Cryptoassets, Investing

The Ripple Effect Of Cryptocurrency

Worried my professional identity was beginning to blur the line between a financial advisor and a crypto-crazy, I had planned to take a break from the world of cryptocurrency and Blockchain after cashing in my initial investment and letting the earnings ride. That was my intention… however, after having multiple friends ask me about Ripple (XRP), I decided to learn how to invest in XRP and thus continue my experiment on the next level of cryptocurrencies.

Before I go any further, let’s make one thing clear…I am not recommending Ripple as an investment, nor am I recommending any cryptocurrency as an investment for that matter. As I’ve explained numerous times in my blogs, the purpose of my experimenting in the cryptocurrency is to learn about investing, owning, storing and the nuances of cryptocurrency so I can hopefully provide resources to help readers determine, with the consultation of their financial advisor, how to best participate in the asset class should they chose to.

Prior to making an investment in XRP, I had already spent time researching Ripple and had a general understanding of how it differs from other cryptocurrencies, but I never invested in it, mainly because it wasn’t as easy as the BTC, LTC and ETH. Plus, it’s been a relatively unknown cryptocurrency to the masses. But, Ripple appears to be gaining in popularity, and I anticipate more investors will learn about XRP and have questions. Today’s post is not to provide an explanation of Ripple but to highlight the inefficiencies of investing in lesser-known cryptocurrencies.

As I mentioned, investing in XRP is not as easy as the cryptocurrencies found on Coinbase. Currently, XRP is not available on Coinbase, which means you need to go out to another exchange to purchase it. I chose to use Kraken–after a little research, I determined this was a reputable exchange to purchase my XRP. There are a number of other exchanges you can purchase XRP on, so do your research! The process of opening an account with Kraken took some time; there are different levels of verification to go through so don’t expect to sit down and have your Kraken account ready to go in 10 minutes. For the type of investing I planned to do, I verified my account through level 3 because I thought it would allow me to deposit USD via ACH to make my investment. I was wrong; ACH was not available–I could only wire in USD.

Since depositing USD was not an option (I didn’t want to mess with wiring money, especially since my investment was going to be nominal), I decided I would use BTC (on Kraken it’s XBT) to make my XRP investment. In order to do this, I purchased some BTC on Coinbase and after it was in my Coinbase wallet, I sent it over to my Kraken BTC/XBT wallet. Remember, Bitcoin takes approximately 6 verifications for it to be “available”, which means it took about an hour before I was able to purchase my XRP. Once I purchased my XRP I transferred it off Kraken to my offline wallet for safekeeping. Reading this, it may not seem like it, but purchasing XRP was quite the process, especially since I was doing it between meetings with clients and getting actual work done during the day. It literally took me all day to complete this investment–if I had a couple of hours to kill, I probably could have completed my XRP investment much sooner, but like most individual investors just getting into this space, I have a career and family that requires my attention.

Here are my main takeaways from my investment in Ripple:

  • It’s expensive. My tuition for this education was $100. After paying Coinbase to buy BTC, transfer it to Kraken, purchase XRP, and then transfer to my offline wallet I ended up with 79.98 XRP, which was about $62. That’s a 38% fee. 38%.  Yes, the fee would be a smaller percentage had I invested more, but again this was an experiment. Should XRP collapse, I won’t miss the $100. Nonetheless, investing cryptocurrency is not cheap for smaller individual investors.
  • It’s time-consuming. As I mentioned, it takes time for your new account on an exchange where XRP can be purchased to be established and verified. I then had to purchase BTC on Coinbase, wait for it to settle, transfer BTC to Kraken, wait for it to settle, purchase XRP, wait for it to settle, and then transfer my XRP off Kraken. If my motivation for an investment in XRP wasn’t to learn the process, it would not have been worth the time.
  • It’s nerve-racking. Kraken is in no way as user-friendly as Coinbase. After spending a considerable amount of time on Kraken, I am more comfortable with it, but it still takes me some time to navigate around it. When I made my initial transfers and purchases I wasn’t 100% sure I was doing it correctly–another reason for a $100 investment. Luckily, I did everything right.
  • It’s inefficient. Not only did it take up time and cost me way too much to complete the total transaction, but I still have $1.25 off BTC/XBT on Kraken. I wasn’t able to confidently take my total BTC/XBT balance and invest it all in XRP–I was concerned about spreads and fees causing me to come up short and have to deposit more BTC/XBT to cover the shortfall. Kraken may not have allowed me to invest more than I had, but there was nothing on the site that made me feel comfortable that I wouldn’t over invest…plus there was a line for margin, which means it’s possible to borrow to invest in XRP.
  • BTC is XBT. Experienced investors may be familiar with the global identifier for Bitcoin being XBT, but new American investors may only know Bitcoin as BTC. I’ve tried to put the two together in the post to drive home the fact they are the same thing.

I fear investors will continue to look for the next “Bitcoin” and begin investing in “cheaper” cryptocurrencies without fully understanding what they are investing in. You may not read this in very many posts, but it is ok to miss out on cryptocurrencies. Sticking to a well-diversified portfolio with a long-term view will most likely continue to get the job done for investors. It is possible to reach financial goals without investing in cryptocurrencies, and my hope is when investors realize after the cost, sometimes complicated process and the ongoing monitoring of cryptocurrency, many will realize it’s probably not worth it for the little they were going to invest in the first place.

If after reading this you are still interested in some of the other cryptocurrencies available, consult your financial advisor to determine how to best satisfy your itch. I’d also recommend checking out Cryptoassets by Chris Burniske and Jack Tatar to read more about the coins you might be investing in.

And again, it’s ok to sit out the cryptocurrency craze!


Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimer page.