Crypto OGs Brock Pierce and Tim Draper and other experts provide essential advice on how to protect your hard-earned stack.
Crypto is a volatile place. Money can be as easily lost as made through the ups and downs of Bitcoin and the wider market, and there are massive decisions to make. Should you just hodl invest and do nothing or actively trade the market? How many coins should your portfolio hold? Self-custody or keep your funds on an exchange with pre-determined stop losses?
Basically, how do you protect your stack from the million and one things that can go wrong? We asked Bitcoin OGs and experts in the space for their advice and opinions.
When faced with the question of how best to protect your crypto, OG Brock Pierce is circumspect. The former presidential candidate and co-founder of Tether and Block.one points out that not everyone is in the same place.
Early noobs looking to begin their journey might go to Coinbase and purchase their first $20 or $50 worth of crypto, and its not an investment in crypto, but an investment in yourself. However, the moment you have a material investment and that is a different amount for everybody then its important to understand the basics of hodling and investing in crypto,” he says.
Its always better to walk before you can run, to walk in baby steps and dont let FOMO (fear of missing out) cloud your judgment. This is a marathon, a long game, so take you time and be informed.
Pierce repeats the mantra, “Not your keys, not your coins.” This is one of the most widespread pieces of wisdom in the world of crypto, where people are encouraged to take responsibility for holding their own crypto rather than outsourcing it to an exchange that can get hacked.
But there are dangers with this approach, too, and if something goes wrong, there is no centralized bank authority to reset the passwords or refund money lost to scams. Its like holding cash under the mattress the entire responsibility rests with you and is referred to as self-custody in crypto.
Itai Avneri, deputy CEO and chief operating officer at INX Limited (Supplied)Self-custody is the key to safe trading, according to Itai Avneri, deputy CEO and chief operating officer at INX Limited, the first and only fully regulated, end-to-end platform for listing and trading both SEC-registered security tokens and cryptocurrencies.
Self-custody is the key here. Especially when thinking about digital securities and not just crypto. Trading on a centralized exchange that provides the confidence and protection of regulation and, at the same time, trading in a decentralized manner when the customer holds his / her own assets. Generally speaking, your wallet, your keys, your assets. This is the best way to protect yourself from a sudden hold on withdrawals or other events we witnessed in the past year, Avneri says.
But Bitcoin billionaire Tim Draper of Draper VC says that while thats true, institutions arent keeping funds on a Ledger in a drawer.
I no longer believe that my dollars in the bank are very safe. They are subject to political winds and inflation,” he says.
The safest personal money is BOLBitcoin on Ledger. The safest institutional money is BAC Bitcoin at Coinbase, Draper continues.
Tim Draper, founder of Draper VC, chatting with journalist Jillian Godsil.Pierce points out that people advanced in sophistication can look at investigating yield farming or decentralized finance. This allows people to not only protect their crypto but also to look at increasing it through earning yields but again, this involves risk.
He emphasizes the importance of investing in your own education and notes the importance of diversification.
Brock Pierce, chairman of the Bitcoin Foundation (Supplied)If you are participating in those markets, then you by necessity take on the counterparty risk associated with those platforms, and how you mitigate those risks is through diversification, but not having all your eggs in one basket. If any one asset fell, it wont wreck (rekt) your entire portfolio.
Diversification in crypto is tricky, as Bitcoin and the rest of the market tend to move up and down at the same time. But Pierce warns against putting too much money in more volatile coins, for example, memecoins, in case of a downturn where the pain will be magnified.
Andrew Latham, a certified financial planner based in Rolesville, North Carolina and the director of content for financial websiteSuperMoney.com, echoes Pierces restraint and suggests looking outside of crypto as well.
The key to surviving market downturns is diversification and a disciplined approach. Dont put all your eggs in one basket. Spreading your investments across various asset classes can help cushion against volatility. Keep a disciplined approach to crypto investing, focusing on long-term goals over short-term market fluctuations.
And while crypto investing is often a little bit too interesting for its good, he says successful investing is often the opposite.
As the old adage goes, ‘Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas,’ Latham says.
Sometimes, it makes sense to be overweight in a blue chip, market-leading token though, as Warren Buffetts 50% portfolio allocation to Apple shows. There are plenty of Bitcoin-only hodlers, but Lakov Levin, the co-founder of the new DeFi investment platform Locus Finance, leans heavily on Ethereum.
Levin suggests: Ethereum is the blockchain, which is used as the fundament for the financial evolution of the 21st century. It is a hub for hundreds of protocols that build value for its users. Holding Ethereum is similar to holding a fraction of the internet and value it provides to users. It is truly a remarkable financial opportunity.”
Levin notes that Ethereums hodlers can stake their assets and receive 5% APR in ETH itself and points out the “Ethereum blockchain burns fees for each transaction made on the blockchain, which makes Ethereum a deflationary asset.”
I do not think that ever in human history we saw a deflationary asset that generates consistent yield and has potential for such innovation, concludes Levin.
A stop loss can prevent further losses. (Pexels)Pierce is sanguine about overall market dumps if you are positioned properly.
If the market falls by 10%, take the hit using something like a stop loss, and try to recover in the next run.
A stop-loss is a risk management tool that automatically sells a token once it reaches a certain floor predetermined by the user. It is designed to limit losses but can be a blunt tool in the crypto world, where movements of 10% are common and could see all assets dumped as a result.
Lakov Levin, a co-founder of Locus Finance (Supplied)Levin is cautiously bullish on stop losses, which basically allow traders to close a trading position at a specific price.
The effectiveness of any tool lies in the hands of those who use it. The most important thing about ‘stop losses’ is the feeling of control, which protects from the anxiety of being in the market.
One of the scenarios that stop losses is the management of hypotheses on market behavior. When entering a trade, a trader has a hypothesis of the behavior of the market, which leads to opening a trading position.
Stop losses allow you to pick the price where your thesis is rejected by the market and limit your loss, which is a must thing to have for long-term trading. But ‘stop losses’ do not save from cognitive biases, which heavily affect trading. In this case, a trader may re-enter trade a few times, breaking his own rules under the influence of greed or fear. It is important to have discipline to follow your own rules.
One of the rules that I used when trading is when hit by stop loss, I take a break from trading this asset, says Levin.
Pierce is not an active trader and sees himself more as a long-term participant in the market. He appreciates that market volatility is not a negative thing and that tremendous wealth is made in volatile markets the more movement, the more opportunity.
But it’s not for the faint of heart. You know, youre riding a roller coaster ride almost every day, says Pierce.
All-time highs and all-time lows. Recent reports in The Wall Street Journal point to SpaceX writing down the value of its Bitcoin holdings by $373 million. It is currently unclear whether SpaceX sold or merely reduced the value of its digital assets in its accounts. This may cause difficulty in the future, as U.S. accounting rules dictate that once written down, the value of Bitcoin on company balance sheets cannot be adjusted upward, even if its price rises.
The subsequent downward movement took many by surprise established investors and newbies alike. What other tools are available to users to protect their crypto? Well, a 50-year-old model created by Nobel-prize-winning professors could be an option.
Options trading gives the trader the right or obligation to buy or sell a specific security on a specific date at a specific price its a contract thats linked to an underlying asset such as a stock or security. Since 1973, options have been priced using the Black-Scholes model originally authored by two university professors. This mathematical equation estimates the theoretical value of assets based on implied volatility, taking into account the impact of time and other risk values. It is to this day regarded as one of the best ways to price an option contract.
In 1973 two finance geeks, Black and Scholes, created a financial model used to price risk and volatility.
— Gareth Ward (@S_Boomerang) August 25, 2023
It gave birth to the $13tr options market and won the Nobel Prize for Economics.
50 years later, Bumper brings it up to the age of DeFi, a breakthrough in risk management. pic.twitter.com/ZxNqROwQPV
Asked if he might consider using a tool like options, Pierce is cagey. He reckons that leverage is the demise of most peoples wealth. Leverage is the use of borrowed funds to increase ones trading position beyond what would be available from one’s cash balance alone.
Be very careful playing with leverage. Its a tool for hedging to try and achieve great gains but can be the thing that creates more problems if you are not a skilled trader.
Pierce has bought into options in the past a few times where he tried to swing for the fences with leveraged option bets.
It’s not worked out well, for me, because one of my problems is I’m so close to the market, that the markets are not as rational.
Pierce quotes the recent SEC/Ripple legal action. He didnt trade on this occasion, but if he had, he would have bet on an altcoin bull run.
It didnt happen. If I had followed my gut, then I would have bought and been wrecked the next day.
As Pierce said, thats why hes not an active trader.
A new protocol called Bumper is launching this month, claiming to provide a safety net for downward volatility. It combines stop losses and options in a way that co-founder Jonathan DeCarteret claims is cheaper and more efficient than both those traditional tools.
Jonathan DeCarteret, CEO of Bumper (Supplied)Bumpers backtested economic simulations claim a yield improvement of 46.2% over options pricing during the 2022 bear market. This is demonstrated through a historic simulation report audited by Cryptecon and CADlabs.
Decentralised Finance (DeFi) typically has low latency and high frequency of liquidity, which poses certain complexities for the model.
Option desks make great use of pricing risk but have to add their costs on top. Bumper evolves the now half-century-old Black-Scholes equation to leverage all the unique properties of DeFi, such as pooled liquidity, smart contracts and protocol composability. Two years ago, we raised $20 million in funding to create a superior crypto equivalent, says DeCarteret.
The membership program Crytolock.ai enables users to save up to 90% of compliance and recovery expenses in case of a crypto breach. Not surprisingly, CEO Roger Ying says to focus on prevention, detection and recovery.
Roger Ying, CEO of Crytolock.ai (Supplied)Crypto users need to be educated on ways to prevent, secure and make sure they are not transacting with illicit entities otherwise, they may be implicated in a crypto crime, he says.
Furthermore, there are a growing number of ways to monitor your crypto on the blockchain and be immediately notified of unintended transactions and stop them before they get confirmed. He adds that if you still end up the victim of a hack or rug pull, understanding the necessary processes to recover crypto is very important both in time and expenditure savings.”
Of course, hodling large-cap cryptocurrencies is probably the safest and easiest way to maintain a position. Pierce recommends using cold storage provided by hardware wallets as a safe way to keep crypto.
Back in the day when I started, we used paper wallets. Youd have a new device, and youd print out the keys, laminate the paper, and chuck it into a safe.
Sorkin is very direct in his hodling actions:
Buy ETH, stake it in Lido, receive LDO and find ways to stake LDO. Otherwise just buy Bitcoin and forget about it completely until late 2024 when halving of BTC happens.
Latham says the key to hodling is patience and conviction. Invest only in cryptocurrencies that you believe have long-term potential and can withstand market downturns. Regularly review your holdings to ensure they still align with your investment goals. Time in the market does beat timing the market, but that only works when you pick cryptocurrencies that dont flop, so its crucial to vet your investments carefully.
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