Bitcoin, Crypto Starterkit, Cryptocurrencies, Passive Income

The selfmade Bitcoin ETF

Everyone and their mother is banking on the CBOE ETF to be accepted by the SEC. If we’re honest, that’s only to pump the Bitcoin price. However, an ETF is generally a great source of passive income. And if you are like me, you enjoy making money while you sleep.

ETF’s (Exchange Traded Funds) are very common in stocks and equities. In short, it is just a virtual basket composed out of multiple assets. I’m going to pull the first Wikipedia paragraph since it explains it the best:

the wikipedia explanation of ETF's
Wikipedia’s explanation of ETF’s

The cryptocurrency space right now doesn’t have such a thing. And the upcoming CBOE ETF won’t be exactly that and also not for everybody. If you want more info about that, Alex Krüger from Twitter wrote a great article about that.

ETF’s come in different shapes and forms. My personal favorite is the investment plan ETF. Basically, what you do is pick a set amount of money you can spare each month. Say $50. That amount gets charged from your standard bank account and put into the ETF. Which buys stocks with that amount of money at the current price for these stocks, no matter the price. At the same time every month.

Advantages

  • You don’t have to do anything (in stocks, a little work in crypto)
  • You don’t care about price fluctuations since you buy at the same time each month.
  • You don’t need to save up a chunk of money upfront. You can start right away.
  • You don’t need to chase pumps and dips, and most importantly, miss them and lose money -> less risk.

Disadvantages

  • Not as much profits as actively investing or trading.
  • Way slower. This generates profits over longer timeframes (years).
  • It’s not 100% passive income since there isn’t a way to automatically charge your bank account to buy crypto, yet.

I wish a crypto onramp like Coinbase would add the possibility to just charge your bank account every month and buy Bitcoin at the current price with it. Or at least the part to automatically buy Bitcoin with it, so I can send money there myself.

The self-made ETF

do it yourself tools
Since we don’t have the tools to have an ETF automatically, we have to do it ourself

Since the companies in crypto have not thought about this yet or the demand isn’t there, we have to do this ourselves. So what you want to do is pick a set amount of money you can spare each month. Anything from $25 upwards is sufficient. Obviously, if you invest more each month, you get more profit earlier and in general. However, not everyone can afford to put $300 bucks into Bitcoin each month.

I, personally, am in the process of building a house for my wife and me which results in the monthly funds being somewhat limited. I manage to put 50 bucks into a stock ETF and 50 bucks into Bitcoin (or an altcoin if I so desire) each month. Don’t feel judged if you can’t put in $100 each month. If you were already rich, you probably wouldn’t be bothered by these small ETF’s.

After you’ve picked the amount of money you now need to pick the day each month you wish to buy. And you need to stick to that day. So it’s obviously best to pick a day where you have 10 minutes spare time, like Sundays. For example, you choose the first Sunday each month. Or every month on the 3rd. It doesn’t really matter, what matters is that you do it at the beginning of each month.

Funny humans

When it comes to money, the human mind is funny. We tend to spend all the money that is left each month. Some of you may use the last bucks they have at the end of the month and save it. In that case, congratulations, you have a well-developed discipline. Most people, however, are not like that. The fact that if a lot of money is lying around on the bank account from beginning to end is incentive enough to spend it. I am definitely like that myself. Whenever I make money, small or bigger amounts I immediately put it away onto another bank account or invest it. Because I know, if it is lying around on my day-to-day account, I’m gonna spend it on some shit. To force yourself out of that habit you should invest in your self-made ETF at the beginning of the month.

The fear of buying ATH

“But if I buy at the same time and the price is at a peak right now, isn’t that bad?”

Of course, it is. But it doesn’t matter in the long run. Remember, the ETF is designed to work over long timeframes. This does imply that you will probably buy way too high at some point. That can only be equalized over time. Because, if you accidentally buy the all-time high, your chances of accidentally buying the exact dip as well is pretty high. But this takes multiple tries to even out. Your low buys will even out buying too high. If you are trying to hit the exact bottom every month, you a) won’t manage that everytime anyway and b) are not generating passive income anymore. Remember, we don’t want to work for it. It is enough to have to do it each month because the exchanges don’t provide the tools.

beautiful girl lying on a sofa sleeping
That’s us generating passive income.

And secondly, the benefit of this is minimal. Let’s do some quick meth math to prove my point:

You invest $50 every month and BTC price ranges from $3,000 to $4,000 monthly.
$50 at the start of the month with BTC at $3,000 will net you 0.016 BTC.

$50 at the start of the month with BTC at $4,000 will net you 0.0125 BTC.

Now, 0.0035 BTC could be worth a lot in 20 years. Who knows? But for now, it is not worth trying to chase dips. You might end up waiting for a dip that just won’t occur this month and you would’ve just been better off buying right at the start of the month. To minimize chasing imaginary dips you just invest at the months first day, no matter what. That’s the most consistent way.

Why it works

Due to inflation–which is a whole topic on its own–, the price of Bitcoin or any asset is guaranteed to go up price-wise. Technically, if we ignore fundamental factors. This is referring to years of time though. The money we judge these assets against (the US Dollar) loses value every year. That means every year you need more USD to buy the same amount of Bitcoin (again, solely comparing technical values). So, if your asset is fundamentally great and scarce (like Bitcoin, Gold, etc.), it will ultimately be worth more at some point than it is now. Might be in one year, might take ten years.

Predicting the future is always hard. And again, there are faster ways to make money or even passive income, but with your self-made ETF you virtually don’t have to do anything and can make money from it. You do need patience though. So that’s on you to decide if this is your kind of investment.

Cheers,
Alex


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