Cryptocurrency investing – yes or no?
Did you know that just 50 years ago the way we transacted looked vastly different from today’s systems. It hasn’t been that long, but a lot has changed. And it can be hard to keep up with all the changes, knowing which path to take and trust. At Wealthstack we want to make money matters simple again. So here’s a breakdown of cryptocurrency investing. We take a look at Bitcoin, how it differs from a usual investment and how to add it to your investment portfolio.
Fiat Currency and Cryptocurrency – what are they?
Before 1971 the dollar was backed by gold. However now the dollar (or any currency) is backed by a promise from the government to be able to take that currency and convert it into goods, This is known as a fiat currency. Opposingly, cryptocurrencies are digital tokens exchanged online. Bitcoin is one of the major-player cryptocurrencies. It is vastly decentralized and not owned by any one person or government. It gets its value through its scarcity – only 21 million bitcoins can be mined in perpetuity. This is all protected and backed by consensus of open source developers. They’ll never change that number to mine more. In this way, bitcoin holds its value.
Can I trust Bitcoin?
Now, the intangible nature of bitcoin might throw you for a loop. You might not be keen to trust these developers spread out across the globe that have “magically” agreed to the absolute number of bitcoins. However, bitcoin has longevity, being founded in 2009. There have been some lone-ranger-developers that have tried to get that number increased. But every try was a false start because the majority of developers shut them down in favor of keeping the absolute number stable. Bitcoin’s longevity, decentralization and scarcity result in major volatility but potentially astronomically high yields.
How do I start investing in Bitcoin?
This volatility may not be your cup of investment-tea. But that doesn’t mean you need to ignore it altogether. Investing is not binary. Meaning you don’t have to completely ignore what you don’t know well. It’s always best to diversify your investment portfolio. For example, you could put just 1% of your 2.5% Alternative Asset Class investment into Bitcoin or another cryptocurrency. And of course, there is a chance it could go to zero. But even if it does, it would not affect your investment portfolio profoundly. However, you’ll notice and appreciate the increase when it doubles, and potentially doubles again.
You don’t have to have a “Wild Wild West” type risk profile to start your journey into cryptocurrency investing. Here’s what you need to enter the crypto-world with confidence:
- A good understanding of the basics.
- An acceptance of its volatility.
- And a small share of your investment portfolio to start.
Want to know more?
Want to know more about cryptocurrency investing? We’ve got a great synopsis of the other types of cryptocurrencies, such as Ethereum and Tether in this podcast episode. As well as more insights on crypto investing, the history of transacting and bitcoin’s similarities to gold.