If you’re an active trader, then you’ve probably already heard a great deal about digital currencies and their growth over the past decade. You may even be thinking about investing in cryptocurrencies such as Bitcoin, Litecoin, Ehtereum and other alternative coins, aka altcoins.
Aaron Hunziker gets many questions from traders regarding how to get started in cryptos and the potential risks and rewards involved. As a senior market analyst for Market Traders Institute, he brings more than 20 years of experience across all sectors of the financial services industry. He’s also delivered investor education presentations at over 2,000 live events attended by hundreds of thousands of people worldwide.
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We asked Hunziker to discuss why and how investors should consider entering the fast-growing cryptocurrencies market.
Is there a difference between trading and investing in cryptos?
Hunziker: Yes, I actually separate investing from trading as two kinds of components.
If I were investing small sums, then I’d be buying Bitcoin. I’d be putting in small amounts of money every month because I’m a big proponent of Bitcoin.
Bitcoin is here to stay regardless of whether people agree or not. If you look at the record of the people who are leading it, the huge money that’s behind it and the mass adoption that’s started to take place, then it’s hard not to be impressed.
Small investors can do what’s called dollar cost averaging, which is simply just setting a fixed amount to invest every month or every week using whatever you can afford in your budget. I think that’s a tremendous place to start investing. If you did that right now with only $100 a month, then in about three years you’ll be shocked at the amount of growth you can have in that investment.
Do you mean Bitcoin specifically or are you talking about alternative coins in general?
Hunziker: No, just Bitcoin. Bitcoin is a currency more than it is a coin, so to speak. Bitcoin and Ethereum to me are the two main ones that you would pay attention to because they have real tangible value.
Bitcoin is used as a currency, it’s growing as a currency and will continue to grow as a currency. Ethereum is a blockchain, which is a distributed digital ledger that collects information together in groups, also known as blocks. Bitcoin and Blockchain are being used in other businesses so they have material value right now in the marketplace. A lot of these altcoins are great concepts but they’re still figuring themselves out.
Now, there are other altcoins that are providing value to you as well. But Bitcoin and Ethereum are the most popular by far. If you’re somebody new to trading, then you first need to understand how cryptos and blockchain and digital currencies work before you start taking on those investments because that can be overwhelming for a lot of people.
And I think that the reason why people get confused is because they conceptually can’t quite grasp the idea. They can kind of understand the process behind cryptos in the sense of, “It’s a network of computers and all of this currency gets traded electronically.”
But when you start getting into the details of all the alt coins and everything else… That’s a whole other asset class to learn, which is great because there’s a lot of opportunity there. But if I just have a little bit of money to invest, then where can I feel good about putting it today?
If you’re getting into those exotic altcoins, then you’re essentially gambling, which means you could win big or you could lose big. But to me Bitcoin or Ethereum is where you need to be as an investor. Bitcoin already has mass market adoption that’s going to keep taking place more and more.
What is the best way to get involved in the crypto market?
Hunziker: I get this question a lot. If you’re not going to trade it, you’re not a speculator. For me, the best way to get started is by using the same strategy that we were taught 25 or 30 years ago of dollar cost averaging. Dollar cost averaging simply means you pick a fixed date every month and you automatically put a certain amount of money into an account.
It’s almost like something else I learned a long time ago called the 10% solution. Here’s how it works – Take 10% of your paycheck and you pay yourself first before you pay anybody else. And that money goes straight into an investment each time.
The 10% solution is similar to using dollar cost averaging, where you invest a set amount every month and it can be a small sum. That’s the beautiful thing about cryptocurrencies.
I’m not huge into the crypto markets. However, I’m a big Bitcoin believer and I’ve been getting a lot of questions about this topic from traders. But most people don’t realize that Bitcoin’s trading today at over $50,000.
What stops some traders from investing in Cryptocurrencies?
Hunziker: People think that they can’t buy Bitcoin because it’s $50,000, but actually you can buy fractional shares. They’re what I call syntax Satoshis, which are built around Satoshi Nakamoto. That is the name used by the presumed pseudonymous person or persons who created Bitcoin. And you can buy these Satoshis and it’s like buying a fractional share. You can open an account and put in $100, which means you own a small percentage of one Bitcoin.
It’s no different than what the Robinhood brokerage has done. That was the brilliance behind Robinhood. They were one of the first companies to develop fractional shares so the masses came together to leverage their buying power. So what happened was that you had small investors that could not afford to buy a share of Amazon.
They couldn’t individually afford to buy a share of Tesla. But if I pool my money with your money and we combine our funds with all of these people and network together, then we can all own a fraction of those expensive shares. That’s the brilliance behind Robinhood. So they gave the power back to the people in a smaller percentage way. Well, you can do the same thing in cryptocurrency.
You could go open an account tomorrow and put $100 into Bitcoin fractional shares and then you’re a Bitcoin owner. You’ll own a percentage of a Satoshi Bitcoin. So you can dollar cost average maybe $50 to $200 a month in that asset while it’s growing quickly.
Many of our analysts here at MTI would tell you the same thing, including Tyson Clayton and Chris Pulver. And I’m a big believer too. It’s eventually going to hit $300,000 or $400,000. It’s a matter of whether it will take two years, five years or 10 years, but eventually Bitcoin’s going to go there. I believe it’s going to happen sooner than later.
How fast is the cryptos market growing?
Hunziker: This is an emerging asset class and it’s becoming much more popular because of the mass market adoption of cryptos. If you just watch the news, we’re seeing this growth every day more and more, and I’m speaking primarily about Bitcoin. Ethereum is different because it’s not a currency, it’s actually a blockchain. It’s essentially a piece of technology.
As Bitcoin experiences more mass market adoption that’s when you start to see price increases. We’ve had a big run-up in price in the last six or seven months. And that big run-up was not caused by the average investor putting $100 or $200 into an account each month. What’s happening is that the large institutional brokers on Wall Street are getting involved in the cryptos market.
If you’re a Wall Street broker, then you’ve got clients all over the United States. You’ve got brokers handling all of this money for clients and money managers handling investments for clients. So those brokers are getting asked questions about cryptos by their clients.
Brokers are realizing that they have to add cryptos as an asset class. So they’re slowly starting to add it into their portfolios. Well, when they open it up to a half of a percent of a $1 billion or $2 billion fund, that’s where the largest growth is starting to happen. And that’s all happening from mass market adoption.
There’s a lot of behind-the-curtains mystery and funny stories surrounding Bitcoin, but that’s part of the romance of it, including the secret of who the founder was. That’s part of the mystique behind Bitcoin. But as far as whether Bitcoin’s here to stay, I’m a big believer in it.