What are stable coins?
Stable coins are digital coins pegged to the USD. The largest stable coin by market cap is USDT (Tether). 1 USDT will always = 1 Dollar. USDT is a base currency meaning its primary use is to be exchanged for other coins. For example, you would purchase $50 worth of BTC in exchange for $50 in USDT.
Who makes stable coins?
Ironically, the biggest stable coins are centralized. For example, Coinbase and Circle created the USDC stable coin. USDT (Tether)was the first stable coin created by the Tether Foundation. Their website claims, “all USDT tokens are pegged 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves.” This means for every dollar deposited, you will receive 1 USDT. When you give back your USDT, it will be taken out of circulation, and you will receive back your fiat currency (USD). While USDT works flawlessly, there are questions about whether Tether actually backs the stable coin 1-to-1.
Who uses stable coins?
All cryptocurrency exchanges use stable coins as a base currency. Individuals also use stable coins as a base currency to buy other cryptocurrencies like Bitcoin and Ethereum.
Put differently, all digital assets, including stocks, are traded in pairs. We must give up $30 to receive 1 share of Twitter. The same goes with cryptocurrency, but instead of USD, we give USDT to receive X amount of crypto. Hence, we commonly see pairs such as BTC/USDT or ETH/USDT listed on most exchanges. You may also see BTC/USDC or BTC/ETH. In this instance, USDC and ETH are the base currencies.
Spot trading is simply buying or selling a cryptocurrency at market value using USDT as a base currency.
All cryptocurrencies brokers offer this type of trading— Coinbase, Binance, and FTX being some of the largest. Later in this section, we cover the fastest and cheapest way to spot $100 worth of BTC, then send it to cold storage. The method shown is much more efficient than buying crypto with a credit card.
Trading perpetual (PERPS) is trading crypto with leverage. We use leverage multipliers (2x, 3x, 50x, etc.) to scale up the current trade.
For example, if you have $100 of BTC and use 10x leverage, then your position’s size is effectively $1000. The catch is that BOTH profits AND losses are multiplied by a factor of 10. This is a great way to earn massive capital if done correctly.
Since PERPS is a tricky subject, I will later release a complete guide dedicated to understanding them.
Buy, sell, and move crypto
To buy crypto quickly and cheaply, we need to use a good cryptocurrency exchange. After selecting our exchange, we will place a $100 BTC spot trade, then move that money off the exchange to a cold wallet.
Why use crypto exchanges?
If you plan to buy, hold, and sell different coins regularly, you will want to use a crypto exchange for fast transactions and minimal fees. For example, buying $100 worth of BTC with your credit card will result in $8 in fees and take up to 1 hour to process. Buying $100 worth of BTC on a crypto exchange will take seconds and <$1 in fees.
Top 5 Crypto Exchanges
- Coinbase Pro. This is the cheapest and fasted way to spot trade crypto. This beats even the regular Coinbase app where you pay almost double the fees. The interface is simple and easy to use. Making an account is easy and only takes minutes. If you use the link you will get $10 of BTC on your first $100 trade. Later we will show you how to receive up to $50 worth of free bonus. CONS: Doesn’t have advanced functionality like leveraged trading.
- FTX and FTX.us are well liked by hard-core crypto traders. Spot trading is blazing fast with very low fees. There are many advanced trading features as well as detailed graphs for doing technical analysis. CONS: FTX may take a few days to approve your account. Not a beginner friendly platform.
- Binance is also a great option, but if you are in the U.S you will need to use Binance.us. Simple interface, lots of advanced functionality, and many listed coins. CONS: US version doesn’t support all features/coins.
- Crypto.com is a well rounded option with plenty of listed coins and credit card options that rewards you into crypto. Used primarily as a crypto bank from which you spend money. Not really used to trade coins. This link will give you a $25 sign up bonus when you stake for their ruby card. CONS: currently only uses wire transfers (which can take long to set up) to deposit fiat money into account.
- Kraken is a simple to use exchange. CONS: KYC is not that fast, fees are higher than other exchanges, not many listed coins.
We will use Coinbase Pro as the fastest and cheapest method to buy $100 of Bitcoin. This should take ~5 minutes starting with no account, and you will receive $10 in free bitcoin.
- First make a regular Coinbase account, before using Coinbase Pro. Use this link to do so.
- Verify your identity and link your bank account. You can do this on a computer or on the regular Coinbase app.
- Next download the Coinbase Pro app (Here for IOS, Here for android) and log into your Coinbase account.
- Now go to your portfolio (pie graph icon), click deposit, and select USD. Select “Bank Account” and type in $105. This will deposit $105 USD from your bank into your Coinbase account. This process is instant, but remember to leave at least $105 in your bank account while Coinbase verifies the transaction over the next few days.
- Go to Markets (graph icon) and search for BTC. You will see several pairs including BTC/USD, BTC/EUR, BTC/UST, etc. Since we will be using USD as our base currency select the BTC/USD pair.
- At the top of the screen change “Limit” to “market.” Skip this step if you know how to use a limit order.
- Finally, type in “$105” and press the buy button.
Congrats, you bought $105 worth of Bitcoin. If you used the link above, you should receive $10 of free BTC within a few days. It’s as simple as that. To buy BTC at a specific price, use a limit order. Now let your BTC sit and grow in value. When you are ready to get your USD back, follow the same steps and hit sell.
Moving your crypto
We use spot trading to buy coins. Once the trade is made, the coin gets stored in the corresponding coin’s wallet. Bitcoin, for example, will get deposited into your Bitcoin wallet. Ethereum gets deposited into your Ethereum wallet. In order to move your Bitcoin off the exchange, you will need an external BTC wallet.
Crypto Wallet Basics
Before we get into wallet types, let’s cover the basics of crypto wallets. Every wallet has its unique address. To send crypto to this address, we type in the amount of crypto we want to send, then paste in the address.
Additionally, every wallet has a seed phrase and a private key. These are the two things you must properly secure and never share with anyone.
- The seed phrase is given upon creating a wallet. It is usually 12 or 24 randomly generated words. Anyone can use the seed phrase to restore the account.
- The private key is used to authenticate the transaction and move funds out of your wallet. This key is build into your wallet and based on your seed phrase.
Lastly, if you have trouble understanding, think of it this way: The wallet is your mailbox. The wallet’s address is your home address. Anyone can send money to your wallet as long as they know your address. Anyone can send you crypto as long as they know your address. But only you can take mail out of your mailbox as long as you have the key. Likewise, only the person with a wallet’s private keys/seed phrase can take the money out.
As you figured by now, making wallets and moving your money off exchanges are non-custodial. This means you and only you are now in charge of what happens to your money. It may seem a little imitating, but with many layers of security and the use of cold storage (as we will discuss below), all security concerns will mitigate over time.
Web 3.0 Wallets
Before we start, we must differentiate between a hot and cold wallet.
A hot wallet is a digital wallet whose private keys are stored on your device, typically connected to the internet. Even though your keys are behind many layers of security, it is still possible to remotely hack it under the right conditions. Regardless, many people still choose to use hot wallets because they are free, easy, and take seconds to make.
A cold wallet (aka Hardware wallet) is a digital wallet whose private keys are stored on a tiny USB device that is offline or not connected to the internet. To authorize transactions, you must have your USB device press for confirmation manually. As a result of the device being offline, it is virtually impossible to steal the wallet’s private keys.
The winner? Cold wallets are 100% the way to go if moving large amounts of crypto or storing crypto for long periods. The downside is that cold wallets can cost some money. So before you start splurging, let’s experiment with creating and using hot wallets (in the next section).
In the next chapter, we will discuss the best hardware wallet on the market and how to start using it.
Generating Yield With Your Crypto
Yes, you can HODL your crypto in cold storage. But why let it sit idle when you can deposit it into high yield accounts paying up to 20% interest! The following section will cover loads of strategies that will earn you as little as 5% to 244,000% percent APY (not an exaggeration) on your crypto investment.