Everything you really need to know

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By Richard Eisenberg, Editor-in-Chief of Next Avenue

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So far, we have never published a post on Next Avenue on Cryptocurrency or Bitcoin or Blockchain and, as the publisher of our Money channel, I am the reason.

Frankly, I felt that the digital currency Bitcoin and other cryptocurrencies were, at best, extremely volatile and risky investments (did I mention that the price of a Bitcoin coin fell from $ 10,764 in September 2020 to $ 64,829 in April 2021 and has now fallen to $ 40,000?) and, at worst, sometimes sketchy. I thought the cryptocurrency craze would fade. I was wrong on this last part.

So here are the basics of blockchain and Bitcoin and how to invest (just a little!) In cryptocurrencies, taken from the new episode of the “Friends Talk Money” podcast that I co-host with personal finance writer Terry. Savage and Public Media Pam Krueger, Host of MoneyTrack and Founder of Wealthramp.com. (You can download the podcast from your favorite podcast distributor.)

The point is, many smart financial analysts like Cathie Wood of Ark Invest have become big believers in cryptocurrency.

Why you should care about cryptocurrencies

Some have become, if not crypto fans, at least more deniers. In 2018, legendary investor Warren Buffett called Bitcoin “possibly rat poison.” But his company recently invested $ 500 million in Nubank, the digital bank’s parent company selling cryptocurrency products.

And why should you care about Bitcoin and blockchain?

Well, analytics firm GlobalData has just predicted that revenues from blockchain platforms and services will grow from $ 4 billion in 2020 to $ 199 billion by 2030. According to a survey by Motley Fool’s The Ascent service, 21 million Americans 14% of adults own Bitcoin, which has been around since 2009; half of them bought it in the past 12 months. And, for what it’s worth, El Salvador just became the first country to adopt Bitcoin as legal tender, and the Venmo payment app now allows customers to buy or sell cryptocurrency.

“I consider the blockchain technology that cryptocurrency is built on to be transformative,” Krueger said on the podcast. Some compare Bitcoin’s impact on the financial world with how the internet has disrupted music and publishing.

Krueger said that a year ago, when she asked Wealthramp’s 250 paid advisors if they would recommend clients to invest in cryptocurrencies, “almost everyone replied,” Not yet. “” But she interviewed them in June 2021 “and I would. Say there’s a change in the mindset of the whole group.” In other words, they now think their customers should consider owning some crypto if they are interested.

Answers to questions about Bitcoin and blockchain

For an introduction to all of this, let me try to make crypto less cryptic by offering you some questions that may concern you and answers to those.

What is blockchain, what is bitcoin and what is cryptocurrency?

Here’s how Savage explained them on the “Friends Talk Money” podcast:

“The blockchain ledger is a computer program. Think of it as the backstage backstage where everyone [financial] transactions are securely recorded without any intermediary in a ledger that each participant can see, but no one can change except through an authorized transaction recorded on this blockchain, ”Savage said.

Savage conceded that this definition might sound “as clear as mud,” so she came up with an analogy that might help.

“When you buy a home, you get title insurance to make sure no one else has filed a claim for the property. And that’s why we have title insurance companies and we pay them fees.” , noted Savage. “But if all title changes were recorded on the blockchain, there would be no need for that insurance or the title insurance companies. The record would be immutable and visible on the blockchain ledger.”

With blockchain peer-to-peer transactions, she said, you don’t need a financial intermediary, bank, bureau de change, or even a government. “Think about the implications of this type of medium of exchange,” Savage said.

And what does that have to do with Bitcoin, Dogecoin (a crypto inspired by memes), Ethereum (billionaire investor and “Shark Tank” star Mark Cuban is a fan) and other cryptocurrencies?

Savage said, “You can use this blockchain ledger technology as the basis for all kinds of fully secure transactions, like real estate transactions. But the most popular use is with so-called cryptocurrencies like Bitcoin.” Bitcoin records transactions in the blockchain.

There are thousands of other cryptocurrencies, Savage added, but “a lot of them are launched by outright crooks.” Consumers lost nearly $ 82 million in crypto scams during the fourth quarter of 2020 and the first quarter of 2021, according to the Federal Trade Commission.

So how do you buy cryptocurrency if you dare?

Savage’s first rule: “If you are going to buy cryptocurrency, stick with the best known [like Bitcoin]. It doesn’t mean that you won’t lose money on price fluctuations, but it does mean that you aren’t just throwing your money into a black hole. “

And that led to another of Savage’s rules: buying cryptocurrency on a legitimate crypto exchange like Coinbase or Kraken, or through an ATM that sells it although the ATM fees to do so are high. (Coinbase isn’t that machine in supermarkets where you exchange your loose change for bills, I joked on the podcast, it’s Coinstar.)

Alternatively, you can invest in a blockchain Exchange Traded Fund (ETF) which invests in companies involved in blockchain technology or invests in futures or options linked to the performance of cryptocurrencies like Bitcoin or investment products. crypto asset managers.

Buying Bitcoin is investing or speculating?

This is speculation, as there is no correct intrinsic value for it. Bitcoin is worth what people decide it is worth every day.

But there seems to be strong long-term potential for Bitcoin to rise in value, as companies like banks, Microsoft MSFT, and Tesla TSLA accept it (CEO Elon Musk’s thoughts on Bitcoin often lead to crazy swings. ) and it seems that more, on time. And, as Savage noted, the Federal Reserve is studying the development of a digital currency.

How much of my investment portfolio should I invest in Bitcoin or other cryptocurrencies or businesses related to them?

Here’s what Jeremy Wells, Kraken.com Product Manager, told Friends Talk Money hosts: “I generally encourage everyone to explore the space a bit. entire paycheck in cryptocurrency. “

So, Friends Talk Money co-hosts said maybe you could invest 3% of your total portfolio in crypto; perhaps less. I’m starting to see this as a new way to diversify your investment portfolio, as you might with your stocks by buying international stocks of companies in emerging economy countries.

Also, you don’t have to buy an entire Bitcoin. Crypto exchanges allow you to buy an even fraction worth $ 5 or $ 10.

But think of this type of investment as money that you can lose and could very well lose. Crazy money meets crazy crypto.

Longtime cryptocurrency analyst and futurist Dennis Chookazian told “Friends Talk Money” that Bitcoin and its ilk are “entertainment assets” that provide “psychic income”.

His advice: “You shouldn’t buy it with the money you need for your children’s education or anything like that. You shouldn’t buy cryptocurrency with money you can’t. absolutely not allow you to lose. “

Krueger calls investing in cryptocurrencies an “emotional game,” adding that “anytime you invest money in something based on your emotions, this is the fastest way to lose money. silver “.

But, she noted, “it’s kind of fun to learn more.” And, Krueger said, she owns bitcoin and Ethereum and Cardano digital tokens.

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