Banking frauds can be traced to lack of internal controls

SWIFT, the global messaging system has been in the spotlight in recent months for some breaches, both in domestic as well as international markets. Its chief executive Gottfried Leibbrandt talks about how experience is teaching it to improve and how there’s no stopping India’s digital journey, though it may appear to be faltering. Edited excerpts:

Recently we had the biggest banking fraud involving Punjab National Bank and a lot of commentary involved SWIFT systems as well. What do you think of it?
We don’t comment on individual cases. What I can say is that in addition to what we saw in the Bangladesh case which was a cyberfraud… the core business of banks at the end of the day is keeping money safe and that relies on a lot of controls. One of the things that banks have to ensure is that they don’t have insider fraud and a lot of what banks do today is trying to prevent that. Globally, there are still cases of insider fraud and they will continue. And many of those are traceable to a lack of internal controls to make sure that if one or two persons collude or go rogue, they cannot take away major resources from the bank.

So would removing human intervention in payments work?
The controls that we put in the SWIFT environment are not all technology. So the controls are IT, process and people… it always has to be these three things. Part of the controls may be vetting of your employee, another control maybe just reconciling the books, yet another control can be automation of flows and individuals cannot interfere with it or securing and signing transactions. The lesson has always been that you should never rely on a single control. There has to be a system of controls. If one of them fails, there is another one that captures a discrepancy.

As far as payments security is concerned, how do you see India versus the rest of the world?
The Indian landscape is changing as fast as anywhere in the world. I am seeing that the banking system as a whole is taking this very seriously and wanting to digitise payments. After the Bangladesh breach two years ago, we launched a massive Customer Security Programme (CSP) that has met with very good success and I don’t see much difference there between India and rest of the world. Banks have taken the security challenge seriously and they are putting in a lot of efforts to bring in additional controls and checks, selfattest it and share it with their trade partners and counterparties.

Are Indian banks warming up to the idea of CSP, are they willing to adhere to all the protocols?
These controls put a high bar. We don’t expect everybody to be compliant on day 1, and we see banks working towards it. Globally, we had 93% banks self-attest against these controls. India was at 85% and the same goes for linking SWIFT system to their back offices. We are engaged with the banks to help them get this integration in place.

As far as RBI goes, a lot of regulations have been reactive than proactive in both the PNB and City Union Bank cases. How are other regulators?
You can accuse the global regulatory committee of being reactive; it was only after the global financial crisis that a lot of checks and balances were brought in. To some extent, regulators are by nature reactive. You can say SWIFT community reacted only after the Bangladesh bank fraud happened. So, I won’t hold that totally against the regulator. But we have seen regulators engaging with banks in many cases. They have mandated the controls in their own jurisdiction. We are also in dialogue with all these regulators and I don’t think India is an exception to what we see globally.

What are the best in other markets when it comes to cyber security? What can we learn?
I do see that regulators are more and more concerned about cyber, not just related to SWIFT but in general cyber security of banks. In Europe, we see fairly significant testing programmes where they mandate the banks to go outside and find hackers and test systems. All of that is at various stages.

As far as Asia is concerned, where do China and India stack up in terms of markets with huge business potential?
I look at China in admiration, especially their infrastructure prowess in both physical and digital space. I would say financial infrastructure is no exception, it’s sometimes more organised than in my own country in Europe. I think they have cyber high on the agenda as all the other countries; they also have the ability to take technical skills at the banking levels and bring these to bear. But again I don’t see why India will not have the same skills at the end of the day. Both countries are very different in terms of their political systems; India should learn from everybody but at the same time plot its own course.

Digital payments growth in India looked promising after demonetisation. But it appears to be tapering?
I think the future is digital. My favourite comparison is Germany to China. In Germany, still two-thirds of the payments in shops are cash and that is a western country. In China, one-third of payments in shops are cash and rest is Alipay and WeChat. Don’t pin me down on timing, but I think India will get to a point where it will be 50:50 digital and cash. You cannot wish away cash but look at the Chinese, it happened fairly quickly. If you have the technology, that is a very compelling proposition for consumers. The advantage that India has is scale. If you do everything at the scale of 1.3 billion people, the payments industry is bound to leap-frog.

Mortgage rates ease for Wednesday

Several key mortgage rates dropped today. The average rates on 30-year fixed and 15-year fixed mortgages both tapered off. The average rate on 5/1 adjustable-rate mortgages, or ARMs, the most popular type of variable rate mortgage, also declined.

Mortgage rates change daily, but, overall, they are very low by historical standards. If you’re in the market for a mortgage, it could make sense to go ahead and lock if you see a rate you like. Just make sure you shop around first.

30-year fixed mortgages
The average rate for a 30-year fixed mortgage is 4.27 percent, down 3 basis points over the last seven days. A month ago, the average rate on a 30-year fixed mortgage was higher, at 4.35 percent.

At the current average rate, you’ll pay principal and interest of $493.11 for every $100,000 you borrow. That represents a decline of $1.76 over what it would have been last week.

You can use Bankrate’s mortgage calculator to estimate your monthly payments and see how much you’ll save by adding extra payments. It will also help you calculate how much interest you’ll pay over the life of the loan.

15-year fixed mortgages
The average 15-year fixed-mortgage rate is 3.69 percent, down 3 basis points from a week ago.

Monthly payments on a 15-year fixed mortgage at that rate will cost around $724 per $100,000 borrowed. That may squeeze your monthly budget than a 30-year mortgage would, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more quickly.

5/1 ARMs
The average rate on a 5/1 ARM is 3.98 percent, falling 7 basis points over the last week.

These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.

Monthly payments on a 5/1 ARM at 3.98 percent would cost about $476 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.

Open banking: the struggle behind bank-fintech partnerships

Conventional wisdom in the financial world is that large incumbent banks need to partner with smaller startup and scale-up companies for a mutually beneficial relationship that aims to foster innovation and ultimately improve services.

Recent regulatory mandates, based on the European Union’s second iteration of the Payments Services Directive as well as from the Competitions and Markets Authority (CMA) in the UK, have pushed traditional banks to open up their data and platforms, in the form of application programing interface (API) toolkits.

These APIs, mostly focused on retail current accounts, create an avenue for financial services startups to integrate their products with existing bank infrastructure more easily. The aim is to create a more competitive environment and hopefully offer increased options for consumers.  All of this is known by the umbrella term “open banking”.

The CMA directive is aimed at the top nine banks in Britain and Northern Ireland, banks such as Barclays, RBS and Lloyds Banking Group. Despite not being governed by the CMA mandate, Starling Bank, a year-old mobile-only bank in the UK is taking an aggressive approach to open banking.

According to Megan Caywood, Starling’s chief platform officer: “Starling is taking that a step further with its API and marketplace. The API goes beyond the CMA requirements and looks to surface every Starling feature via the API, such as an API for savings goals even though that isn’t mandated, and enabling accessibility tools like webhooks to make integration easier.

“The Starling marketplace goes beyond simply enabling third parties to access bank data; it enables those parties to be visible and available to customers within the Starling Bank app – it integrates the partners’ APIs as well. That’s appealing to third parties as it gives them a new customer-acquisition channel and a way to make it easier for Starling customers to access their products.”

Last month, global professional services firm Capgemini launched its World FinTech Report, along with LinkedIn and in collaboration with Efma. The overarching theme was that global fintech – financial technology startups – and traditional financial institutions and banks need to partner and collaborate. While that goal sounds good on conference panels and in blog posts, the reality is much harder to actualise.

Nektarios Liolios, founder and chief executive of Startupbootcamp FinTech, an accelerator programme for global fintech startups funded by partner banks and financial services firms, sheds some light on the lofty goal of startup-bank partnerships.

Speaking as part of a transatlantic debate, hosted by Capgemini, in association with 11.FS Media, Mr Liolios says the problem lies in the chasm between an appetite for innovation and a capacity to achieve it on the part of traditional financial services firms. Conversations on how to bridge that chasm are not happening, he says.

“How do you measure success, how do you measure what works and what doesn’t work? How do you get the business excited enough to put money towards it when the innovation budget is actually shrinking?” Mr Liolios asks.

According to Carrie Osman, founder and chief executive at CRUXY & CO, a strategic UK consultancy, many banks are now overwhelmed by the possibilities opened up by the regulations fuelling open banking. “You would think, with these regulations coming out, it would make it easier for banks. What is happening is it has made the space more crowded,” she says. “Startups are not standing out from the crowd.”

However, startups need to focus on exactly what value they will bring to a large firm and how their offering will interact with vast, enterprise-wide technology “from day one”, Ms Osman adds.

Despite the hype and noise around bank-fintech collaboration, and past struggles to make these partnerships happen, there are bright spots appearing within the financial services sector. Late last year, HSBC and their subsidiary First Direct announced a partnership with London-based fintech startup Bud. Most recently, Barclays signed a banking deal with cryptocurrency exchange Coinbase and, as part of the deal, Coinbase now has an e-money licence and access to the Faster Payments Scheme.

New Era for P2P Lending in FinTech Sector

What is Peer-to-Peer Lending –

With peer-to-peer lending, borrowers take loans from individual investors who are willing to lend their own money for an agreed upon interest rate. Peer to Peer lending is already a hugely successful model for alternate financing across the globe.

With P2P lenders coming under RBI purview, there will be better transparency in the system and higher confidence amongst participating lenders and borrowers. In the global space, P2P lending has been growing year on year in terms of both volume and number of players. Globally, USA, UK and China markets have been dominant in terms of P2P lending. In India, the industry is at very nascent stage and has limited operating history. Various reports mentioned that P2P lending will continue to grow given its current nascent stage.

In India, more than 70 percent people are rejected from availing a personal loan from bank or NBFC due to risk portfolio and most of the time loans are available only to salaried employees with annual gross salary of Rs 3 lakh or higher. However, P2P lending market place works differently, it uses multiple parameters to determine creditworthiness of borrowers and they do not decline a loan application even if the borrower’s salary is considerably low. Technology has made the process of lending and borrowing simpler to get quick cash or earn great returns. The process is initiated when the borrower applies online for a loan and post application approval, the lenders fund the loan amount.

What’s new for Borrowers & Lenders?
For borrowers, the P2P market place enables a swift application process with little documentation, faster decision-making compared to traditional financing institutions, and they also get competitive interest rates and repayment flexibility. Similarly, lenders get better return on their investment, specify risk aversion/return and get quick returns on investment.

These 2 brothers just declared a mortgage price war

Sweden’s mortgage industry is today worth around 3 trillion krona ($370 bn), according to Statistics Sweden, and most of the interest on these loans end up in the pockets of big banks.

A new fintech venture called enkla.com has today launched a potentially game-changing service. The Swedish online lender offers consumers a 0.95% fixed mortgage rate for three years, which is considerably less than the 1,6% average for similar loans among Sweden’s major banks, according to Di Digital.

Enkla.com doesn’t issue any new mortgages, but only targets borrowers who are willing to transfer their existing loans onto its platform. Anyone with a Swedish bank-issued mortgage of up to 5 million krona ($610 k) and a maximum loan-to-value ratio of 85% is eligible for the service.

‘’Ten years ago, someone would fill out an application at home and post it the next day. Now it’s click, click, move,’’ said Alexander Widegren, CEO of enkla.com. ‘’We have digitized and streamlined the application process and made it easier than ever for customers to take control over their mortgages.’’

Enkla’s self-stated goal is to borrow 100 billion SEK ($12,2 billion) worth of mortgages in the next 18 months by issuing mortgage bonds on the international markets, Di Digital writes. If the target is met, Enkla.com would be looking at a 3 percent share of the Swedish mortgage market.

The service is an instant hit among Swedish homeowners, according to Alexander Widegren: “We are receiving one billion krona worth of applications per hour,” he says to tech publication Breakit.

The service enters a market where Sweden’s household debt has exploded from 66 percent to 87 percent of GDP in the past decade, driven by soaring housing prices. Consumers are evidently hungry for a cheaper deal than what banks can offer. Currently, Sweden’s four biggest banks – Swedbank, Nordea, Handelsbanken and SEB – have 75 percent of the country’s mortgage market, Breakit reports.

Enkla.com takes a 0,35% cut on the mortgages. The modest fee is enabled through an automated service that screens applicants hundreds of times faster than a bank clerk would, the company says. Seeing that the borrower will already have passed a credit assessment with a bank, the burden on Enkla’s due diligence is smaller.

Alexander Widegren, a software engineer, started the service together with his brother Marcus Widegren, an ex-Lehman trader and banking industry veteran. The two are hoping to grow their service by tapping into the 20,000 homeowners who currently use Lånbyte.se, a loan restructuring service they ran prior to founding Enkla.com.

Both Lånbyte and Enkla are part of Simplex, which was founded in 2012 by Alexander Widegren and counts Collector Ventures and NFT Partners – both fintech industry specialists – as investors.

Enkla.com’s launch comes as the Swedish mortgage market is getting disrupted by new online players that undercut bank rates. Two other companies – Stabelo, backed by online broker Avanza, and Hypoteket, owned by publishing house Schibsted – have recently launched their online lending platforms, which are financed by pension- and insurance giants instead of banks.

10 cities with the best credit scores in the US

When it comes to having good credit, some cities outshine others, according to financial website WalletHub, which compared the median credit scores of residents in 2,572 U.S. cities of all sizes to determine where residents have the best — and the worst — credit ratings.

An “excellent” credit score ranges from 750 to 850, according to the two major scoring systems FICO and VantageScore, which rate credit on a scale of 300 to 850. A score from 700 to 749 is considered “good”; a score from 650 to 700 is “fair”; and a score from 300 to 649 is “bad.”

The average U.S. adult has a “fair” score of 675, according to Experian’s 2017 State of Credit report. But WalletHub, which pulled data from TransUnion, found that residents of the following 10 cities enjoyed a median score in the 99th percentile:

The Villages, Florida
Median credit score: 807

Sun City Center, Florida
Median credit score: 789

Sun City West, Arizona
Median credit score: 787

Green Valley, Arizona
Median credit score: 781

Saratoga, California
Median credit score: 780

Los Altos, California
Median credit score: 779

Lexington, Massachusetts
Median credit score: 778

Estero, Florida
Median credit score: 778

Laguna Woods, California
Median credit score: 777

Pittsford, New York
Median credit score: 773

These are primarily smaller, affluent cities, but some big cities perform well, too, WalletHub reports, including San Francisco (98th percentile), Seattle (97th percentile), Honolulu (95th percentile), San Jose (94th percentile) and Boston (92nd percentile).

A credit score is an important measure of your financial health: It signifies your trustworthiness to financial institutions. The better your score, the more likely you are to get a good deal on a home or a car, or to be able to rent an apartment. So it’s important to take steps to improve your credit where you can. Here are four things to prioritize if you’re shooting for a better score.

Home prices jump in January

home mortgage

Home prices increased in January, moving even faster than the levels of increase seen at the end of 2017, according to the latest House Price Index from the Federal Housing Finance Agency.

Home prices increased by 0.8% from December to January, the index showed. And December’s increase of 0.3% was upwardly revised to 0.4%.

The chart below showed January’s increase in home prices was the highest monthly increase since February 2017, when home prices also rose 0.8%. August came close with an monthly increase of 0.7%.

Home prices saw the most monthly increases on the coasts, both the East and West Coast.

Across the U.S., changes in home prices from December to January ranged from a decrease of 0.7% in the West South Central division to an increase of 1.2% in the New England and Pacific divisions.

Annually, all home price changes were positive, ranging from an increase of 5.1% in the West South Central division to an increase in the double digits of 10% in the Mountain division.

West South Central: Oklahoma, Arkansas, Texas and Louisiana

New England: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut

Pacific: Hawaii, Alaska, Washington, Oregon and California

Mountain: Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and New Mexico

Mortgage rates forecast for April 2018

Just months into the year, mortgage rates have already met 2018 predictions.

In late 2017, when thirty-year fixed rates were still in the high-3s, economists put rates in the mid-4s this year.

It didn’t take long.

Rates approached 4.4% by mid-February and shot past 4-year highs.

Fortunately, rates are still low by historical standards, and today’s rateshave not deterred home buyers. Home sales are up 1.1 percent from a year ago according to the National Association of Realtors.

Still, it’s no time to sit by and hope for a massive rate drop, the chances of which are slim to none. Rates available now are likely the best we’ll see in 2018, despite the recent push upward.

Freddie Mac: Mortgage rates at highest levels in more than 4 years

Mortgage rates just broke a barrier not surpassed in 220 weeks.

Since January 2014, rates had remained below 4.45%, that is, until the late stages of March, according to mortgage agency Freddie Mac.

The 30-year fixed rate average is up 67 basis points, or 0.67%, compared to lows reached in September.

What does that mean for the home buyer or refinancing homeowner? A lot.

Home buyers will pay over $100 more per month for a $350,000 home with 10% down

A homeowner looking to refinance may discover that the new loan may not yield any savings at all.

10 Forex trading tips

As a beginning forex trader, you can easily get lost, confused or overwhelmed with all the information you are bombarded with on the internet about trading. The best thing to do is to just take it slow, learn how to trade properly from an experienced professional and don’t rush it.

The following 10 forex trading tips are things that I wish someone had told me when I first began trading. So, with that in mind, I am giving you ten of the most important trading tips for a beginning (or any) trader to absorb before getting started in the market.

1. Choose Your Broker Wisely

Choosing the right broker is half the battle. Take your time to check reviews and recommendations. Make sure the broker you choose is trustworthy and suits your trading personality.

Remember, there are lots of fake brokers out there who will only stand in your way. Go for an authorised broker with a licence.

If you want a reliable and trustworthy broker, look no further than Admiral Markets!

trade forex and cfd

2. Create Your Own Strategy

No list of currency trading tips is complete if it doesn’t mention strategies. One of the most common mistakes beginner traders make is not creating an action plan.

Figure out what you want to get out of trading. Having a clear end goal in mind will help with your trading discipline.

3. Learn Step-by-Step

As with every new practical learning activity, trading requires you to start with the basics and move slowly until you understand the playing field. Start by investing small sums of money and keep in mind that slow but steady wins the race.

4. Take Control of Your Emotions

Don’t let your emotions carry you away.

It can be very difficult at times, especially after you’ve experienced a losing streak. But keeping a level head will help you stay rational so you can make competent choices.

Whenever you let your emotions get the better of you, you expose yourself to unnecessary risks.

5. Stress Less

This is one of the Forex tips that sounds really obvious – because it really is.

But guess what? Trading under stress generally leads to irrational decisions and in live trading that will cost you money.

Therefore, identify the source of your stress and try to eliminate it or at least limit its influence on you. Take a deep breath and focus on something else.

Every person has their own way of overcoming stress – some listen to classical music, while others exercise. Listen to your mental health and learn what works best for you.

6. Practice Makes Perfect

Of all the Forex tricks and tips for beginners, this is the most important. You will never succeed at anything on your first try. Only constant trading practice can yield consistently top results.

But you probably don’t want to lose money while learning the basics, right?

Luckily for you, trading on a demo account costs nothing to set-up and not a cent more to use, for as long as desired.

7. Learn one trading strategy, stick with it.

One of the biggest mistakes I see beginning traders make again and again, is changing trading methods too often. If you are using a logical, common sense trading method like my price action method, you need to really learn it and master it before you do anything else. If you jump from method to method because you think you’ll find some “Holy Grail” trading strategy, you are simply operating on false hope and being illogical, and you will lose money.

Also, don’t switch methods just because you had a few losing trades. Any method will have a certain amount of losers over a sample size of trades, this is normal and part of trading. You cannot let losing trades affect you too much; you really do need ice cold discipline to excel at trading.

8. Don’t get overwhelmed

It’s easy to feel overwhelmed with information and trading strategies as a beginning trader, it happens to all of us in the beginning. The best way to limit this or avoid it altogether, is to find a mentor, someone to learn from, and piggy back off their success. I have laid out all my trading strategies for you to learn in my price action trading course and in my opinion, the best thing you can do is block everything else out, forget everything you’ve learned, and start over with my teachings from a clean slate and focus only on that until you really know what you’re doing.

9. Don’t freak out when a trade moves against you

This one is big, because most traders, especially beginners, freak out or over-react at the first sign of a trade moving against them. This is much more of a problem in live trading than demo trading, due to the differences in emotion between them, but it is a problem and it needs to be addressed.

A trade moving against you is NORMAL. I’ve had trades move to within 5 pips of my stop loss and go on to be HUGE winners after that. If I had freaked out and closed them out before they hit my stop loss, I would have not only lost money, but I would have lost a lot of profit too. This is the main reason why you need to let your trades play out and not close them out early ONLY because they’ve moved against you.

It’s really pretty simple: Set your stop loss in a logical / safe place (more on this later), manage your position size so that your dollar risk is at a level you’re OK with losing, and LET THE TRADE GO. Don’t micro-manage your trades, just let the market do the work and you go play a round of golf, go to the gym or go to sleep…then check on the trade the next day. Doing nothing with your live trade is usually the best (and most lucrative) move, meaning set and forget it.

10. Learn the basics first

Many beginning traders try jumping right into the market with no real background knowledge on the markets they are trading. To build a solid trading foundation, you need to take the time to learn about how the Forex market works (or any market you’re trading) and really get a solid understanding of all the jargon, etc. before you actually dive in and start learning a trading strategy.

5 Tips for Investing in Bitcoin and Other Cryptocurrencies

Learn to buy and properly store major coins before trading.
If you listen to The Three Donkeys podcast, you hear Peter Jennings, Adam Levitan, and I tell stories about trading ridiculous cryptocurrencies like Titcoin, or the time I owned a huge percentage of Vegas’s strip club currency (not to brag).

And so my initial piece of advice here might surprise you: don’t get into crypto so you can buy up coins whose primary purpose is to make it easier to get a lap dance. “Now wait, I’m supposed to swipe this where?!”

This post isn’t meant to walk you through how to buy and store crypto or go into depth about the various exchanges and wallets because there’s a mountain of content out there already, but I’ll give you a few reputable sites/tools to help you out. There’s a lot of good stuff out there, so this is just a shortlist to get you started…

Coinbase

Simple to use
Beginner-friendly place to start buying BTC, ETH, BCH, or LTC
Kucoin.com

Ability to trade cryptocurrency
Beginner-friendly
Lots of bonuses and giveaways
Changelly

Must already own cryptocurrency to use
Allows trading of currency pairs you cannot trade elsewhere
Easy-to-use exchange that searches for best rates at other sites for you
Trezor

High-security hard wallet on which you can and should store coins you plan to hold
Safer than keeping coins on an exchange
There are a variety of other sites and exchanges out there, but there’s really no reason to be trading Einsteinium on an advanced exchange until you learn how to purchase currencies and store them on a hard wallet.

I’d start by learning how to purchase Bitcoin on CEX.IO or a comparable site and send anything you don’t plan to trade to a Trezor or another hard wallet (Ledger is another good one).

A couple tips: use a bank transfer to purchase crypto (lower fees than a credit card) and make sure you enable two-factor authentication on any site you use.

If you want to learn more about crypto basics, check out this collection of resources.

Don’t diversify for the sake of it.
This is going to be pretty unpopular advice. All over the internet, you’ll find people telling you to not put all of your eggs in one basket. This is true for pretty much every type of investment. It’s certainly true in sports speculation; DFS players are told to diversify their player exposure and sports bettors to hedge their bets.

I don’t believe this is smart. The only reason you should diversify is to be able to invest more money, overcoming a lower ROI with more volume to see greater long-term gains.

I’ll use DFS as an example since that’s my expertise. If you think Michael Thomas is the top wide receiver play this week, you should have as much money on Thomas as you’re willing to stomach. It’s high-variance to not diversify, which is why people avoid it—it feels shitty to have large swings—but it will lead to the greatest ROI over the long run (if you’re right).

So why not put Thomas in every lineup? Well, you’re always trying to balance the highest possible ROI—which zero diversification allows for—with the greatest overall profit and the lowest possible risk of ruin (going busto). If you were to seek the highest ROI and greatest profit, you’d not diversify at all and play 100% of your bankroll, which would of course be idiotic since your long-term risk of ruin would be 100%.

As it relates to crypto, I’m of the opinion that you should identify what you believe is the best value, then invest as much money as you’re willing to lose in that single asset. Then, knowing that adding another coin—diversifying—can slightly reduce your risk of ruin, put as much money as you can stomach into that (which should be a lower amount).

In this way, you’re diversifying solely to be able to invest more money, increasing your profit and reducing your risk of ruin.

Okay, now two caveats. The first is that the swings in crypto are bananas. If you haven’t woken up to 35% of your investment just—poof—gone, you haven’t lived my friend. And so with that greater volatility comes more of a reason to hedge.

The second caveat is that it’s more difficult to know what’s “optimal” in cryptocurrency than in other alternative investments. Although I might be off a bit here and there, I pretty much know the top values—or a small pool of players who could be considered the top values—in DFS. It’s somewhat obvious. That’s probably not true in crypto—certainly not to the same extent and especially not for someone like me who doesn’t know what the hell he’s doing.

If you believe in the overarching concept and believe the entire cryptocurrency market cap will rise, there’s an incentive to just stay in the game, meaning it’s probably wise to diversify more here than in more “solved” games like DFS.

Nonetheless, I think something like a 60/25/10/5 type of split is better than putting 5% of your cash into 20 different coins.

Market cap matters more than coin price.
A friend of mine saw that I had some early trading success—mostly just the result of a bull market for altcoins and a few lucky moves—and asked if he could give me some money to invest. I agreed, and so he’s become interested in the space and has his own suggestions of trades to make. In the beginning, those were often, “We should get XYZ because it’s under $1.”

This is the most common mistake I see made by those new to crypto. The price of coins is relevant only after accounting for the circulating supply. The number of coins multiplied by the price of those coins is the total market cap for the token, and that’s what really matters. When you buy any coin, what you should really be focused on isn’t the price of the coin, but what percentage of that total market cap you’re purchasing.

As an example of the difference, take a look at the top six coins in terms of market cap (specifically Ripple), via CoinMarketCap.com:

At the time of writing this, Ripple costs 23 cents—nearly 300 times less than Litecoin and 1,800 times less than Dash. Nonetheless, because of the way in which Ripple operates, there’s a much larger circulating supply, and thus the market cap of Ripple is over twice as large as Litecoin and Dash.

On the flip side, I can’t tell you how many people I know have said, “I’m not buying Bitcoin right now. If I invest $5,000, I can’t even get a whole token.”

But who cares? If the market cap of Bitcoin increases by 20%, someone investing $5,000 will have made $1,000 in the same way that they’d make $1,000 if Ripple increases 20%. Yes, it could be easier for certain coins to see massive swings in value, but that would be due to their market cap and not the coin price. It’s more difficult for Ripple (nearly $9b market cap) to go from 23 cents to 46 cents than for a coin with a $100 million market cap to double in price (regardless of the cost of one token).

The point is that the price is effectively arbitrary based on the circulating supply of tokens. If there were theoretically just one circulating Bitcoin that cost $130b+, it wouldn’t change the merits of your $5,000 investment in it.

Don’t get hung up on the absolute price.

Don’t take profits unless there’s a change in circumstances.
I got a hotel in NYC a couple weeks ago and planned to go up for the day. When that day came, I just didn’t feel like going anymore, so I didn’t. The fact I paid for the hotel meant nothing—it was a sunk cost and that money was gone—and so the only relevant factor was really whether or not I felt like going to NYC that day.

Don’t let past decisions affect future ones if they have no bearing on your happiness (or, in investing, your expected value). With any investment, it’s irrelevant whether or not you’re up or down or you’ve removed your initial investment or you’ve run it up 10x or whatever. I can’t tell you how many times I’ve been talking with my mom about crypto and she has said, “You should take out some of the money you’ve made.”

There are really only a couple reasons you should be taking profits, all of which are the result of something changing. One would be that your net worth has shifted and you’re over-exposed to crypto. As an example, let’s say you bought Bitcoin at $1k with $50k in the bank, and you think it’s smart to have 20% of your money in BTC (so you bought $10k of it). If the price of BTC is now $8k and you didn’t sell, your BTC would be worth $80k. Assuming your net worth otherwise didn’t grow, you’d have $80k in BTC and $40k in cash. Even if holding is +EV, it might be too much risk for you to stomach, in which case you’d be justified in taking money out.

Of course, if you think the future of crypto has changed for the worse—or that your money could be better invested elsewhere—then you’d also be justified in changing your allocation.

Finally, although it’s admittedly irrational, I think you could make an argument for removing your initial investment solely for peace of mind. If you invested $1k in crypto and have run it up to $10k, removing the initial $1k isn’t the worst idea if you think it will help you psychologically. A lot of people think and act differently when they’re on a freeroll; just look at how people act in casinos when they’re “playing with house money.” If it is comforting to you think “the worst that can happen is I’m back to even,” then removing a small portion of your crypto funds so you’re on a freeroll is probably fine. It’s not mathematically the right decision, but you can potentially make up for the loss in EV from just having peace of mind that you’ll never be down from your investment.