Hi, I’m Dave Denniston with Centurion Financial Strategies, and I’m here to help you understand some basics about cryptocurrency. Crypto is hot right now, people are excited, and they’re diving into this new market for lots of different reasons. In this video, I’m going to share the top three things to know about cryptocurrency.
One: What exactly is cryptocurrency?
It’s a virtual currency that’s created by encoding strings of data into units of currency. Unlike the U.S. dollar, it’s not issued by the government, it’s not regulated, and it doesn’t have a physical form. It’s like buying virtual tokens or credits that is becoming more and more accepted. People keep them in 'cold storage' meaning a digital wallet that's not connected to the internet or they keep them on an exchange like Coinbase.
There's so many different cryptocurrencies now they are hard to keep track of. You may have heard of some of the big ones like Bitcoin and Etherium. Many of these are used in smart contracts that could potentially change the way we do business down the road.
Some people have profited tremendously from cryptos and made hundreds of thousands or even millions of dollars while other people have lost most of their life savings from trading on the wrong side.
These are very, very volatile investments. They can go up by 100% or 200% or 300%, but on the other hand easily lose 75% in a very very short time period. On a scale of 1 to 10, I call them a 10 or even an 11.
Two: Why are people buying?
As with any hot investment trend, there are lots of different reasons people might invest in cryptocurrency. Some companies invest in it as a way to hedge against inflation. Some investors like that it’s fast, confidential, and has low fees. Some like the idea of taking currency creation away from the government. Some folks are speculators hoping to use the wide swings in value to profit.
Three: What do you need to watch out for?
Here’s where you want to be careful. Cryptocurrency is risky for several reasons. It’s a new market and extremely volatile — investing in this market is definitely a gamble. Also, since cryptocurrencies aren’t regulated, they aren’t protected by the FDIC or any government body. This makes them a prime target for hackers and scammers. Regulation is continuing to develop and worth keeping a close eye on. Another risk factor? If you lose or forget your password, you can get locked out of your digital wallet for good. In fact, there’s about $140 billion in bitcoin that’s currently inaccessible because it’s stuck in stranded or locked wallets.
On the other hand, the Federal Reserve has been working on developing their own crypto currency which might make cryptocurrencies even more common place. The old guard cryptocurrencies like Bitcoin are gradually being more and more accepted for payment, and they still have a very long way to go.
I personally see a lot of upside in these investments. To this point, I've never bought any, but I can understand why many people would be interested. I think if you do want to buy cryptos, the best thing to is to wait for a big dip when they are down 50% or more which seems to happen every few years.
One of the reasons you work with a professional is to help you make informed decisions.
If you have more questions about cryptocurrency, or if you’d like to talk about other financial decisions you’re considering, please use the form below to send me a message. I’ll respond personally.