A couple of years ago, when I made a serious attempt to research cryptocurrency, I found myself utterly overwhelmed. It wasn't at all like researching a stock. Usually when I research a stock, I understand the business that it's in. I already have some knowledge that helps me with my research.
With cryptocurrency, I had none of that. It was like that time my parents asked me if they should watch Star Wars. I wasn't sure they were ready for the commitment. There's a whole universe to understand, and at least nine movies you have to watch.
For instance, Bitcoin (CRYPTO: BTC) was invented by Satoshi Nakamoto, who is anonymous even to the IRS! So that gave me no confidence whatsoever. And then there was the halving, which made me nervous, too. Could there be a quadrupling next week?
image source: Getty Images
Do I want to go with proof of work or proof of stake? These were just a few of the questions I had. There was no Shiba Inu (CRYPTO: SHIB) back then. My feeling on this is that if you're going to invest in a dog coin, you definitely ought to stick to the Shiba Inu breed. Don't be jumping into Poodle or Golden Retriever. And these meme coins that give investors 10,000% returns don't make me feel any optimism. The pet-rock NFT guy is a millionaire, but I'm not copying that move.
So cryptocurrency still scares me. But I have discovered ways to profit from this madness (aka, this great investment idea that is over my head).
1. I bought shares of a cryptocurrency bank
The historic way to make money during a gold rush is to open up a store and sell the picks and shovels. So you could buy Coinbase Global (COIN -2.01%), a cryptocurrency exchange, and its numbers are fantastic. While I just bought shares of Coinbase, my favorite cryptocurrency stock is actually their behind-the-scenes banking partner, Silvergate Capital (SI).
Of course, if you're invested in Square (NYSE: SQ) or PayPal (NASDAQ: PYPL), you're also indirectly invested in cryptocurrency. Last year, these two fintech giants made deep commitments in the sector. PayPal opened up its Venmo app to allow users to start trading several coins on it. And Square basically proposed marriage to Bitcoin.
Square and PayPal are both widely respected in the financial industry as fintech stalwarts that are transforming banking and finance. So when these two leaders validate cryptocurrency, that validation changes hearts and minds about the sector. Now, many bankers and institutions are trying to understand what they originally dismissed as a fad.
One of the reasons that Silvergate is such a fantastic investment is that it's a play on institutional awakening to the cryptocurrency opportunity. It banks all the cryptocurrency exchanges, and so that's where a lot of dollars sit while people buy digital tokens. But Silvergate is also the bank for the institutions that want to make investments in this new asset class. This innovation is clearly reflected in its price.
SI data by YCharts.
Right now, I'm seeing a divergence in the cryptocurrency universe. On the one hand, we have Square and the Bitcoin miners, which are making pure bets on Bitcoin. Meanwhile, Coinbase, Silvergate, PayPal, and Robinhood Markets (NASDAQ: HOOD) will all profit regardless of which coin comes out on top. In fact, Coinbase actually performs better when we have more coin options (and coin confusion). The more unwieldy and scary and crazy the cryptocurrency universe becomes, the more important it is to have knowledgeable guides.
Silvergate's recent deal with Facebook, now known as Meta Platforms (NASDAQ: FB), means the bank will profit if Facebook's new coin, Diem, takes off. But Silvergate has multiple partners and supports multiple coins. Perhaps the most important part of the Facebook deal is that it cements Silvergate's status as a key banking partner for institutions that want to jump in and invest in this new asset class.
2. I started playing a cryptocurrency game
You know what's not scary at all? Investing $10 in a cryptocurrency game. While I was researching digital currency, and trying to figure out if I should buy some Steem (CRYPTO: STEEM) coins, I got sidetracked into playing this really cool game, Splinterlands (CRYPTO: SPS), on the Steem blockchain. The game has since moved to another blockchain. And I never bought any Steem coins, anyway. But man, oh man, this game is a lot of fun.
It's a monster card game on the blockchain. When you battle, you have a couple of minutes to fill out your lineup. If you win the battle, you receive Dark Energy Crystals (DEC), which allow you to buy more monster cards. But the really cool part is that once you pay the $10, you own all the cards you win, which are non-fungible tokens (NFT) on the blockchain. You can buy them, sell them, rent them. My assets are now allegedly worth $19,000, up from $17,000 last week.
Image Source: Getty Images.
The other day I tried to sell one of my cards for $92. My cost basis on this card is $0. It took a couple of days, but somebody bought it, which was great. Except she paid in DEC, which was kind of aggravating.
I should have transferred DEC into Splinterlands, and then transferred that into dollars, and then moved it over to PayPal, and from there I'm pretty sure I could get it into my bank account and could go to an ATM and put the actual $92 in my hands. Instead of doing all that, I just bought more monster cards.
So if you're scared of putting money into cryptocurrency, but you're interested and want to learn more, I would start by playing this $10 game, Splinterlands, on the blockchain. I've learned about cryptocurrency, the blockchain, digital wallets, and NFT assets. And while I still have more questions than answers, I've also had a lot of fun.
