Chief Investment Strategist, The Freeport Society
Financial freedom…
The pursuit of wealth…
And keeping that wealth hidden from prying eyes.
These are what fuel The Freeport Society.
And that’s why I believe all investors should own a little Bitcoin.
It’s protection against inflation and the mess the Federal Reserve has made of the dollar.
It’s a smart to hedge.
So let me say it again: Every investor should have a modest allocation to Bitcoin and other cryptocurrencies. Not your entire life savings. But cryptocurrencies, along with gold and real estate, are valuable pieces of any crisis-proof portfolio.
That’s why I recommended two crypto plays in the latest issue of The Freeport Investor, which we published on Wednesday. If you’re a subscriber you can log in here to read it. If you’re not a subscriber, but would like to see these recommendations, this video will tell you what you need to know.
One subscriber, Joanne, emailed me shortly after she read the issue. She said…
You mentioned keeping your money in a wallet but you didn’t mention which one or ones, are better than others? I have a Coinbase account and got a Coinbase Wallet but haven’t really done much with it mostly because I don’t feel I have a good enough handle on what to look for in a Crypto Wallet. Can you write an article on that? I would really appreciate it. Thanks in advance.
One of the reasons I signed up to The Freeport Society is you mentioned where we can go to be safe if America continues to lose its mind and becomes more violent and dangerous. I’m afraid if the United States of America fails there will be nowhere else to turn where we can be free and keep our assets.
Joanne, thank you for asking. Here’s your answer…
The 2 Approaches to Buying Bitcoin
For Bitcoin or other cryptocurrencies I plan to trade, I go with the cheaper and more liquid option of buying a Bitcoin ETF. I can trade any time the market is open, and the transaction costs are virtually nil. It’s also something I can hold in an IRA.
I take the same approach with gold. Then there’s my long-term “permanent” positions… my true hedges… the assets I don’t necessarily want “on the books.” For this, I take a very different approach. Much in the same way as I keep a permanent position in gold coins tucked away somewhere safe, I keep the crypto I intend to hold forever in a self-custodial wallet.
For the uninitiated, a self-custodial wallet cuts out the middleman… aka the crypto exchange.
I own the Bitcoin.
I hold the keys.
I accept the responsibility.
It’s the digital equivalent of pulling your money out of the bank and burying it in your backyard.
There are two critical reasons for that.
To start, I consider the lack of liquidity a bonus. I don’t want my permanent position to be easy to sell, because then I might be tempted to sell it at exactly the wrong time.
Selling my gold coins involves taking them out of storage, going to a coin store, and haggling with the guy at the register. Precisely because that is a monumental pain, I’m less likely to do it.
Keeping my crypto in a self-custodial wallet isn’t quite as illiquid as gold coins buried in the backyard. But it creates just enough friction to discourage me from selling.
Secondly, security is critical. If the bank where I keep my cash goes under, Uncle Sam has my back. FDIC insurance will make me whole. Likewise, if the broker where I keep my stocks and bonds fails, SIPC insurance protects me. I have reasonable faith in those systems.
But crypto? That’s a different world. Most cryptocurrency exchanges are offshore with little or no regulation. Sam Bankman-Fried was able to pull off his epic fraud at FTX precisely because no one was overseeing him. FTX pooled client accounts with the firm’s proprietary investment capital, and that’s what got them into trouble.
No thanks.
So, here’s how you can protect yourself.
Step 1: Get Your Dollars Into the Crypto Ecosystem
While I don’t like keeping my money on a crypto exchange, you really can’t avoid them at the beginning. You have to get your dollars invested, and the cleanest and easiest way to do that is by opening an account with a crypto exchange.
I use Coinbase. That’s not an endorsement, per se, but my reasoning is simple enough. It’s a public company subject to at least modest regulation and is headquartered in the United States.
I deposit my dollars with Coinbase and use its platform to buy Bitcoin, Ethereum, and a handful of other cryptos. But while I buy them at a crypto exchange, I don’t keep them there.
Step 2: Move to a Self-Custodial Wallet
An account at an exchange like Coinbase is what is known as a “custodial wallet.” This can be thought of as a “bank account.” I use air quotes here because, as you know, you have none of the protections of an actual bank account.
A self-custodial wallet is something you use outside the exchange. Think of it like taking your money out of the bank, stuffing it in mason jars, and burying it in your backyard.
It’s safe from bank failure there. But if you forget where you buried it… you’re on your own. There’s no one to help you.
Once I buy crypto in my account at Coinbase, I immediately move it off the exchange and into my self-custodial wallet. There are infinite self-custodial wallets to choose from, but I personally use the Coinbase Wallet app because it’s relatively user-friendly and it interfaces well with the Coinbase exchange account.
Now, this is the important part, so pay attention!
You absolutely must, must, MUST keep a copy of your recovery keys in a safe place, and preferably offline. If you lose or break your phone or computer and don’t have the recovery keys, your crypto is gone forever. There is no tech support to call and no one to help you.
I print mine and put them in a safe deposit box at a bank. You can too. Just don’t leave the paper floating around, because anyone with those codes could potentially steal your crypto.
My final piece of advice is to keep really good records. If you buy and hold your crypto, there is no taxable income to report. But if you exchange one coin for another or decide to sell them for dollars, you have potentially generated taxable gains. You really don’t want to deal with an IRS audit, so just make sure you keep good records of your purchases and sales and store them in a safe place.
I hope that helps all of you who are considering investing in Bitcoin or other cryptos. Again, thanks to Joanne for the question..
If you have any questions, feel free to email me at [email protected].
To life, liberty and the pursuit of wealth!