Cryptocurrency Enters the Chat
It's all the rage right now, why don't you check it out?
Intro:
Unless you’ve been living under a rock for the past three years, you’ve likely heard the term Bitcoin, block-chain, and cryptocurrency, and if we’re being honest, you’ve probably heard a word salad including all of these words a lot. Even if you’re not a finance nerd, this stuff has taken over the airwaves and many folks with a lot more knowledge and focused time to study it still find it confusing. I’m trying something new for this issue: I’m going to work backwards from “how do I get crypto into my life” before I attempt to explain it. For the record, there is currently NO CRYPTO THAT IS REGULATED BY THE US GOVERNMENT. I am also totally not a financial advisor at all, and even financial advisors cannot advise about this stuff because it’s an unregulated field. How wild is that?
With this disclaimer, I’m raising this topic because I talk a lot about diversity of financial portfolios and if you’re a true believer in that method it likely makes sense to have a tiny portion of your assets in the most cutting-edge and mysterious investing opportunities. You’ll see that much of this discussion follows the same patterns of investing in stocks or index funds/ETFs (which I’ve covered before).
Background:
Even though I claimed that I would not try to explain crypto in this note, I need to try and link you to some useful language so it makes a little bit of sense to you.
The folks at NerdWallet explain it as follows:
A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services, but uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.
As opposed to the US dollar that is backed by “the full faith and trust of the United States government,” cryptocurrency isn’t formally backed by a government or any overall body. The folks who attribute value to it do so by trading other stores of value, like dollars, to get these cryptocurrencies.
How can you buy crypto?
Well, as I teased in the intro, you can opt to buy individual cryptocurrencies, perhaps the most known is Bitcoin and the most hilarious is Dogecoin, but all of them can be purchased on crypto exchanges like Coinbase, Square’s Cash App, and Gemini. You hopefully noticed the volatility of Bitcoin, and I only have so much room to show the volatility of the other coins out in the world.
If you own a piece of a single coin, your investment is tied to the fate of that coin. If it tanks, you lose and if it goes to the moon - well, you need to decide when to sell. These exchanges are a little challenging beyond just needing to choose which coin to get your hands on, you also need to pay fees to maintain the wallets. If you have a “hot wallet,” based on a digital app, you’ve got some significant security risks, and if you’ve got an off-line “cold wallet,” you get the risk of forgetting your password and losing your Bitcoin billions. These are both real challenges and we can cover them if there is enough crypto interest in the Winnings family.
Knowing this is a Winnings episode, you’re now waiting for the hedged bet, or “safer” way to invest in this super volatile storer of value. Well, you’ve come to the right place, sort of. Simply put, the concept of a cryptocurrency ETF is still elusive to the average investor. The Winkelvoss twins, yes of The Social Network fame, actually submitted the first proposal to the SEC to create a crypto ETF back in 2014 (thanks Investopedia for finding that article in Coindesk), but the request was denied. Since then, the SEC has yet to bite on making crypto a regulated currency or an approved currency for traditional investors. Grayscale Bitcoin Investment Trust houses an ETF-like basket of crypto currencies, but you need to have a certain net-worth, be an investment firm, or be an accredited investor to invest with a basket of cryptocurrencies.
Takeaway:
At current, the simplest way to expose yourself to the upside and the risk of cryptocurrencies comes by buying a few pieces of these coins yourself. I imagine you’re not ready to throw down the full 45k for a full Bitcoin, but you can buy smaller shares. I haven’t done this yet and I’m not sure what needs to change for me to be ready to take the crypto leap. Over the coming months and years, new ways to own crpyto will almost certainly emerge and keep your eyes peeled for what those will be.
Interact:
Have you purchased any crypto yet? Will you? What’s holding you back?
Gratitude:
Thanks to Ben S. for encouraging me months ago to take a closer look at this and now that I’ve started scratching the surface I think I’ve got a lot more research ahead of me A second shout out to my cousin, Moshe K, who has launched an NGO coin that I’ll share soon. His team generously sponsored some of my NYC Marathon run this November, which you too can support by clicking here. The support helps Friendship Circle, a fantastic organization that pairs neuro-typical teens with kids and young adults with special needs. It’s awesome stuff!
For more:
Check out my tweets about #Winnings and more @StartupRabbi
Please remember, I’m not providing professional advice about personal finance. I’ve got a lot of friends who do that and you can totally hit me up for an intro if you’d like - I don’t get any commission - just the happiness that my readers are taking their financial health seriously.