Welcome to my free cryptocurrency educational series. Each part builds on the previous ones, so I suggest starting at the beginning and moving through part by part:
Cryptocurrency 101 series (core principles, social justice, blockchain tech, Bitcoin):
- Part 0 Overview of my series, who this is for, why you might consider listening to me, and how easy it is to think you understand crypto when you actually don’t.
- Part 1 Why should I care? What’s in it for me? Why is crypto important (it’s about a lot more than just making money!)?
- Part 2 How crypto actually works, why Bitcoin is valuable (even if it’s just “made up!”), and what you should know about blockchains (the tech behind them and how they could influence the future of our world)
- Part 3 How the blockchain keeps running, where new Bitcoins come from (i.e., how mining works), and concerns about Bitcoin’s environmental impact
- Part 4 How crypto offers autonomy, why it can’t be stopped, and the value of decentralization
- Part 5 How to store and use cryptocurrency, some basic cryptography, how wallets work, identity management, and the future of democracy
- Part 6 Overview of the different types of wallets, which one is best for you, what to be careful of, and why a hardware wallet might be worth the investment
Cryptocurrency 201 series (intermediate principles, Ethereum, NFT’s, DAO’s):
- Part 7 Ethereum (the #2 most popular cryptocurrency, and the one I’m most excited about), smart contracts, dapps, gas (and the high gas fee problem), Proof of Stake (PoS), and Ethereum 2.0
- Part 8 Coins vs. tokens, and some real Ethereum use cases—oracles and DEX’s
- Part 9 Intro to NFT’s (collectibles, research funding & historical significance, and music)
- Part 10 More categories of NFT’s (art, video games, virtual reality)
- Part 11 Wrapping up NFT’s (what you can actually do with them, upsides, downsides, risks)
- Part 12 DAO’s (organizations managed by algorithms, governance tokens, collective ownership, and the “network state”)
Cryptocurrency 301 series (advanced principles, DeFi, reinventing the finance world):
- Part 13 DeFi & CeFi, reinventing banking with peer-to-peer finance, stablecoins, and borrowing & lending
- Part 14 More DeFi (how Uniswap works, plus insurance, payments, derivatives, blockchains, exchanges, liquidity staking, and impermanent loss)
- Part 15 Wrapping up DeFi (why liquidity is important, LP tokens, yield farming, calculating return, yield aggregators, and major risks)
Cryptocurrency 401 series (investing, making money in crypto):
- Part 16 Intro to investing (what could go wrong, where you might fit in, and what kind of investing could be right for you)
- Part 17 Preparing to invest (how much money to put in, how to split it up to mitigate risk, setting up your wallets, buying the coins & tokens you want, and dealing with different blockchains)
- Part 18 More preparing to invest (security, understanding what price targets are realistic, and using “expected return” to choose between opportunities)
- Part 19 Specific investing options (buying and holding, index tokens, leveraged tokens, my list of coins and tokens, mining & staking, and lending)
- Part 20 Higher-risk, higher-reward opportunities (liquidity staking & yield farming, NFT’s, OlympusDAO, and Tomb Finance)
- Part 21 The single investment that’s made me the most money: StrongBlock
- Part 22 Wrapping up my seven categories of investment (including an update on StrongBlock)
- Part 23 How to invest depending on how much money you have (plus, the market dip, where my money is, and how to fit crypto into a larger investing strategy)
- Part 24 Holding coins & tokens vs. yield farming, where I’m putting my money now, big news on StrongBlock, and the future potential of crypto
- Part 25 Staying safe, preparing your taxes, avoiding scams, upgrading your security, and judging new projects
- Part 26 How to decide who to trust in the crypto world, technical analysis & market cycles, and an update on my longish-term portfolio
- Part 27 (in progress) Wrap-up
This is part 19 in my cryptocurrency educational series.
Part 19 Reading Time: 39 minutes
Want to listen to this post instead?
12/10 Update: Added Category #3: Lending
This is my fourth post specifically about investing in crypto, so I highly recommend you start with the previous ones if you haven’t read them yet:
Investing in the crypto world
Ok, now that I’ve gone through some of the most important preparations, we’ve finally arrived at the part that many of you have been waiting for: the specifics of where to put your money, what to buy, and in what order.
I’ve been working on this post (and the next two) off and on for six months. They’ve gone through many, many iterations as my own understanding of the crypto world has improved.
So, please keep this in mind as you continue to read:
The crypto world changes very quickly.
If you’re reading this more than a few weeks after the published date, please recognize that things have probably shifted again: the APY rates, my ranking of best coins/tokens, which strategies are most effective, and so on.
But, my general approach to investing is to use strategies that have been tested for at least a couple of months rather than the absolute most cutting-edge thing I read on Twitter yesterday. So, hopefully, quite a bit of this will still apply even a few months from now.
And when it comes to new opportunities, I hope that you’ve learned enough in the rest of this series to begin doing your own research. It might still feel hard to identify the best picks, but I hope that you’ll at least have a clearer understanding now of scams to watch out for, security precautions to take, and how to use CoinGecko and market caps to understand if a high price target is realistic. In a future post, I’ll also give you some specific tips for how to figure out which people to trust in the crypto community.
If you’ve skipped straight to this post, a lot of what I’m about to explain probably won’t make sense to you. So, I highly recommend you go back and read or listen to the rest of the series first—the whole point was to educate you so you actually understand how all this works and you aren’t just blindly copying what I or anyone else tells you to do.
And again, I’m not an investment advisor.
This isn’t investment advice—and I say that simply because I’m not a trained financial advisor and I don’t know your specific situation.
This disclaimer isn’t just to legally protect me. The fact is that I would give very different advice to different people based on their level of experience, their family situation, their age, their salary, their savings, how they react under pressure, what responsibilities they have in their life, etc.
All I can tell you is what’s worked for me, what I tell my friends (who are often in similar life situations to me), and what I might think is important for pretty much anyone to know.
Here we go!
So, what are the major categories of investment in the crypto world?
Where to invest is a huge topic, so let’s go over all the major categories of money-making opportunities that I see in crypto. There’s a lot here, so this topic is going to span two or three posts.
For each investment category, I’ll explain the general strategy and give you some of my personal top picks.
The first three categories (which I’ll cover in this post) are relatively lower risk, and the final four categories are higher risk, sometimes dramatically so.
Category #1: Buying and holding
This is the simplest possible type of investing. You just buy a cryptocurrency and hold it for a while without having to do anything else.
(By the way, if you hear anyone in the crypto community say that they’re “HODLing”, it’s part of a meme that originated in this 2013 thread. It just means buying and holding long-term. That’s also what the “diamond hands” meme is about—holding on even during times of high market volatility.)
As long as you use a trusted CeFi exchange or a secure wallet, buying and holding is a nice conservative strategy. The downside is that you lose out on the potential additional return that other strategies offer, but the upside is less work for you and reduced risk.
There are a few different types of things you can buy and hold:
- Coins and tokens (e.g., ETH, LINK)
- Crypto index tokens, i.e., one token that represents a basket of other tokens, typically around a theme or sector like tokens related to finance or gaming (e.g., DPI, MVI)
- Leveraged token products, i.e., tokens that give you double the exposure to an asset, meaning you make more money if it goes up but potentially lose more if it goes down (e.g., ETH2x-FLI, Tracer DAO)
Let’s look at the latter two in more detail.
Index tokens let you invest in many things at once.
For example, in the traditional stock market, if you buy IVV (the iShares Core S&P 500 ETF), it represents the five hundred companies of the S&P 500. Similarly, if you buy Index Coop’s token BED, it represents three other coins and tokens: BTC, ETH, and DPI, with roughly 33% allocation in each.
On each index token’s page, you can see the exact breakdown of the coins or tokens included and the percentage allocation into each.
Also, because Index Coop is a DAO, you can buy their governance token INDEX to join the DAO and participate in the governance of all these tokens—voting on proposals, suggesting new tokens, etc.
Here’s a brief overview of Index Coop’s current offerings:
- DPI: The best tokens of the DeFi world (e.g., Sushiswap, Uniswap, Yearn, etc.)
- MVI: The best tokens of the metaverse, including gaming and virtual worlds (e.g., Axie Infinity, NFTX, Sandbox, etc.)
- DATA: The best tokens of Web3 and the back-end infrastructure connecting the crypto world (e.g., Chainlink, Filecoin, BAT, etc.)
- BED: The best of the crypto world overall, encompassing the two largest blockchains plus DeFi (i.e., ETH, BTC, and DPI)
- FLI: Leveraged exposure to the crypto world (there’s one version for ETH and one for BTC, and each allows you to essentially buy more of that asset for the same amount of money, but with increased risk if that asset drops in value)
As you’ll see in my recommendations list later on, I’m a big fan of these tokens. Here are a few reasons:
- You save a lot on gas fees by only having to buy one token instead of a dozen or more separate ones.
- It’s hard to pick one winner out of all the competing platforms in the DeFi space or the metaverse space. It’s a lot easier to pick a single token representing the DeFi space overall or the Web3 data space overall.
- You can trust that a group of committed people will keep managing these over time, so you can count on them to keep updating the allocations and adding and removing individual tokens as the space evolves. That way, you don’t have to worry about staying as up-to-date on the most promising individual investments in each of these areas.
Leveraged tokens offer more reward but more risk.
These give you roughly 2x leverage on the underlying tokens.
The specifics get a bit more complicated, but the basic idea is this: Say you bought $100 worth of the leveraged token ETH2x-FLI and the price of ETH (the underlying asset) went up 25%. If you had just bought ETH, your investment would now be worth $125. But since you bought ETH2x-FLI, it’s now worth roughly $150.
Not so fast: If ETH went down 25% instead, your $100 investment in regular ETH would now be worth $75, but your investment in ETH2x-FLI would be worth roughly $50.
Overall, I personally think that a small position in Index Coop’s FLI tokens (ETH2x-FLI and BTC2x-FLI) can be useful for extending your reach and making even more money as ETH and BTC rise in value. But, owning one of those can also be painful in bear markets (when the market is down a lot).
I’ve sometimes bought one or both FLI’s after a major dip since I feel confident that both ETH and BTC will continue to rise quite a bit long-term even if there are a lot of ups and downs along the way.
Still, I hold dramatically more regular ETH and BTC than ETH2x-FLI and BTC2x-FLI.
What specifically is the “buy and hold” strategy?
The idea with this first investment category is to buy your coins or tokens, then simply leave them all in your wallet.
We’re talking about doing absolutely nothing for at least six months, if not years.
That means not even looking at it except maybe to keep track of your total net worth over time by writing down your wallet balance, say, once a month.
Seriously, stop checking the charts every day if you’re planning to actually hold for the long-term. There are constant fluctuations in the crypto market, and you’ll just get anxious watching your money temporarily go up and down.
How do you decide which specific coins and tokens to buy and hold?
I’ve tried many different asset allocation and risk management techniques, but the one I keep coming back to is based on defining subjective tiers. These tiers are ultimately based on my gut feeling, which is of course informed by a lot of research beforehand.
I use the tiers to decide how much to put into each asset. For example, I might make a rule like putting $1,000 into each tier 1 asset, $500 into each tier 2, $200 into each tier 3, etc.
My list order is highly subjective, but the tiers are roughly ranked: I’ve put what I perceive as safer long-term bets toward the top, and less-certain or less-proven ones further down. Also, some of the coins and tokens toward the bottom are more focused around one specific offering (e.g., an NFT marketplace) whereas many of the higher-ranked ones represent entire blockchains or large baskets of diverse dapps and platforms.
The basic idea is that, if you’re only investing a little money, stick with tier 1. If you have more money, branch out into tier 2. If you have even more, go down to tier 3, etc. I’ll go into some more specific advice on this in the next few posts once I finish the other investment categories.
Please note that this is my list only as it stands on December 3, 2021. I update my personal spreadsheet version of this regularly, so I can’t promise that all of this will still make sense even a few weeks from now. But, I’ve tried to pick coins and tokens that are less fads or memes and more long-term holds that have the real potential to stay solid and keep growing.
So, please don’t see this as “Michael’s picks to make you the most money possible,” but rather just my personal list—as it stands today—of some of my largest investments and where I’d probably put my money if I were starting from scratch now. And, this isn’t just about investing either—these are the crypto projects that are on my radar and thus probably worth knowing about to understand what’s happening in the crypto world.
Finally, in case it’s not obvious: Full disclosure, I’ve invested in all of the coins and tokens I’m about to mention.
My personal list of coins and tokens:
Subjective Tier 1:
- ETH (Ethereum—coin on the Ethereum blockchain, which is the most important foundation of smart contract-based crypto, with a huge number of dapps, platforms, and development teams building out its ecosystem)
- BTC (Bitcoin—coin on the Bitcoin blockchain, which acts as the most important long-term store of non-physical value, like “digital gold” that’s outside the control of governments and financial institutions)
Subjective Tier 2:
- DPI (DeFi Pulse Index—token on the Ethereum blockchain [or Polygon] that represents a basket of the top DeFi-related tokens, i.e., decentralized finance)
- MVI (Metaverse Index—token on the Ethereum blockchain [or Polygon] that represents a basket of the top metaverse-related tokens, i.e., gaming and virtual worlds)
Subjective Tier 3:
- SOL (Solana—coin on the Solana blockchain, which is one of the strongest overall competitors to Ethereum)
- LUNA (Terra—coin on the Terra blockchain, which is one of the strongest alternatives to Ethereum and home to Anchor Protocol for high stablecoin yield); or WLUNA (the token version on the Ethereum blockchain)
- LINK (Chainlink—token on the Ethereum blockchain that represents the most popular and important oracle service, which offers the ability to pull data from various external sources into blockchain smart contracts); note that LINK is included in the DATA index token
- MATIC (Polygon—coin on the Polygon blockchain, which is a Layer-2 solution for helping Ethereum scale and offset some of its load)
Subjective Tier 4:
- RUNE (THORChain—coin on the THORChain blockchain, which is focused on making it as easy as possible to move tokens between different blockchains)
- FTM (Fantom—coin on the Fantom blockchain protocol, which is a very fast Ethereum competitor and a great place to learn to use DeFi because of the low fees)
- DOT (Polkadot—coin on the Polkadot blockchain network, which is aiming to be a kind of “blockchain of blockchains” that’s focused on scaleability and allowing different blockchains to communicate and work together)
- DATA (Data Economy Index—token on the Ethereum blockchain that represents a basket of the top tokens related to Web3 and the data economy, i.e., organizing, storing, and sharing data across blockchains)
- ALCX (Alchemix—token on the Ethereum blockchain for a unique platform that’s like a yield farm except, instead of waiting for that yield to accrue, you get it up-front; or, put another way, it’s like taking an advance on your future earnings, which can be useful if you need cash quickly but don’t want to sell your crypto. It gets quite confusing, but here’s more information if you’re curious)
Subjective Tier 5:
- RPL (Rocket Pool—token on the Ethereum blockchain for an Ethereum 2.0 staking pool that allows you to run a node for 16 ETH instead of the usual minimum of 32; plus, it allows you to liquid stake that ETH and take it out as rETH to generate additional yield in the DeFi space); (I’ll explain liquid staking in a bit)
- AVAX (Avalanche—coin on the Avalanche blockchain, which aims to be the fastest Ethereum competitor)
- XTZ (Tezos—coin on the Tezos blockchain, which is an Ethereum competitor with a unique governance system that allows participants to propose and vote on system changes and rules, which are then automatically implemented)
- ALGO (Algorand—coin on the Algorand blockchain, which is an Ethereum competitor created by a well-reputed MIT professor that’s fast, scaleable, and highly reliable)
- LRC (Loopring—token on the Ethereum blockchain for a Layer-2 DEX and payment app, meaning that it allows token swaps that are dramatically faster and cheaper than Layer-1 DEX’s); note that LRC is included in the DPI index token
- ATOM (Cosmos—coin on the Cosmos blockchain network, which supports an ecosystem of interconnected networks that includes Terra, Binance Coin, Crypto.com coin, and THORchain)
- ADA (Cardano—coin on the Cardano blockchain network, which is focused on a highly research-driven and peer-reviewed approach to its design)
- AAVE (Aave—token on the Ethereum blockchain that was one of the most foundational parts of the DeFi 1.0 ecosystem; and, it continues to innovate by working on projects like an Ethereum-based competitor to Twitter); note that AAVE is included in the DPI index token
- XRP (Ripple—coin on the Ripple blockchain, which is focused on fast international money transfers. But, it’s been involved in a long-running litigation battle with the SEC. Although that’s made it a dangerous investment for a while, many people in the crypto community believe it’s nearing completion in Ripple’s favor, making this a risky but potentially lucrative investment opportunity)
Subjective Tier 6:
- CRV (Curve DAO—token on the Ethereum blockchain that’s been another foundational part of the DeFi 1.0 ecosystem, offering a variety of complex yield farming opportunities)
- XYZ (Universe.XYZ—token on the Ethereum blockchain that represents an emerging, community-driven NFT marketplace that empowers artists and creators to retain control of their own work and how it’s sold)
- YGG (Yield Guild Games—token on the Ethereum blockchain that represents a DAO focused on generating yield through blockchain-based games and metaverse NFT’s); note that YGG is included in the MVI index token
- RARE (SuperRare—token on the Ethereum blockchain that represents a prominent NFT marketplace with social network aspects)
- SOV (Sovryn—token on the RSK blockchain that aims to bring smart contracts and DeFi to Bitcoin)
- INDEX (Index Cooperative—token on the Ethereum blockchain representing the DAO behind DPI, MVI, and DATA)
- HBAR (Hedera—token on the Ethereum blockchain representing a decentralized blockchain-competitor network that’s owned and governed by a council including Google, IBM, Boeing, etc.)
That’s my list, as it stands today at least!
Now, I wouldn’t recommend just buying everything on there unless you have $10K USD at the very least to invest here—otherwise, you’ll be spending too high a percentage on gas fees. I’ll offer a little more advice in a later post on how to invest based on how much money you have to work with.
In terms of asset allocation, that’s highly dependent on a number of things I don’t know about you (e.g., net worth, risk tolerance, etc.), but a very general starting point might be to put 50% of your total money invested in this list into tier 1, 10-15% into each of the middle tiers, and down to maybe 3-5% in the lowest tiers, with each of those percentages roughly split evenly between all the individual items in that tier.
At this point, you might be wondering: If I buy some of those coins and tokens, what should I do with them? Should I just let them sit in my wallet or put them to work somehow?
That’s where the next category comes in:
Category #2: Mining and staking
This is where you commit your resources to a blockchain or DeFi platform to make it more resilient, and in return you receive rewards.
In the case of Proof-of-Work blockchains like Bitcoin or Ethereum 1.0, you do that through mining. And for Proof-of-Stake blockchains like Ethereum 2.0 or Solana—and for all DeFi platforms—you do that through staking.
Remember that decentralized blockchain networks rely on node computers to validate all the transactions and keep the network healthy. Anyone can install the software on their computer to turn it into a node and contribute to the network. The more nodes, the more resilient the network becomes.
In the case of mining, you’re actually creating new crypto coins yourself. And in the case of staking, you’re locking in your coins or tokens for a period of time to offer your support and be rewarded with coins or tokens.
For Proof-of-Stake blockchain networks (like Ethereum 2.0, Terra, and Solana), part of the requirement of running a node is that you have to stake some amount of that blockchain’s native cryptocurrency (e.g., ETH for Ethereum, LUNA for Terra, SOL for Solana, etc.).
It’s like locking up some of your own money in a vault for a certain period of time to demonstrate your belief in the blockchain. Since all the node owners have done this, they’re incentivized to keep updating their nodes and ensuring the network remains healthy.
In return, node owners are rewarded with some of the native cryptocurrency (e.g., ETH, LUNA, SOL, etc.) every time their node validates a block of transactions.
So, if you really believe in a blockchain network, many crypto enthusiasts would say that you might as well lock up some of your assets there for a long period of time. That way, you both support the network and gain rewards for doing so, typically around 5% of what you staked, depending on the blockchain.
This can be quite technically complex, though.
Delegating is a much easier way to stake.
Typically, staking requires running your own node (and locking your tokens into that node’s “vault”). But, running a node can be a lot of work, so the crypto community has developed a number of ways that you can participate in staking without having to do that.
The most common way is referred to as delegation. You can delegate your tokens to someone who is running a node.
Your tokens go into their node’s “vault,” and they give you a cut of the rewards they receive. Luckily, most newer cryptocurrencies have delegation support built-in, so you’re not just having to trust someone to do this for you. The blockchain and its smart contracts will make sure you get your cut.
For example, on Solana (in the Solflare wallet I use), you can browse a list of nodes, see their fees and scores for uptime, and then split up your SOL across several delegator nodes to spread out your risk. Note that a node’s uptime score is important because you won’t be earning staking rewards when their node server is down.
These nodes are often not run by a single individual, but rather an organization or for-profit company that manages a large number of nodes and employs a staff to keep everything running smoothly.
We all have to be careful with delegating, though.
You might be wondering: “Wait a second, the whole point of crypto is decentralization. Aren’t we just going back to the old centralized model here if everyone is delegating to big companies?” Yes, that’s a very real concern. If one big company has over 50% of all stakers delegating to them, that becomes dangerous.
That’s one reason why newer cryptocurrencies like Chia have tried to make it as easy as possible to run a node—that way, they hope that a lot of individuals will be able to easily create their own nodes and push back against larger companies owning too much.
A lot of crypto communities have stepped up to address this issue in other ways too. For example, Solana Beach offers an awesome list of validators (i.e., organizations you can delegate your staking to) that’s sorted by the total percentage of the Solana network being staked by each validator. They hide the top 20 to encourage everyone to delegate to the less powerful ones instead.
Another concept: “Liquid staking” makes things easier.
Another important term to know is “liquid staking.” Regular staking (e.g., for Ethereum 2.0) often requires locking in your assets for a long period of time, like a full year. In contrast, “liquid staking” means that you can pull your cryptocurrency out at any time.
So, before you stake a lot of crypto in something, make sure that it’s either a liquid staking opportunity or that you’re comfortable locking your assets in for whatever minimum amount of time is required.
For example, staking ETH on the Kraken exchange is not liquid. But, Lido is an Ethereum 2.0 platform that allows for liquid staking, so you can stake ETH on their servers and remove it whenever you want. Similarly, staking LUNA on Terra Station or SOL on Solflare is liquid since you’re just delegating.
Staking stablecoins is kind of like having a “crypto savings account.”
One final thing worth explicitly saying is that most of this staking discussion has referred to cryptocurrencies like ETH, LUNA, or SOL. But, it’s also possible to keep a portion of your money in stablecoins and invest them in a yield-earning platform like Yearn on DeFi or Nexo on CeFi, as I describe in Part 13.
That way, you don’t have to worry about the price of the cryptocurrency suddenly dropping, so this kind of staking feels much closer to a traditional savings account. It’s still riskier than a traditional bank, but I personally feel pretty safe converting a fair portion of my money into USDC and letting it earn yield in Nexo, Celsius, Crypto.com, etc.
Again, it’s important to think about your asset allocation in terms of percentages. For example, you might decide that, of your total net worth, you’re going to keep 10% in cash. Then, you might decide that 50% of that (i.e., 5% of the total) should stay in your checking account at a traditional bank, but the other half can be converted to a stablecoin and put in a “crypto savings account.”
Personally, for the portion of my cash that I have as stablecoins, the largest chunk is in Anchor Protocol in the form of the stablecoin UST, earning an amazing yield of 19.5%, which has been very stable for many months. Because that yield is so high for a stablecoin, I also bought insurance through both Nexus Mutual and Unslashed (to cover two different kinds of risks).
That part is trickier nowadays though with the high gas fees—even though Anchor Protocol is on Terra (i.e., much lower gas fees), Nexus Mutual and Unslashed are still on Ethereum. If I were doing it again today, I might feel comfortable going into Anchor without insurance, but then I might also put less money in to reduce my risk.
To summarize this whole section and explicitly lay it out, here are several different ways that mining and staking can work:
- Running a miner or full node, either by using a cloud-based solution like AWS (Amazon Web Services) or by buying or building your own server, both of which require technical skill (e.g., Ethereum, Bitcoin)
- Participating in a mining or staking pool, i.e., a group of miners or stakers who work together and split the profits (e.g., Rocket Pool, Chia)
- Staking via delegation, i.e., investing your money in a wallet or platform that stakes or mines for you and gives you a cut of the rewards (e.g., Lido, Solflare)
- Staking stablecoins, i.e., keeping some of your money in a less volatile cryptocurrency like USDC or UST and earning yield on it (e.g., Anchor Protocol, Yearn)
My experiences and recommendations:
- Personally, the only type of mining I’ve tried is with the cryptocurrency Chia. I set that up around eight months ago and managed to mine a small number of coins. I wouldn’t necessarily recommend that you start mining Chia today, but I’ll give you my reasons for getting into it back then, which should hopefully offer you some insight into how I make decisions like that:
- Chia was created by the person who created BitTorrent (i.e., another proven, innovative product);
- It was advertised as a greener alternative to Bitcoin (i.e., it offered something relatively unique at the time);
- They specifically made it easy and cost-effective to create nodes (i.e., low risk and low barrier to entry for me);
- I heard about it right when it was getting started, so it felt like I might as well mine some coins just in case it exploded a few years later like Bitcoin did (i.e., the market cap was reasonable, and it had a lot of potential upside).
- I also ordered a Helium miner several months ago, but it still hasn’t arrived due to major supply chain issues. Helium seems like a promising technology meant to support the Internet of Things. If you can get your hands on a miner, it might not be a bad investment, but the only place they seem to be available right now is on eBay at very high markups.
- In terms of running a full Ethereum or Bitcoin node, I haven’t personally felt like it was worth all the work to buy the right hardware, set it all up, and keep it running all the time. But, I do have some of my ETH in liquid staking via Lido.
- Rocket Pool seems very promising as well, but it requires a large up-front investment to run a node (16 ETH). If you have several hundred thousand dollars (USD) in crypto, a Rocket Pool node might be a good place to put some of that.
Beyond the more effortful staking and mining opportunities like Chia or Rocket Pool, there are a whole lot of relatively easier ways to liquid stake the majority of the coins and tokens from my tiered list earlier.
Below is that list again, along with where I personally have each one staked.
Compared to just leaving your coins or tokens in your on-ramp or wallet, staking involves a bit more work (and maybe slightly more risk in some cases). But, most of these staking opportunities will earn you between 5-10% APY (in addition to the value of the coin or token itself hopefully rising over time).
Where I have each coin or token staked:
Subjective Tier 1:
- ETH: Staking/lending split up across the Curve stETH pool, Lido, BlockFi, Celsius, Nexo, and some left liquid in MetaMask to pay gas fees
- BTC: Staking/lending split up across BlockFi and Nexo
Subjective Tier 2:
- DPI: Some staking in Vesper.finance (medium-high risk) and the majority just sitting in wallet
- MVI: Not stakeable as of now
Subjective Tier 3:
- SOL: Delegated staking in Solflare wallet
- LUNA: Delegated staking in Terra Station
- LINK: Staking/lending in BlockFi
- MATIC: Delegated staking in Polygon wallet
Subjective Tier 4:
- RUNE: Not stakeable as of now
- FTM: Delegated staking in fWallet
- DOT: Delegated staking in Polkadot wallet
- DATA: Not stakeable as of now
- ALCX: Staked and farming in Alchemix
Subjective Tier 5:
- RPL: Not stakeable as of now
- AVAX: Delegated staking in Avalanche wallet (once I have enough to meet their minimum)
- XTZ: Delegated staking in Temple wallet
- ALGO: Staking in Ledger Live
- LRC: Not stakeable as of now
- ATOM: Delegated staking in Ledger Live
- ADA: Delegated staking in Yoroi
- AAVE: Staking in Aave
- XRP: Staking/lending in Nexo
Subjective Tier 6:
- CRV: Staking in Curve
- XYZ: Staked and farming in Universe.xyz
- YGG: Stakeable in YGG Vaults, but I haven’t done that yet (because the small amount of YGG I own wouldn’t be worth the high Ethereum gas fees to stake)
- RARE: Not stakeable as of now
- SOV: Staking in Sovryn
- INDEX: Not stakeable as of now
- HBAR: Not stakeable as of now
Category #3: Lending
Here, you entrust your cryptocurrency to a platform to lend it out for you and pay you a cut of the fees they charge their borrowers. I discuss this in more detail in Part 13. There are a few approaches here:
- DeFi, i.e., decentralized finance (e.g., Yearn, Curve)
- CeFi, i.e., centralized finance (e.g., Nexo, BlockFi)
- Participating in a DAO, i.e., investing money into the treasury, and the DAO’s collective money will be invested in something (e.g., Flamingo DAO jointly invests in NFT’s)
You might have noticed that some of the coins and tokens in my list in the previous category were “staked” on CeFi platforms like Nexo and BlockFi.
To be more accurate, those are actually lending rather than staking, but I wanted to put everything in a single list for ease of reading.
Practically speaking, whether a CeFi platform is lending out your money or liquid-staking it, it’s generally the same experience for the user: You give that platform your coins or tokens and they regularly pay you interest on it.
Many CeFi platforms will just have a section on their website called “Earn” rather than calling it lending or staking.
Sometimes they’ll also make it explicitly clear that it’s staking specifically, like when you stake ETH on Kraken and they warn you that your money will be locked for a certain period of time.
With lending, you can generally earn between 5-15% APY, depending on the platform and the coin or token. Lending on a platform like Nexo or BlockFi feels quite low risk to me, but just make sure that you’ve actually set up your coin or token to earn interest.
On Nexo, for example, that automatically happens when you deposit your ETH, LINK, etc. (you can tell because, on the main Account page, it’ll show the interest rates you’re getting next to each asset). In contrast, on other platforms like Crypto.com or Kraken, it’s a two-step process: You first deposit your coins or tokens, then you have to go to the Earn page to actually stake or lend that asset.
Ok, that does it for the first three categories of investing in crypto.
Honestly, you’d be perfectly fine stopping right there. But, if you want to keep going deeper, there are even more opportunities around the corner. In my next post, I’ll explore other categories of investment along with my strategies and picks in each. Then, after that, I’ll take a step back to recommend how you might approach all this depending on how much money you have to invest.