Cryptocurrency Investing Tips and Advice for Beginners

Cryptocurrency has a bit of a reputation for being high risk and high reward. We’ve all heard stories about “Bitcoin millionaires” who turned a modest investment into millions with crypto. But many tokens and crypto exchanges have imploded over the past few years, causing many people to lose their life savings. If you’re considering cryptocurrency investing, it can be hard to tell if the rewards are worth the risks. But if you do your research and understand what you’re using, it’s possible to invest in crypto without much more risk than a “normal” investment.

See The Risks and Rewards of Cryptocurrencies with Natalie Brunell for a complete transcript of the Easy Prey podcast episode.

Natalie Brunell is the host of Coin Stories, the top women-led podcast about Bitcoin. She focuses on the intersection of Bitcoin with macro and global economics. Her goal is to help people understand this new technology. When she first heard about Bitcoin in 2017, she was suspicious. She didn’t understand how Bitcoin or cryptocurrency worked, and she also didn’t understand a lot about the financial system. Natalie was a journalist for over ten years, and she used those skills to go on a journey learning about Bitcoin.

Her reporting had mostly focused on topics like the growing cost of living, how young people feel like they will never be able to afford houses, society becoming more polarized, and mental health issues. These are all things connected to money and a lack of hope. She views Bitcoin as a real transformation, because it took her from not having much hope for the future to having a lot of hope. That’s why she dedicates her time and media skills to teaching people about cryptocurrency investing, and about Bitcoin in particular.

The Risks of Cryptocurrency Investing

It took Natalie a while to understand how Bitcoin, a specific cryptocurrency token, was different and unique from most cryptocurrencies. There’s a saying in the space that goes, “It’s Bitcoin, not crypto.” And that’s for good reason. Bitcoin has some fundamental differences from most cryptocurrencies.

You may have heard of crypto companies like Celsius, BlockFi, or FTX. The companies imploded and ran away with customer’s money. Natalie believes in free markets, but also doesn’t want to see anyone losing money because they trusted their cryptocurrency investing to bad actors.

Right now, crypto isn’t much different from the early internet. On the internet, anyone can create a website and make it say whatever they want. These days, you don’t even have to know anything about code. It’s very similar in the crypto world. Anyone can create a token. That’s why there’s over 20,000 tokens on the market today. And there’s no real way to guarantee that all of these tokens are run by legitimate people or companies. It’s very hard to tell if it was created by a thief or a criminal actor – at least until they steal your investment.

How Bitcoin is Different

Most cryptocurrencies are securities. There’s an “issuer” who created them, and they have a team that can influence the protocol. Often they issue themselves a lot of coins in the initial coin offering and sold the rest to the public. It’s very similar to issuing stock in a company, which is why the Securities and Exchange Commission (SEC) is so interested in it. And many of these companies are offshore, so it’s hard for people interested in cryptocurrency investing to know what’s really going on. It’s very easy for a malicious actor to create a cryptocurrency that’s just a scam.

I really urge people to be careful with crypto, because a lot of the tokens are scams.

Natalie Brunell

Bitcoin, on the other hand, is a commodity. That means it has no issuer. There’s no team behind it that can influence the protocol, the technology network, what’s going to happen to it in the next several years, or even how many tokens are going to be issued. It is, in many ways, immune to change.

It surprises many people to hear, but Natalie actually considers Bitcoin one of the most conservative long-term investments you can make. Yes, it’s volatile in the short term. If you look at day-to-day value, the price swings look like a heart monitor. But it’s a long-term savings tool – it’s not meant to be looked at every day. You probably don’t check the value of your house on Zillow every day, either. If you zoom out, Bitcoin has gotten better returns than almost any other investment you could have made. And if you know how to take self-custody and manage your keys properly, it’s also one of the safest places you could store your money.

Future Regulation Could Affect Cryptocurrency Investing

Many people are familiar with FTX, if for no other reason than the recent trials of its founder, Sam Bankman-Fried. FTX issued its own token, called FTT. It was also based offshore. Natalie considers it a huge red flag if a company is based offshore and either issues its own token or offers a huge variety of different tokens. It doesn’t necessarily mean that there’s something shady going on, but it definitely means any cryptocurrency investing you do with that company will have more risk.

Natalie encourages people to look for companies that are Bitcoin-only. Bitcoin is the only option with regulatory clarity. Everything else is uncertain. What is the SEC going to do about these other cryptocurrencies that act like securities? Is congress going to pass a new law about digital assets? The truth is, we don’t know. There’s an argument that many of the current coins will cease to exist, especially if a new framework provides a more clear way to register digital securities.

How to Choose a Good Exchange or Company

If you want to do some cryptocurrency investing, you will need to first buy some cryptocurrency through an exchange or company. Natalie does her cryptocurrency investing only with Bitcoin-only companies because they take less risk. You should also look for companies that encourage you to self-custody. That means they’re not afraid of the investment actually leaving their site. And if the funds are backed one-to-one, they shouldn’t be afraid. If you’re purchasing Bitcoin, having the funds backed means the company owns that amount of Bitcoin. They’re not leveraging it, lending it out, or anything else. A lot of companies who have done that don’t exist anymore.

There are a lot of companies out there that appear to be regulated. They are already public companies, and the SEC has already given them approval. But just because the company itself is SEC-approved doesn’t mean every token on the platform is going to be safe. The SEC has already filed many lawsuits against these types of companies.

Minimizing Your Risk in Cryptocurrency Investing

Beware of any company that makes any promise of returns on your cryptocurrency investment. The people investigating FTX found a deck that the company provided to investors. They got billions from venture capital firms who did no due diligence. This deck promised 100% returns on their investment. This should have been suspicious, especially to people who work with money and investing all the time. If they are guaranteeing you significantly more than you would get at a bank, you have to wonder how they can do that when other institutions can’t. It could be because there is significant risk involved. Or it could be because they are trying to scam you.

New exchanges are also much more risky than established exchanges. With established exchanges, you can look at their track record. If they’ve been around for a bit and are building well in the space, it’s likely they will be around for a while. Even legitimate new exchanges face the challenges of competition. Some will fail, and some will survive. That’s the beauty of capitalism, but it also means investing cryptocurrency through a newer company is more risky. There is no guarantee any company is going to survive, but Natalie would always trust the company that’s been around a little longer.

It’s also important to remember that cryptocurrency investing is different from retail banking. If a new bank opens, it’s connected to the federal reserve system and is FDIC insured. If something goes wrong with a new bank, you have that insurance. You don’t have any insurance in crypto.

You don’t have FDIC insurance in this [crypto] space. If you send someone money and you don’t know exactly where it’s going, be careful.

Natalie Brunell

Identifying Cryptocurrency Investing Scams

There are many cryptocurrency investing scams out there. Be incredibly careful. Especially for those who talk about cryptocurrency and have a public following, there are a ton of impostors and impersonators. Natalie has been frustrated with some social media platforms because even when she reports the fake profiles, they don’t always get taken down. One impersonator on TikTok has over 180,000 followers, and is still up despite being reported.

If you encounter a cryptocurrency content creator online, remember that none of them will ever ask you for money. The legitimate ones might have recommendations for certain platforms or have promotional codes. But they will never message, comment, or post about how you should send them money directly.

Also be careful if someone says they’re going to send you money. There are a ton of bots pretending to be Michael Saylor, one of the biggest personalities in cryptocurrency, who claim if you send them 1 Bitcoin, they’ll send you 2. The real Michael Saylor has a team working on taking these bots down. But as soon as they get one down, two more pop up.

Don’t trust anyone sending you a DM offering to help you with your investment strategy. That’s a scam and will only end up with you losing money. Report them and block them.

Verification for Trust

Natalie urges people to look for the verification badges, like the blue check on Instagram. Those mean the person on the account has verified who they are. Impersonators can’t get that because they don’t have Natalie’s driver’s license to send in as proof.

There are some platforms Natalie just won’t get on because she can’t get verified. For example, she’s not active on Telegram. She’s only used it a couple times to contact people she couldn’t contact any other way. But there are over a hundred fake Natalie Brunells on Telegram who have messaged people and extracted money. She once got a Twitter message asking where she was because they were excited for her speaking gig. Natalie was doing a TV shoot somewhere entirely different. It turned out that they thought they had been talking to Natalie over Telegram and booked her as a speaker. In reality, they sent the speaking fee to a scammer.

If you accidentally send something from your bank account or on a credit card, you can generally call the bank or the credit card company and get the charge reversed. But with cryptocurrency, once you send it to a crypto address, it’s gone. Be very careful, especially online. There are so many bots, fake accounts, and impersonators out there. Platforms need to do something, but in the meantime, be very cautious about where you send your money.

Self-Custody Keeps Cryptocurrency Investing Secure

When it comes to cryptocurrency investing, there’s an entity called a “custodian.” The custodian is whoever is actually holding those coins. If you purchase Bitcoin on a platform, the platform may be the custodian, or you may decide to trust another custodian. Even though those Bitcoin are yours, the custodian is the one who is actually holding them. It’s like a bank. The money you put in the bank is actually yours, but the money itself isn’t in your wallet, it’s in the bank.

If you’re trusting a custodian, you want to make sure they’ve gone through accreditation and have certifications and audits. A good custodian will have something called SOC 1. This is an audit that basically provides a stamp of approval that the custodian is actually keeping the things in their care safe. There’s also a SOC 2 certification, which is a step beyond.

But if you’re up for learning a few extra steps, self-custody is the safest option. If you buy Bitcoin and take self-custody, you are now the person actually holding those Bitcoin. Continuing with the bank analogy, it’s like taking all your money out of the bank in cash and storing it in a safe in your closet.

If you take custody of your own cryptocurrency investments, no one can seize or confiscate it. Assets being seized or confiscated isn’t common, but it’s a fear some people have. And it happens occasionally. A year and a half ago in Canada, for instance, the government got upset that people were donating to the trucker protest and froze their bank accounts. If you have money on a platform, what happens if the company agrees to the government’s request to freeze it? But if you have your bitcoin in self-custody, they have no way to do that.

Extra Keys for Extra Security

When you take your cryptocurrency investment into self-custody, you get “keys” to access it, just like if you were locking it in a vault. It’s possible to set up your self-custody with a single key, known as single-signature or single-sig. But Natalie doesn’t recommend that. First, if you lose that one key, that’s it. Your cryptocurrency investment is now locked securely wherever you put it and there’s no way to get it out again. Second, because that leaves just one point of failure. If someone gets access to that key, they can now access your cryptocurrency.

What is more secure is something called collaborative self-custody. Instead of being single-sig with one private key, it’s multisig with multiple private keys. It’s more secure because just one key won’t give access to anything. The most common key setups are “two of three” or “three of five.” If there are three total keys, you can use any two of them to access your cryptocurrency investment, but there has to be two of them present. If there are five total, you need three of them present.

You can keep the keys with anyone you trust. It diffuses the risk because anyone who gets a key still won’t be able to do anything. And even if the company turns out to be shady, if they only have one key they can’t run off with your crypto.

That’s the beauty of bitcoin. In its purest form, when you take self-custody … you don’t have to trust anybody.

Natalie Brunell

Many people think self-custody sounds intimidating, especially if you’re not a technical person. That’s how Natalie felt at first. But it’s actually not that scary, and takes just a few steps to learn. It’s no harder than using a USB drive or hard drive. If you can use a USB and move files, you can take self-custody of your crypto.

Cryptocurrency Investing if you Don’t Want to Deal with the Tech

If you don’t want to take self-custody, you need to accept that there will be some risk. You can decide to trust a custodian, like the company where you purchased it. But make sure that custodian has been audited and has a good track record.

These days, there are also ETFs, or Exchange Traded Funds, that let you invest in cryptocurrency as well. It’s similar to owning a share of a stock or bond. The ETF takes the Bitcoin and wraps it into an investment, and you can buy a share of that. The ETF company or issuer is the one who actually owns the Bitcoin, not you. It’s an option for cryptocurrency investing, but it’s not owning Bitcoin the same way owning a share of a gold ETF isn’t the same as owning physical gold. And like all traditional investments, there are some fees involved.

Natalie saw a funny comment online about owning Bitcoin through an ETF. The commenter said it was like having a girlfriend, but you never get to see her in person. She lives in an apartment that someone else pays for, and you pay that person to watch her and send you pictures of her. It’s a funny analogy, but it’s basically correct. If you buy a Bitcoin ETF, someone else owns it, but you’re paying someone a fee to say you own a portion of it, too. It’s a potential way to invest. But it’s definitely not taking self-custody.

Protecting Your Cryptocurrency Investment

Natalie has worked with some companies trying to help recover people’s lost cryptocurrency. They do forensic analysis of blockchains to trace where it went, and sometimes it’s successful. But often it’s just too difficult because it was sent to an address overseas and no one knows who it’s affiliated with. Your chances of getting your money back once you sent it to someone is very low.

It’s not like a credit card, where you can call the bank and explain there was fraud and they can cancel the card and reverse the charge. A traditional financial transaction can take days or even weeks to “settle,”where the money finally ends up where it should be and the transaction is finalized. With cryptocurrency, transactions settle in ten minutes or less.

One of Natalie’s friends clicked on a malicious link. It downloaded malware and they got access to everything on his computer, including a folder with the seed phrases for his cryptocurrency. They took it all. There are ways to protect yourself, but it takes a little bit of extra work. You want to be careful. This isn’t losing a password and requesting it be reset – this is your life savings. If you’re going to do cryptocurrency investing, you need to take those extra steps.

That’s one of the reasons Natalie recommends collaborative self-custody. If something happens to one of your keys, it’s okay because they still can’t get access. It lets you diffuse the risk. If you decide you want to trust a company, do your homework and make sure you actually trust them. We’ve had FTX’s and Sam Bankman-Frieds in the world before, and there will be more.

Privacy and Regulation in Cryptocurrency

Most of the exchanges operating in the United States have to be KYC. KYC stands for Know Your Customer, and it requires them to collect certain information about people. It’s similar to the process of opening a regular bank account. Some people are fine with this. Others hate it and want the process to be as private as possible.

Most people are not committing crimes with cryptocurrency. We often see lawmakers want to remove freedoms and privacy to get at the tiny percentage of people who are breaking laws. It’s just an excuse to gain more control.

A lot of people have gotten used to KYC in the retail banking world. And because most US-based companies are KYC, they do know how much Bitcoin you’re purchasing with your cryptocurrency investing. It could get interesting. If the government decides to tax Bitcoin heavily, for example, they may see that this person bought 5 Bitcoin. They don’t know where it is now, but they know they bought it, so they assume this person still has it and sends them a tax bill.

Natalie has a friend who mined a lot of Bitcoin early on. He wanted to sell some and make a purchase, so he moved it onto an exchange. It set off a flag, and the IRS contacted the company and asked where it came from. The company reached out to him and he had to respond. At this point, they took him at his word. But it could be interesting later on. We should expect that the government will want to know everything going on with cryptocurrency.

People should expect that there are going to be government actors and people who are in positions of power who want to know everything that’s happening in this space.

Natalie Brunell

Privacy, Secrecy, and Coin Mixers

There hasn’t been anything truly private within the financial world since cash. Bitcoin helps us get a step closer to that.

Natalie Brunell

Imagine if we lived in a world where we could easily track how much money everyone had. That’s a very scary world with significant security risks. But if someone knows your cryptocurrency address, or if the information is compromised in some way, someone could find out exactly how much you have.

Some people get around this with tools called coin mixers. Coin mixers, sometimes called CoinJoins, let people send their Bitcoin in. It gets mixed around, and comes back out with a different address. Most people aren’t putting their Bitcoin into coin mixers to hide illegal activity. They’re doing it to be more private. But lawmakers are already trying to ban them. There’s an immediate reaction that if someone wants privacy, they must be doing something illegal. That’s often not true, but it’s the knee-jerk reaction many people have.

Privacy is different from secrecy. Privacy is really just about protecting yourself and your information. … Secrecy is you’re trying to hide something.

Natalie Brunell

Privacy is different from secrecy. Privacy is about protecting yourself and your personal information. Everyone has a right to privacy, and having your privacy violated can put you at risk. Secrecy is intentionally trying to hide something. There can be legitimate reasons for secrecy. But the two things are different. Unfortunately, the government often conflates the two.

Cryptocurrency Investing Doesn’t Need Diversifying

The common wisdom in regular investing is to diversify. But if you’re doing cryptocurrency investing with Bitcoin, the only way to diversify is to store it in multiple places. And that just creates more hurdles.

The blockchain is already beautifully built for optimizing security and decentralization. Each block has a size limit to keep it from getting too slow, which means they can only fit so many transactions, or records of Bitcoin moving, per block. But block space is finite. As more people adopt Bitcoin, there is going to be more competition to fit each transaction into a block. That means fees for each transaction will go up.

What you don’t want is a situation where you have a bunch of tiny UTXOs, or unspent transactions. If it costs a few hundred dollars to perform every move, having tiny amounts of Bitcoin all over the place can get expensive very fast. The safest and most efficient route is to have everything at one address and have multiple keys.

You can find Natalie Brunell on her podcast, Coin Stories, which updates twice a week – once with a short news update and again with a longer interview discussing topics related to Bitcoin and the economy. You can find it on YouTube or wherever you get your podcasts. She’s also very active on X @natbrunell. She is also going to be putting out some intraductory educational material soon to help people get more comfortable with Bitcoin and cryptocurrency investing.