Crypto Investing Insights For Beginners, With Edmund McCormack

Investing in cryptocurrencies either directly or indirectly can offer significant wealth building opportunities. However, these opportunities come with risk. In an ever-changing crypto landscape, which is still brand new to many investors, education is key to success.

On this episode, Scott is joined by Edmund McCormack, the founder of Dchained. Edmund has made it his mission to provide educational resources for current and potential investors in crypto. Fighting misinformation is critical to the continued mainstreaming of cryptocurrency. Listen in as he offers up crypto investing insights.

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Episode Highlights

Dchained: “Dchained is the only crypto education resource that offers three critical assets: quality content on an easy to use platform with an affordable price point. As a result, Dchained is the easiest and most effective way to get started with learning about and investing in crypto assets.” (Website | YouTube)

Dchained Capital: “Dchained Capital is a multi-strategy hedge fund that invests in businesses leveraging blockchain technology to gain a competitive advantage in high-growth sectors, such as Finance, Entertainment, Gaming, Transportation, Energy, and B2B services. Our investment framework maximizes risk-adjusted returns through a combination of long-term value investments, short-term systematic trading, and active hedging to minimize drawdowns and harvest market volatility.” (Website)

Today’s Guest: Edmund McCormack

About The Show

Cryptogic is the show for crypto investors who are focused on long term results. Follow Scott and Andy as they explore the investable world of blockchain technology, NFTs, Bitcoin, Ethereum, and other cryptocurrencies.

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Transcript

Scott: Hello, and welcome to another episode of “Cryptogic.” Scott here with you once again, and we’ve got a great one on tap for you today where I’m going to be joined by Ed McCormack, who is the founder of Dchained, which is a crypto education platform. We’re going to be talking about cryptocurrency investing, the process of learning about crypto, and how that’s so important, and a whole lot more.

So, Ed, welcome to the show.

Ed: Scott, thanks for having me. Appreciate it.

Scott: Absolutely. Thank you for being here. I want to dive right in. And as I said, we want to talk about crypto investing, and really, the great educational tool tools that Dchained offers. But, first, I’d like to sort of set the stage or have you set the stage. So, to kick things off, why should investors consider having cryptocurrencies as part of their portfolio?

What’s the real, I guess, power of crypto from an investment standpoint?

Ed: So, there’s a few answers there, the first being, that it’s always good to have some level of diversification in your portfolio. And with crypto… And crypto is such a broad term. I focus because aside from Dchained, which is our education platform, I’m also founder and managing member of Dchained Capital, which is our digital asset hedge fund.

And in saying that, where we are investing on that side of the house is technology companies that are opting to offer up tokens as a means of fundraising and generating capital and creating a shareholder relationship.

So, in that sense, cryptocurrency, the broad term, is actually a opportunity to invest in digital shares in a whole new wave of technology and really new types of businesses that are using blockchain as a means of fundraising. So, what used to be, you know, a very difficult procedure to invest in private companies, you need to be accredited, you need to have the right kind of connections, crypto gives you that access to get those types of high growth type of investments.

Now, in saying that, you know, the market today is very different than it was three, six, nine months ago. And you have to look at really how crypto plays into this current market and really what the market conditions resemble.

If you look at, you know, the situation that we’re in today where, you know, with our inflation rates and concerns around, you know, could we potentially be, you know, at the very early start of a recession, it’s very reminiscent of the 1970s where we had high inflation, short business cycles, you know, short but sharp recessions, and in that time, you saw commodities flourish, especially gold.

And in saying that, especially with some of the new, you know, executive orders to have the regulatory groups really focus in on putting the right types of classifications on crypto, you could see certain cryptocurrencies such as Bitcoin and Ethereum really act like commodities. So, I think what this provides is not just an opportunity to provide, you know, that diversification and access to, you know, new types of investments, but also, from a commodity standpoint, I think you’ll start to see some of the larger cryptocurrencies behave in a very similar way.

Scott: Absolutely. And I’m so glad you kind of pointed to, no pun intended, both sides of the coin there because you have the crypto itself, but then you have these underlying technologies that are really revolutionizing so much. And these are two aspects that really are compelling for investors. So, again, I appreciate you sort of breaking that all down there.

As for Dchained, before we move on, I want to hear a bit more about what you guys do over there. I know you have a number of tools and you have information to help crypto investors, I guess, really learn the landscape and kind of get their feet wet. Can you share a bit of the story behind Dchained, and I guess talk about some of your offerings?

Ed: Yeah. So, the story is, you know, it started 10 years ago. I’ve been in cryptocurrency since October 2011. But over that time, you know, I noticed that, for the most part, as you looked, you know, to your left and right, you saw that it was generally the same people.

It was people that were either in tech or in finance. And those were really the people who were the beneficiaries of, you know, all of the appreciation, the market dynamics, etc., until around 2016, 2017 when it became, you know, somewhat of a household name. You saw Bitcoin starting to gain attention from retail investors, Ethereum, etc.

And the problem there was a large percentage of people who were investing around that time that really didn’t understand what they were buying, what they were investing in. You know, they took advice from videos they saw online, or social media, or just simply because they, you know, their friends’ nephew is good at the internet. Really is nothing more than that.

Scott: Right. They said Bitcoin.

Ed: It’s really, “He’s good at the internet, and I’m going to take financial advice from that person.” Which is crazy to me.

Scott: He’s great.

Ed: Exactly. And what happened is when the market started to turn, and, ultimately, a lot of the people, you know, who understood what were the market forces driving the price and, ultimately, the selling, when they took their money out, the people that were left sort of in the market to realize the full pain were ordinary investors, you know, firemen, cops, teachers.

I mean, these are people who you wouldn’t call, you know, sort of insiders, but these were people, ultimately, who were left holding the bag. And, for me, you know, I come from very blue-collar, you know, neighborhood. I grew up in the Bronx, New York, a lot of the people that I knew I grew up with, those were the people that sort of got hit hardest.

So, for me, you know, having a background in tech, and I’ve been in tech for about 16 years now, but also in crypto for about 10, I wanted to build something that would speak to your average everyday investor, the person who’s not calling up Citibank and talking to a wealth manager, somebody who is putting, you know, a portion of their savings and their paycheck into investments and trying to really be smart about it, but also needs to be mindful and needs to understand the risks and what the opportunities are. And that’s what we want to create.

Scott: I think that’s such a, you know, powerful goal and an important one, especially as cryptocurrency and cryptocurrency investing continues to become more mainstream. You know, I was just a few episodes ago, talking about the fact that, you know, it’s only a matter of time, and it’s already probably happening where, you know, your grandmother’s financial advisor is going to say, “Have you thought about some Bitcoin, or have you thought about adding some crypto to your overall portfolio?”

And so, I think you’re spot on in the importance of kind of having that education and having those resources there so that the average person who’s maybe not the techiest person out there or has been in finance for decades can really have an opportunity to benefit from crypto. So, can you, I guess, speak to a bit more of the resources that you guys offer and sort of where the rubber beats the road, so to speak, how do you do that?

Ed: Sure. And before I do that, talking about financial advisors or financial planners, because many of them work for banks and it’s strictly forbidden to talk about it, the reaction is sort of, if you ever saw the movies where the vampire gets hit with the sun and they have this like violent reaction, that’s sort of the reaction that they have because they want to say something, many of them, but they can’t, and they’re not permitted to sort of offer that advice.

So, it’s kind of funny. But, for us, we understand that people learn in different ways. So, what we wound up doing is we created, you know, educational materials in a number of different formats. We have overviews and written articles, and we have hundreds of them. We have videos, we have video courses. We do a number of podcasts.

In fact, for many people listening, you know, I would suggest even going to our YouTube first and hearing about some of the insights that we’re doing related to the overall macro landscape because I think that that’s really important to understand, how crypto fits into the overall big picture before you start digging into, you know, the weeds of, “How is this blockchain different than that blockchain?”

But what we do is we give the information, it’s free. So, you know, we don’t sell any of our courses. We don’t sell any of our memberships. You know, we make this available because, at the end of the day, we want to put our money where a mouth is. If the information is valuable, and ultimately, it offers, you know, a greater good, that’s something that we want to be able to do.

And we finance that because, you know, we do have a hedge fund, but we run, you know, the education platform as something of, “We don’t want this to be reserved for a select few.” This information should be available. And for many people, especially, you know, with inflation going up and a lot of stocks, you know, having some challenges to start the year, we wound up making the decision to actually turn all of our materials for free.

We were charging for memberships, we were charging for courses, and we just felt that it wasn’t right because people that we think, you know, it could help the most were people who might be, you know, a little bit cash strapped at the moment, and we want to make it available to as many people as possible.

Scott: That’s fantastic. And, of course, on our show notes, we’re going to have links to all of those great resources there. I want to shift gears a little bit because we got to talk about the market. We have to talk about, since I’ve got you here, what’s going on and what’s been going on as we’ve begun 2022. So, you know, after seeing really some tremendous upswings in 2021, you know, Bitcoin, other cryptocurrencies, they’ve kind of been stuck in a bit of a pattern thus far this year, there’s been some increases.

And we’re going to talk about the executive order because we saw one on that, but then, quick retraces. I’m just curious, Ed, what’s your take on the underlying behavior we’re seeing with Bitcoin and other crypto prices? Are they just behaving like standard risk assets right now and responding in kind to external factors? I’m just kind of curious of your overall view there.

Ed: Yeah. And there’s certainly a number of answers to give on this, but I think you hit the nail in the head when you say, you know, it is acting like a risk on asset. At the end of the day, crypto is one of the biggest speculative asset classes that’s out there, and speculative asset classes also, including high growth, you’re seeing, you know, the tech sector, for example, your thing, not doing great for the most part.

Scott: My portfolio’s taken some lumps, that’s for sure.

Ed: Yes. Mine as well. And I think you could look back, you know, even as near as November when, all of a sudden, the new inflation numbers came out, the CPI report started to ring alarm bells, Jerome Powell, who’s the head of the fed, started to signal that he will be raising interest rates.

And with that, when interest rates rise, generally, investors start to leave, you know, the growth type of investments, speculative assets towards value, commodities, safe havens, if you may. And that’s what you saw. You saw, you know, sort of this movement around November, December, and it’s continued, you know, through the beginning of the year.

So, I would say, Bitcoin, much like, you know, your tech stocks, are behaving in a way that you would expect, when interest rates, you know, are expected to go up and investors are starting to, you know, find shelter.

Scott: Right. Absolutely. And there’s this aspect of cryptocurrency prices that’s, you know, so volatile. And I come from the payments world, and that’s always been that sort of back and forth of, “Well, this is one of the challenges that crypto has for mainstream payments, it’s because of all this volatility and all of that.” And then you have stable coins. And I’m just curious of your perspective on this because you know, the idea of stable coins is, I mean, it’s in the name.

Okay, well, it’s pegged to, you know, the U.S. dollar, for example, it’s going to be more stable. Are they a great tool for liquidity and stability or do they have maybe more potential value in there for investors? And, of course, please do not take this as investment advice. Consult your financial professionals and lawyers before investing in anything. But I am curious, Ed, your take on stable coin and kind of where they fit.

Ed: Yeah. And there was a great solution coming from the payments world called ripple net that solved a big problem when it comes to wiring money, especially internationally and settlement. We’ll see how that sort of pans out, but staying on your question for stable coins, you know, t’s underlying purpose is it provides the base asset for investors and traders to transact and to ultimately gain exposure to a number of investments.

But, you know, if I take a look at really the value, if I’m looking at the market today, for me, I’m looking at, you know, an asset, whether you’re looking at, you know, see USDC, which is Circle, or Tether, or even some of the newer decentralized options like TerraUSD, which is UST, it offers an opportunity to invest in an asset, some of them, including UST, that is actually holding value against inflation.

So, it’s sort of like tips, but in Forex, which is interesting. And I look at, really, the value for stable coins, not just in terms of it being a store of that value, but also, it opens up a whole new sector of investment and really yield for many people that, you know, they might not expect.

So, taking UST, for example, or USDC, I should say, an asset that is pegged to the U.S. dollar, it’s not going to move. So, consider it something of a, you know, risk-off type asset. You can go and put that into a high yield savings on a decentralized finance platform and earn 5% to 8%, which is many, many times higher than you would get if you walked into a Bank of America.

And, you know, what’s exciting though, is now with this executive order that Biden has put forward, you’re going to see, you know, regulators across the board, whether it’s, you know, the banking regulators, whether it’s, you know, commodities, etc., start to talk about, “How do we now factor in cryptocurrency, especially stable coins, into the financial system.”

It’s not going to be an outlier. So, I would expect to see… You know, right now, the value add is that it gives you these high-yield, you know, opportunities that are not existent in traditional finance, but I would say, keep a very close eye on really the underlying tech of a stable coin because it could be really interesting, especially as we continue to use digital services, online retail in our daily lives, where the fact is that the percent of population that’s using cash is dwindling day after day.

And the fact is, is that we already use digital currency, whether you realize it or not, you know, even your paycheck, when it goes direct deposit into your bank, you don’t make it…

Scott: That’s numbers.

Ed: It’s just numbers. And this is a process that people don’t realize has been going on since the ’50s with Diners Club. It’s “fake money,” you’re swiping a card. It’s tied to real assets. Where I’m going with this is that I think you’ll start to see with regulation allowing banks to now, you know, hold cryptocurrency, they’ve already been able to do so from a custody standpoint, but now offering financial products, which less than 1% do at the moment, you’ll start to see stable coins integrate into your standard offerings, and really, services that you’re going to generally get at a bank.

So, it’s going to be something that’s brought in more as a turnkey solution for people. But for now, take advantage of it, 5%, 8%, and basically, let’s call it…

Scott: Earn the yield.

Ed: Yeah. 5% or less risk, you know, of losing your peg. So, it’s good opportunity.

Scott: So, you’ve mentioned this a couple of times, and I want to dive into it because, you know, there was that executive order that President Biden released last week, and many across the crypto community were really happy with it, if nothing else, simply because it wasn’t actively hostile and really seemed to signal, I think, a willingness to, you know, minimize negative impacts, but also, you know, allow for innovation potentially.

And, again, that regulatory framework to continue to be developed. So, I’m curious, what’s your take on the executive order overall? Is it a good sign for crypto? Is it, you know, pretty measured? What was your overall take on what it really means?

Ed: It’s great. You know, for cryptocurrency to go mainstream, it has to have regulation already in place. Banks are not going to get involved in any meaningful way without regulation. Yes, you hear, you know, Goldman Sachs, and Morgan Stanley, Bank of America offering futures, but it’s for a very select few, it’s for wealthy investors who are either accredited or institutional, and quite frankly, there’s no investor protections or limited investor protections for them.

They could do that. Most people aren’t in that sort of classification. So, in order for, you know, people to get access to really the whole full breadth of cryptocurrency and take advantage of this whole ecosystem, you need to have investor protections, you need to have guidelines.

It’s a good thing. And, you know, I think at the very heart of things, you know, if you look at even what the heads of the different exchanges you had, you know, Sam Bankman free from FTX, you had Brian Armstrong from Coinbase speaking at, you know, Senate house committees in December, talking about, they want regulation for nothing short of the fact that it is a quagmire, it’s a maze, at the moment, because you have the SEC claiming portion of responsibility, the CFTC claiming another portion, the IRS taxes it as property, which is a completely different story.

Like, it’s a mess. It’s a mess. So, let’s have clear and concise guidelines. Here’s what, you know, this asset is here’s… At what point it would become a security. And, ultimately, let’s put guidelines around it so that we can now incorporate it into the financial ecosystem. And the executive order, to me, was nothing short of just basically a directive for all the different regulatory groups to coordinate, and get together, and finalize, “Here’s what those guidelines need to look like.”

Scott: Sure. And to your point, kind of earlier, when you were talking about what Dchained’s mission is and who you’re, you know, trying to provide information for, I think it really ties in too, because you realize, you know, a firefighter or a nurse, or whoever, they may not have all of the accounting resources available and tax advisors and all of this to even navigate the current quagmire as it were.

And so, I think you’re right in the sense that even, you know, more regulation or a framework that kind of sorts it all out and maybe has these government entities not pointing their finger, “Well, that’s this way, this way,” that can really, again, help just the average investor. Would you agree with that?

Ed: I agree. And look no further than online banking. Wells Fargo was one of the first banks to offer some level of online access online banking in the mid-’90s. But, for the most part, it took banks a long time. A lot of banks still have terrible online bank banking. On any given day, I have 100 Amazon packages at my door because, you know, my wife is ordering stuff for my kids.

But the fact is, is look at how slow that industry, the financial industry has moved. But the thing is, is that once a large enough portion of the population starts to adopt something, it moves quick. And you saw that around mid-2000s, 2010, when it wasn’t taboo, it was expected, “All right. I’m going to use, you know, my new smartphone to now access my Citibank account.”

You’ll see that start to set in, but in order for that to happen, there needed to be the right types of regulation, there needed to be buy-in from the banks. And it’s one step at a time. Things in that sector move at a glacial pace, but at the very least, this executive order is a good sort of start because it gets them all in the same room.

Scott: Right. And, again, I’d emphasize too that I think that there was some fear that an executive order like this would come out and just be very, very hostile. And that’s not what we really saw. Obviously, there’s, you know, some concerns about, well, environmental impact and when to be conscientious, and all of that, and the risks, but it was definitely open to, “Hey, how can we foster this?”

And so, I think that was a very, very good sign. Shifting gears, I want to go back to crypto because, you know, you have the big ones, you have your big Bitcoin, your Ethereums, but for cryptocurrencies that are less established, you know, have lower market caps, in general, what are some of the effective ways to maybe evaluate a cryptocurrency’s potential if you’re looking at it and there are so many there and you’re saying, “Well, I know Bitcoin, I know Ethereum, how do I have evaluate all of these other cryptocurrencies, and there’s just so many?

Ed: Yeah. Well, I look at Bitcoin as you’re investing in a digital version of gold. Ethereum, I look at, you’re investing in, you know, S&P 500. It’s an index because of so much of the overall crypto market is really predicated on the success of Ethereum. If the S&P 500 tanks, I don’t care which midcap you’re investing in, it’s going to be impacted.

Same thing with Ethereum. And there’s so many sort of offshoots other blockchains out there that are tied to Ethereum in one way or another. So, with that being said, you have to look at different metrics based on the different industries. The fact is, is that, again, crypto, using it interchangeably with the word stock, you now start to look at, “Okay, how do I want to base, you know, the value and opportunity of a financial cryptocurrency of, perhaps, a tech and data cryptocurrency just like a B2B service company, maybe even transportation.

And this is where you start to look at, “Okay, which metrics should we be using? If I’m looking at one of the banking ones or financial and I’m looking at a D5 platform, is this D5 platform more valuable than the other?” You could look at, you know, your market cap divided by how much money is locked in smart contracts on that platform.

So, total value locked. And that will tell you, basically, how is this value comparable to other D5 platforms? Is there a lot of assets that continue to flow into that platform for borrowing and lending and there’s a tremendous amount of activity? Compared to, you know, smart contract blockchain where if I want to compare, you know, let’s say Ethereum, versus Avalanche, versus Fantom, or finance, you know, smart chain, you could start to look at, you know, your network to transactions ratio, which just basically, it’s the number of people who are active on these platforms ultimately make that platform more valuable.

If today I asked you to, you know, buy a fax machine, you would look at me and say, “Well, I don’t know many other people that have fax machine. It’s not that valuable to me.” If tomorrow a million people bought a fax machine, it just became a little bit more valuable. The same concept with blockchain.

Scott: I might go get one.

Ed: Exactly. The more people participating on these blockchains, the greater the value because there’s more development, there’s more money flowing in. So, it’s something that’s called Metcalf’s law, but there’s, you know, a ratio called NVT that I just explained that is really helpful in understanding, is there something here, is there a lot of activity? Is there growth that might not be sort of in the spotlight yet that offers an opportunity to get in, perhaps, at an earlier stage?

Scott: That’s a fantastic insight there. Wow.

Ed: Yeah. Or just simply looking at, have the number of holders of this asset grown? You know, if more people are owning this asset and they’re owning it for a longer time, and a cherry on top, you know, let’s say the dispersion of tokens is moving from the top five wallets, so you would assume the leadership team of that project, the percentage of ownership that they have is dwindling day after to day or week after week, you could show that there’s adoption here and there’s people with conviction because the longer you hold it, the more conviction you would have.

And, ultimately, that’s another good indicator that this might be something of value.

Scott: Absolutely. We’ve talked about DeFi a bit. And especially given what we talked about in terms of Dchained’s goal, DeFi can really seem overwhelming. And if you’re chasing yield, you’re borrowing, you’re transferring cryptocurrencies to farm yield more effectively, there can be significant downsides.

You can lose your shirt if the price doesn’t go the way you thought it would, or you make a wrong move. What are maybe some of the keys to approaching DeFi and these platforms and, you know, looking for that yield, particularly if you’re newer to the world of DeFi and maybe a bit overwhelmed in saying, “I don’t even know what platform, and now I’m going to start transferring crypto and moving it from this wallet.” I’m just curious to your insights there.

Ed: Yep. There’s certainly a number of, I would say factors to be mindful of. One is security. The fact is, is that one DeFi platform is not created the same as the next, and you want to make sure that whoever is running that platform has certain safeguards in place where they can’t just liquidate and run off with your money.

It’s called a rug poll. And, unfortunately, they are bad actors, and it happens. But with that being said, there are many DeFi platforms out there that have been audited by third parties that have been around for a while and offer great opportunities. I would suggest, you know, checking them out.

They’re some of the larger market cap. I won’t call them out by name. And you can get, you know, very healthy, you know, APR, you know, by putting your staple coins on those platforms. I would say, don’t chase yield. Don’t try to yield farm. The fact is, is that that is primarily dominated by larger investors, otherwise, known as whales, and it’s gamified.

And in many instances, you will see, you know, money flowing from one platform to the next platform and if you continue to try to chase it, especially on Ethereum, the gas fees will eat away at any type of return that you’re going to get. So, pick a platform, have a strategy ahead of time, make sure that you do some research in terms of, you know, how secure, you know, have they gone through an audit, you know, read about some updates.

Perhaps, they have some new exciting opportunities where you can generate additional yield, but I would play conservative and go with the bigger tried and true platforms. And that would be my recommendation.

Scott: Love it, love it. I think that is spot on. Yeah. Walk before you ever try to run and maybe just keep walking. So, turning our attention to the future here, what’s next for Dchained? Do you have any specific offerings or new initiatives on the horizon that you can share, of course, that our listeners might find to be interesting?

Ed: Yeah. So, we’re putting a lot of attention on producing on video on our YouTube channel, talking about different market trends, and really just trying to get the word out and dispel a lot of myths that exist out there. We just actually talked… This really warmed my heart because all the talk around cryptocurrency just fuels illicit activity.

And then the EU did investigation and is threatening to basically cut off Credit Suisse because Credit Suisse was…they were found out to ask their bankers to start shredding documents showing that some of their investors were using yachts. Some sanctioned investors were using yachts in order to advance loans. It won my heart.

So, yeah, check out our… We’re putting a lot of attention on our YouTube channel. I would definitely say, check out our social because what we’re trying to do is be a little bit more proactive, putting out a lot more content that’s timely, especially in today’s market because there are so many pitfalls, there’s so many landmines that investors just need to be mindful of that we’re going to be putting out a lot more, you know, a lot more content in a number of different formats.

So, check us out, you know, on our Twitter account, check us out on YouTube. And, you know, we’ll continue to put out more and more overviews and materials on our website.

Scott: Fantastic. And once, again, we will have links to all of that on our show notes. So, you can check that out. And I love that timely aspect of it because the landscape gap just shifts so much, and from the investor perspective, you need to stay up to date because, you know, the president could issue an executive order and that could change things.

So, it’s important to be aware of all of that. Ed, thank you so much for joining me on the show today, offering so many great insights and for the work that you’re doing with Dchained. I think that’s what it’s all about, is really making that information available. So, thank you again for joining me here.

Ed: My pleasure, Scott.

Scott
Scott

Scott is a writer Cryptogic as well as host of the several popular podcasts.

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