Happy Holidays!
December 2024
Holding Crypto in 2024
Jon and Anh recently received a spike in questions about crypto from our family and friends. No surprise, one of our favorite digital assets (Bitcoin) crossed $100K bringing it once again into headlines around the world. Is it still a good time to buy? Should I wait for it to go back down? The regret from the sidelines is palpable. My Uncle Satoshi has never offered to time the crypto market. The children in our lives who received crypto as gifts for birthdays and Christmas didn't get it out of FOMO. Receiving Bitcoin or Ethereum was simply an opportunity to track digital assets and spread financial literacy.
NO FOMO, ALL KYC
The holidays are here, so let’s skip the debate around timing the price of crypto. We’re afraid to ask if you spent time and money gifting another forgettable piece of plastic destined for a landfill. If you did, we’re sure you got a nice smile and heartfelt hug, and maybe you made a dent in the war against financial illiteracy. Jokes aside…we want to set you straight and cover the basic ways to hold crypto this holiday season. If you’re going to give a crypto gift, you need to understand how to hold it. For our largely US audience, things have changed drastically in terms of regulation. The US government has decided that crypto is no longer a scam and now demands we provide identification and our social security number whenever buying crypto so it can share (tax) in our success. In fact, the Feds have gone so far as to approve crypto ETFs for trading on all major exchanges, making taxation even easier. Told you so.
METHOD 1: NOT YOUR KEYS, NOT YOUR CRYPTO
This is the grandaddy method of holding crypto. This is why we’re here. You can custody your Bitcoin or Ethereum directly on the blockchain. That means you have the passkeys. The passkeys are required to move (i.e. spend) your crypto. Addresses are anonymous - governments hate that one. No one can freeze your account or prevent you from moving it - governments really hate that one. If you lose your passkeys, there’s no locksmith. Plenty of crypto is inaccessible due to the loss of passkeys. Access to crypto that is self-custodied is through a “wallet”, and there are a variety of wallets to choose from. For hot wallets, we like Trust wallet. For cold storage, we’re fans of Ledger. More on those in a future newsletter.
METHOD 2: LEAVE IT ON AN EXCHANGE
If you don’t run a crypto miner, chances are you bought BTC or ETH on an exchange. The problem is that these operations have a terrible history of going under and locking owners out of their crypto. Notable names like BlockFi, publicly traded Voyager and the infamous FTX should serve as reminders that convenience comes at a price. The current breed of exchanges like Coinbase and Binance are seemingly stable albeit during their short history. For this reason, many people will purchase crypto on an exchange and subsequently transfer it to a wallet for self-custody as described in Method 1. In doing so, indirect ownership on an exchange becomes direct ownership on the blockchain accessible through a wallet.
METHOD 3: BUY AN EXCHANGE TRADED FUND (ETF)
While this is similar to method 2 in that ownership is indirect, the ability to gain exposure through a familiar platform such as Fidelity or Schwab has truly opened the floodgates. If you already have an account that can purchase stocks or bonds, you can use it to get exposure to BTC or ETH from big names like BlackRock and Grayscale. That's a huge convenience. However, there is a critical difference that is similar to owning a gold ETF. You have exposure to the price of gold, but you cannot have the gold delivered. Crypto exposure through an ETF cannot be transferred to a wallet for self-custody.
WHICH ONE?
Regardless of the method you choose, expect to give up your identification and social security number when purchasing crypto this holiday season. Even a Venmo account that you have had for years will want these KYC (Know Your Customer) details that first time you buy some BTC or ETH.
For crypto gift giving, Anh is currently a fan of Venmo. It’s easy to use and KYC is handled through their app. Fees are obnoxious, but that’s the price of convenience. The minimum age is 13 for a Venmo account with an adult guardian, so that might work for some recipients. However, it would be best practice to set the recipient up with an actual wallet for self custody. You can then Venmo crypto directly to the recipient’s wallet address. The parents simply hang onto the passkeys on behalf of the child.
For holding larger crypto sums, ETFs seem to be the future. Jon recently created an account for one of his children through Schwab. The online forms took less than an hour to complete and he was able to immediately fund the account. The benefit is of course that this account can hold a variety of assets providing a diversified portfolio. Ownership of the account passes to the child at the age of majority.
SUMMARY
Here's a quick recap of how to hold crypto in 2024.
Self Custody. You hold your own keys.
Trust an exchange to hold the keys.
Trust an ETF to hold the keys.
We wish you the best this holiday season, and happy New Year!
Jon & Anh @MyUncle_Satoshi