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What's the Best Way to Invest in Cryptocurrencies?

By Anand Chokkavelu, CFA - Apr 5, 2021 at 9:26AM

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Is Bitcoin the best digital currency for newcomers? And what's the best way to get exposure?

What's the best way for new investors to get involved in cryptocurrency? Is buying Bitcoin (BTC 4.44%) the way to go? And what is the best way to buy it? In this Fool Live video clip, recorded on March 18, The Motley Fool's chief growth officer, Anand Chokkavelu, and cryptocurrency expert and venture capitalist Nic Carter discusss what new investors to the cryptocurrency space should keep in mind. 

Anand Chokkavelu: For a regular investor who as we know has never invested in cryptocurrency, wants some exposure, but doesn't want a lot of hassle, what would your advice be if they came to you and said, "Hey, what should I do? What's the easiest thing to supplement my stock portfolio?"

Nic Carter: Well, there's obviously thousands of different cryptocurrencies available. I think it's very easy to get distracted and to try and bet on Bitcoin killers or new base players or new smart contract protocols or meme coins. There's a huge amount of noise in the industry and a lot of malinvestment and misspent activity. I think Bitcoin, it's not exactly the highest-beta asset in the crypto space. You're going to find more volatile assets, if that's where you're looking for, if you're looking for volatility and an excitement. But to me, Bitcoin is really the most important phenomenon within the crypto space. It's a new monetary system, it has that credibility. A lot of these other crypto assets are shallow imitations of it. Certainly there are interesting things going on beyond Bitcoin, but I would just start with Bitcoin, trying to understand that system in the first place, and try and deeply grasp the things that make it unique, and why it's endured 12 years and why it's shrugged off so many competitors in that time. A small amount of Bitcoin exposure would be what I would recommend, such that people can tolerate the volatility of the asset which is incredibly high, so size it accordingly. Bitcoin has the annualized volatility of 80%-100%. If you want to target a level of risk in your portfolio, you want to size your bet accordingly.

Chokkavelu: Related question I know I get asked a lot is, "OK, what's the easiest platform to use? What should I do? Do I get cold storage? Do I go with a provider?" Have you seen any solutions that obviously the market's evolving and things are better each year? Have you seen anything that's blown your mind as a simple turnkey solution for folks?

Carter: No, and frankly, we're dealing with the encoding of value in an informational format. We have for the first-time digital bearer assets, which means that if you lose your private key, you've lost value, right?

Chokkavelu: The nightmare.

Carter: It's a novel thing, right? We didn't have that before. The last decade, we've been struggling to try and build tools to make it possible for people to custody of that information on their own without the side of being fragile. That's really what we invest in. That's a big part of our investment strategy as a firm is trying to invest in tools and businesses which help people transact and hold digital assets. For the uninitiated and for folks that aren't holding a huge amount of cryptocurrency, honestly, custodial service providers, there's a few that are extremely credible and that I would personally trust. Now, if you are more paranoid and you want to take final delivery of your coins, that's when you start looking into different kinds of cold storage setups. But that's only I would say if you have a really meaningful amount of coin, and you want to take true custody of the equivalent of storing bars of gold in your basement kind of thing. There's no simple solution to that problem. That's one of just the key intractable problems in the industry is storing value as information, so it's always been a challenge, and I think it'll be a challenge for a long time.

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