On this episode of The Wiser Crypto Investor Podcast, Casey Smith and Robert Swarthout talk about crypto performance, stablecoins, the buy-hold approach, and the differences between self-custody and third-party custody.
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Crypto Market Update
The market is down, and we might be nearing a bottom with crypto. Bitcoin is down to around $19,000 to $20,000. Shockingly, in November 2021 it was worth $65,000!
What is a Stablecoin?
A stablecoin can be defined as a cryptocurrency that maintains a fixed value over time. It is most often tied to a currency such as the U.S. dollar. The two main types of stablecoins are asset-based and algorithm-based. Asset-based coins are backed by physical assets. Examples of asset-backed coins would include gold, real estate, or soybeans. Algorithm-based coins adjust their prices based on the supply and demand of investors. One of the most popular algorithm-based coins is called tether (USDT).
How to Find the Best Stablecoins
Start by doing some research on stablecoins. A good website to use called coinmarketcap.com allows you to look at the top stable coins as well as a description of each coin. Once you have done that, it is important to research each coin individually to see how they’re constructed. Tread carefully because some cryptos don’t have publicly available audits. Make sure you know what you’re investing in!
Should You Invest in the S&P 500 or Bitcoin?
Swarthout explains the S&P 500 and Bitcoin are much different asset classes, but personally, would invest in bitcoin. He explains the crypto market is down more than 25% so it’s bound to go back up. Another reason he would choose bitcoin is that he believes we are at the start of a financial revolution.
The Buy-Hold Approach
Whether you are investing in cryptocurrencies or index funds, it is important to use the buy-hold approach. Invest for the long-term and try not to look at the price every day. Overall, this will allow you to make better investment decisions.
Self-Custody vs Third-Party Custody
If you choose not to use a custodian for your cryptocurrency, your other options include self-custody or third-party custody. Self-custody can be described as if you have a safe in your house and you store your money in your safe. You are essentially moving it to a wallet where you are in control of the password. Make sure to back up your password because if you lose that password, you will no longer be able to access your account.
Third-party custody would be similar to putting your money in a safety deposit box at a bank. In other words, you aren’t in full control of accessing your money. Tread carefully with third-party custody because if the exchange you’re using goes out of business, your assets may not be safe.
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