An Overview of Cryptocurrency and Cryptocurrency Investing

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Understanding Cryptocurrency and The Blockchain

In the past several years terms like Bitcoin, Ethereum, and The Blockchain and become commonplace throughout the financial and technological industries.  This recent explosion of information has left many people understandably confused as cryptocurrencies are very unlike traditional currency.  The first thing to know about digital currencies such as Bitcoin is that the operate based on a decentralized record keeping system known as a “blockchain”.  There are entire books dedicated to the topic of Blockchains and how they will impact our world as the become more commonplace in technology and enterprise.  To understand blockchains and their role in cryptocurrency several key aspects need to be highlighted:

  1. When a transaction occurs on a blockchain this becomes a permanent part of the ledger upon which subsequent transactions be based
  2. Due to the above characteristic, a blockchain is unalterable without consensus from the entire blockchain making it an incredibly secure system of record
  3. A blockchain ledger is often distributed across a peer to peer network (public ledger) therefore it is decentralized from any one user’s control

The main takeaway from this is that unlike traditional currency (often referred to as “Fiat” by crypto enthusiasts), cryptocurrencies operate on a decentralized basis.  When a government issues a currency, it is backed by the that particular country.  When a cryptocurrency is released during an ICO (Initial Coin Offering), the currency is backed by the community of users which give it value.

Cryptocurrency As An Investment

Popular cryptocurrencies such as Bitcoin, Ethereum, and Litecoin have undergone an absolute surge in value since their inceptions.  Early investors in these currencies are now reaping levels of returns that previously would have thought to be unheard of.  The question that investors need to ask themselves is whether or not cryptocurrencies are still a good investment today.  This is a difficult question and depending on who you ask you will receive completely different answers.  There are highly respected investors who are predicting $50,000 BTC prices within the next several years while others are certain it will fizzle out in to irrelevancy.  Deciding if crypto investment is right for you should first involve considering several basic questions:

  • How much risk are you willing to take?
  • Would you be able to sustain a substantial loss on your investment?
  • What percent of your investments do you want to leverage on cyrpto?
  • Are you willing to see your investment go to zero?

There is no question about it that crypto investments still have a very high upside.  The use of currencies like Bitcoin is only now beginning to spread in to a mainstream audience.  If adoption rate continues to increase, there is a great chance that major cryptocurrencies such as Bitcoin continue to see a huge increase in value.  Currently, Bitcoin is down from an all time high of nearly $20,000 per BTC.  As of today it sits around $6,500.  Investors who bought in at its height would currently be seeing a massive loss in their investment and there is no certainty of where Bitcoin will go from here.

With this said, many investors believe cryptocurrencies are still in their infancy’s and we will continue to see an overall rise in their value.  Bitcoin has had many ups and downs in its short lifespan so to say it is a volatile investment would be an understatement.  Any person who chooses to invest needs to keep in mind that there will likely be huge fluctuations in the value of their currency.

How To Invest In Cryptocurrency

If you decide to take the plunge in to cryptocurrency the process has become very simple for US based investors.  CoinBase is the primary entry point for cryptocurrency investors in the United States.  Currently CoinBase allows individuals to purchase 4 major cryptocurrencies:  Bitcoin (BTC), Ehtereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH).  Customers who use Coinbase can make their purchases using their attached bank accounts or using a credit card.  Once you make your purchase your cryptocurrency will be added to your CoinBase wallet.

CoinBase provides access to investors in 4 major crypto assets but their are hundreds of additional currencies people may wish to purchase.  For these purchases, you will need to use a cryptocurrency exchange such as Binance (this is one of the most popular and most trusted exchanges).  Once you have transferred to your currency from CoinBase you will be able to purchase any other currencies available on the exchange you choose to use to purchase your other currencies.

To summarize, there is no doubt about it – cryptocurrency is an extremely high-risk investment but there is a high upside due to the low utilization rate.  If these currencies are widely adopted it is likely the surge of value will continue and investors will see their Bitcoin increase in value.  In addition to Bitcoin, there are many other options for investment and research needs to be at the forefront and there are many questionable coins out there that are nothing more than a money grab.  Ultimately investors need to evaluate their ability to take on risk but there is no doubt about it that cryptocurrency seems to be here to stay and there is plenty of evidence to suggest it will continue to be adopted and increase in value.

Cryptocurrency is a risky alternative investment strategy. Other investment strategies to hedge stock market losses include baseball card trading (i.e.Vladimir Guerrero Jr. Rookie Card) and buying gold (both these options carry less risk vs cryptocurrency).

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