How To (Safely) Expose Your Portfolio To The Blockchain & Web3 Revolution

With Web 3.0 hype and user growth increasing every year due to tech innovation, the informed investor, regardless of crypto affinity, has become increasingly curious about adding exposure to this phenomenon in their portfolio. Of course, with any emerging technology, separating exciting opportunities from scams can be a daunting challenge. When it comes to exposing your portfolio to blockchain/web3 (web3), there are countless ways to integrate it into your portfolio, some more conventional than others. These methods of gaining exposure include, most commonly, the purchase of digital assets such as cryptocurrencies but can also entail investing in companies that are integrating blockchain into their current practices to gain a competitive advantage. We’ll explore the different ways to expose your portfolio to Web3 in a way that is as safe and secure as possible.

DIGITAL ASSETS

The most common, although not always most desirable, way of adding web3 exposure to one’s portfolio is through investment in digital assets. A digital asset, in its most simple form is anything that exists in a binary format that comes with the right to use. The definition of digital assets has evolved from photos, videos, data, and more to mean digital property that exists, usually, in the form of a cryptocurrency/crypto asset on a blockchain.

Cryptocurrency

A cryptocurrency is a digital asset designed to work as a medium of exchange of value that uses cryptography and blockchain technology to record and secure transactions while building a decentralized currency system of users. The most prominent blockchain use case and brand is the Bitcoin blockchain.

Tokenized Property

A token is a unit of value that has a protocol on an existing blockchain. Tokens can allow investors and owners to raise funds, similar to going public (ICO), on the blockchain. Through innovations in

Blockchain technology, the ability to “tokenize” assets has allowed for the ownership of assets to be split up and sold on the blockchain. Not unlike shares of a company trading on stock exchanges, the ability to tokenize assets has allowed the ownership of potentially anything to be securitized and traded. For example, a milestone for the digitization of real-world assets into tokens happened in 2018 when 18.9% of the resort hotel St. Regis Aspen was tokenized into the Aspen Coin.

Methods For Buying Cryptocurrency And Tokenized Property

The most common and, arguably, safest way to buy cryptocurrency is through a reputable cryptocurrency exchange. Current consumer consensus has dictated that the Coinbase exchange is the most reputable firm to exchange fiat currency (i.e. US Dollars) for cryptocurrency. The Coinbase exchange, however, is very limited in its offerings of crypto assets which is part of the reason it is safer than some of its smaller counterparts. Buying Bitcoin on Coinbase is as easy as making an account, entering your bank information, and making a purchase. Another prominent cryptocurrency exchange is the Binance exchange headquartered in Malta. This exchange, according to volume metrics from coinmarketcap.com, is the world’s largest cryptocurrency exchange. Binance is not as easy to use as a fiat gateway, or a primary exchange for fiat-to-crypto and crypto-to-fiat transactions, but is excellent for crypto-to-crypto trading because it has a wide range of tokens and currencies listed on its platform. Of course, when using a centralized exchange such as Coinbase or Binance you’re exposed to significant risk because of your dependence on that central entity. While trading on the exchange, it’s crucial to enact the proper security protocols such as a strong password, private internet network, and two-factor authentication using an app, not SMS. Once your transactions are complete on the exchange, we recommend transferring your crypto assets into a wallet that is in your control. Leaving your assets on the exchange leaves your funds vulnerable to hacks of the exchange, poor risk management, raiding of the coffers by employees (*ahem* FTX *ahem*), and other potential risks. Leaving your assets on an exchange is not recommended.

P2P - A less common way to buy cryptocurrencies is through peerto-peer networks which many Bitcoiners prefer. These services connect individuals looking to buy/ sell cryptocurrency with other individuals looking to sell/buy cryptocurrency. These networks are preferable if you desire no intermediary like Coinbase. Unfortunately, due to the peer-topeer nature of these transactions, they come with a higher risk of getting scammed. Two prominent peer-to-peer networks are LocalBitcoins.com and Paxful.

CONCLUSION & PRACTICAL APPLICATION FOR YOUR PORTFOLIO

Investors looking to gain blockchain exposure in their portfolio must consider the different ways that one can, directly and indirectly, invest in web3. If an investor would like to directly invest in blockchain, they should research what cryptocurrencies or digital assets they would like to buy and place their orders on a reputable exchange, then transfer to their wallet.

For the crypto-curious investor, there are several guidelines I recommend following. Most importantly, you must never invest more than you can afford to lose in this extremely speculative sector. Once you’ve identified the prudent amount of your portfolio to allocate to these high-risk assets, it’s crucial to do your research on investment opportunities and diversify the sources of your information. Unfortunately, this space can be very “tribal” and individuals’ favorite crypto projects are often treated like their favorite sports team. Develop your criteria and fundamental analysis of a project’s strengths and weaknesses. Once you’ve invested your funds, ensuring you have an airtight security protocol is your next step.

If you have an amount invested in crypto you want to protect, we recommend transferring your crypto off of centralized exchanges to cold wallets (Trezor, Ledger, etc.) that you have control over. The phrase “not your keys, not your crypto” has never been wrong and, unfortunately, was most recently reinforced through the FTX debacle. Finally, once you’ve invested and stored your cryptocurrency, it’s imperative to build a system that allows you to keep track of your crypto assets for portfolio management, tax planning, and tax minimization purposes.

For prospective investors with lower risk tolerance and who want exposure to this revolutionary technology, it may make sense to focus on blue-chip cryptos like bitcoin. To avoid suffering the same fate as the bagholders of Pets.com, the FTX bankruptcy, and similar ventures, they likely must invest in established companies that are integrating web3 to widen their competitive advantage.

DISCLAIMER: This article mentions specific companies, crypto projects, crypto exchanges, and other entities. These mentions are purely for illustrative purposes and not meant to be construed as a public endorsement of these firms in any way, especially as an investment. While the opinions of Ascent Personal Finance LLC, a registered investment advisor, and Zechariah Schaefer, a licensed investment advisor, are shared, no portion of this article is meant to be construed as investment advice, an official market outlook, or personalized recommendations for your situation. Past performance is not indicative of future results. Investing has risks and loss of principal may occur. The aforementioned risk is exponentially increased when cryptocurrencies are involved. Before taking action on any information shared in this article, it’s crucial you consult with the appropriately qualified & licensed investment, tax, legal, or other professional counsel.

Past performance is not indicative of future results, but let’s look at the parallels from the Internet. In the same way that the companies that integrated the Internet effectively in the 2000s experienced significant growth compared to their slower-moving competitors, companies that are effectively integrating web3 to gain competitive advantage are positioning themselves to dominate their competitors in the mid-far future.

Zechariah Schaefer runs Ascent, a wealth management and tax firm serving successful crypto investors. He offers a comprehensive service, covering clients’ complete financial picture as well as crypto-specific expertise, he helps them to intentionally manage their growing wealth, reduce taxes, invest wisely, and more. The unique approach he and his firm take, along with building 10,000+ LinkedIn followers through engaging napkin presentation-styled infographics, has resulted in features in Forbes, CNBC, Investopedia, and others.

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