, someone reached out to me. They wanted someone to write about the process of using Bitcoin as a medium of exchange. I was intrigued. They offered to send me a single Bitcoin in exchange for my article.

At the time, BTC was priced just barely above $4. This would be the least amount of money I’d ever been paid for any article. I set up a digital wallet on my computer’s hard drive and prepared to receive my payment. The article simply ended up being about how to set things up to use Bitcoin, as well as where you could buy and sell your crypto (Mt. Gox, now defunct, and Kraken were the main crypto exchanges at the time). I also included places you could go online to find other crypto enthusiasts who might accept a few bitcoins in exchange for goods and services.

The BTC Mining Experiment

After finishing my article, I held on to my Bitcoin. But now I was hooked. In the course of my research, I learned about mining. Back then, you didn’t need fancy graphics cards. I set up a little rig with one of my old computers and put it to work. It didn’t amount to much. But I did connect with someone who had the idea to combine forces.

There was a lot of techno mumbo-jumbo involved, but in the end, I went ahead and invested $50 to help him in his quest to mine a block. Soon after the first halving in 2012, when miners were rewarded with 25 BTC, the experiment came to fruition. My share ended up being three bitcoins.

Toward the end of 2013, as the price of BTC began climbing higher, I decided to try out an exchange. Coinbase was relatively new and promised to be a much easier way to acquire bitcoins than mining or convincing someone to pay me one, especially with the price near $100. So I went ahead and bought another Bitcoin, bringing my total to five.

The Importance of Getting in Early

When people ask me my best tip for investing in crypto, I often joke, “Go back in time and buy Bitcoin in 2011 or 2012.”

Speculative investments reward those who get in on the ground floor. Unfortunately, it’s impossible to know which speculations will pan out and which will crash and burn. I got lucky with Bitcoin because I acquired my first five bitcoins for $150—a steal by today’s numbers.

Also, because the cost was so low initially (just my time to research and write an article), my investments were never more than what I could afford to lose. I went in with the attitude that I would likely lose my investment, so any gains would be gravy.

When investing in a speculative asset, it’s important not to stake your financial future on the outcome and recognize that you could lose your capital.

How I Added Crypto to My Portfolio

By the time 2014 rolled around, cold storage had become a thing, so I moved some of my Bitcoin off the old hard drive and to a hardware wallet. I kept my ear to the ground, so to speak, and looked for other interesting opportunities.

Over the years, mostly in 2017 and 2018, I added Ethereum, Litecoin (LTC) and Monero (XMR) to my cryptocurrency portfolio. Because I like my investing to be as easy as possible, I used Coinbase. Once I made a purchase, I’d move the bulk of it off the exchange and into a software wallet browser extension. The next step was to send the crypto to a compatible hardware wallet.

More recently, I’ve dabbled in Solana (SOL), Tezos (XTZ), Cosmos (ATOM) and Decentraland (MANA). Not all of these have offered good returns. But many of the newer cryptos that I’ve chosen pay an annual percentage yield (APY). I keep those on the exchange and collect my meager earnings as interest.

The Great Dogecoin Experiment of 2021

Up until 2021, just about everything I did with crypto involved long-term holdings. I’d spend small amounts of money on cryptocurrencies I thought had potential or that paid interest. That all changed in April 2021 when some friends and I decided to invest $2,000 in a Dogecoin (DOGE) experiment.

We knew we weren’t going to keep DOGE; we just wanted to see if we could make some money. This was a rollercoaster of emotions as I doubted everything every day. Price volatility meant that on paper we could be up significantly one day and down the next.

We bought in two stages and likewise sold in two stages. In the end, after nearly destroying our friendship along the way, we cleared a profit of $1,808.16—nearly doubling our investment.

My biggest lesson was about the kind of investor I am. I’m not a day trader, nor am I interested in assets that are more like gambling than speculation. But I also learned the importance of taking profits when they’re available. We could have made more had we stayed in just a bit longer, but if we had missed that window, we would have lost money instead of coming out ahead.

How I Choose Cryptocurrencies

In general, I use three criteria to evaluate cryptocurrencies before adding them to my portfolio.

• Use case. I always start with the use case. While Bitcoin started as a medium of exchange, it’s now considered a digital store of value. It might not always be seen as such, but for now, that’s enough for me to keep what I currently have. Ethereum and Solana have underlying blockchain technologies that offer smart contracts and other uses beyond acting as a medium of exchange. I find crypto interesting, so I like to understand the use case before moving forward, and deciding if that use case might provide something of value later.
• Liquidity. As a dabbler, I want something easy to buy and sell. Look at the market cap of the cryptocurrency and see how much it’s being traded. If I decide it’s time to sell, I want to know I’ll be able to do so, which is why I often use a well-known exchange.
• Ease of transaction. With some of the more obscure cryptos, you need to jump through a bunch of hoops to obtain tokens or get rid of them. In some cases, you might not even be allowed to sell your crypto or find a buyer for it. I prefer to stay away from such cryptocurrencies.

Incorporating Crypto in Your Portfolio

Before you decide you’re ready to jump in, it’s important to understand the place crypto has in your portfolio. For example, I have crypto because I think it’s fun and I’ve already garnered huge profits. (I sold some Bitcoin in early 2021, and that article I wrote in 2011, 10 years later, became the most lucrative thing I’ve ever written.)

Here are some things to keep in mind if you decide to incorporate crypto into your portfolio:

• Potential for loss. Start with the fact that you might lose your investment. Prices are volatile. There are thousands of cryptos. Many of them are scams and the vast majority will never amount to anything.
• Emotional and financial risk tolerance. Know what you can handle. I probably won’t run an experiment similar to what I did with DOGE anytime soon. I could hardly sleep at night and, while I had adequate financial risk tolerance, my emotional risk tolerance is too low for such volatility. Don’t stake everything on crypto, and certainly don’t bet what you can’t afford to lose.
• Take profits. Consider taking profits when they show up. On some of my smaller cryptocurrencies, I generally take profits when the price doubles. I leave a little behind, just in case, but by cashing out periodically, I ensure there’s money in the bank.
• Limit exposure. At one point, because prices were so out of control, crypto accounted for 11% of my portfolio. I wasn’t comfortable with that level, preferring to keep my crypto exposure to no more than 5% to 8% of my portfolio. I took the chance to lock in profits and invest in other assets to bring my allocation back in line.

Crypto can offer some potential for big gains, but it’s still speculative—and putting money into some tokens amounts to gambling. Adding crypto to your portfolio can be fun and profitable, but you’re likely to be better off if you treat it as an alternative that probably won’t amount to much.

Frequently Asked Questions

How Hard Is It to Mine Bitcoin?

It can be difficult to mine Bitcoin today, requiring high-end graphics cards that provide the computing power necessary to be successful. There might also be electricity costs associated with the amount of power necessary to power a successful mining rig.

Is Crypto a Good Investment?

Cryptocurrencies, including Bitcoin, are considered alternative assets and are seen as speculative and potentially high-risk. While there is the potential of high returns, there is also the chance that you could see steep losses when you invest in crypto.

Do I Have to Pay Taxes on My Crypto Earnings?

Yes, in general, the IRS views cryptocurrencies as property, similar to stocks. If you buy crypto and sell it, you will be subject to short-term and long-term capital gains. But if you receive crypto as income, you might have to pay taxes on it at your income rate. Consult with a tax professional.

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