Author: Andrew Tang

The BRB Bottomline

Cryptocurrencies, or digital assets, are gaining traction as its outlook brightens. Read this article to find out more about cryptocurrencies and how you can invest in your future!

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If you follow the news regularly, you probably have heard about the recent demand for cryptocurrencies. For those that haven’t or aren’t too familiar with the concept, a cryptocurrency is a digital currency that can be used to purchase goods and services. Transactions are stored on a blockchain, a digital ledger or database. While I will focus on Bitcoin for the sake of simplicity, you can check this link out to learn more about blockchain!

Of the thousands of different cryptocurrencies, Bitcoin is the first and largest cryptocurrency, with a market cap of nearly $1 trillion. Although cryptocurrencies were first introduced back in 2009, a common question remains: why are they taking off now? To answer this question, we must first examine the pros and cons of crypto. 

Proponents of cryptocurrencies view it as the currency of the future, and for a good reason. Because cryptocurrency is stored on the blockchain, it results in a decentralized process that provides increased anonymity and security over its counterparts. Supply is generated by nodes or the infrastructure that supports blockchain. Another benefit is that the fixed supply of Bitcoin isn’t expected to max out for another 100 years. 

On the other hand, cryptocurrencies are extremely volatile currently. In 2017, for example, the price of Bitcoin exploded from under $1000 to nearly $20,000, before crashing to lows of $3,000 soon after. This issue results from Bitcoin’s scarcity and lack of intrinsic value. This makes Bitcoin more widely used as an investment tool and less as a currency. 

Why Now?

In recent months, Bitcoin has regained its stride, pushing to a new high of $57,000. Undoubtedly, institutional buying is the biggest difference between today’s bull run and the rollercoaster back in 2017.

Institutions have been buying up large quantities of Bitcoin and displaying hope in a long-term adoption of the cryptocurrency. Most notably, Tesla recently disclosed a $1.5 billion purchase on their balance sheet. Other companies like BNY Mellon and Mastercard have stated that they’ll hold cryptocurrencies and accept them as a form of payment, thus accelerating its adoption and improving its future outlook. Citigroup’s Global Perspectives and Solutions team recently shared that Bitcoin could “become the currency of choice for international trade.” This increased participation from institutional investors is gaining momentum and shows few signs of slowing down.

In an attempt to appeal to the ever-growing customer demand and governmental acceptance of cryptocurrencies, companies are rushing to provide services for cryptos. As more institutions embrace Bitcoin with open arms, it only establishes a further sense of legitimacy for the currency. 

Investing in Crypto

So how does one get involved with investing in the crypto realm? The first step is to decide where you’d like to buy and store your cryptocurrencies. Mainstream options include cryptocurrency exchanges or traditional brokers. The most common exchanges, Coinbase and Gemini, charge a transaction fee. Another option is through a traditional stockbroker, which may be convenient if you already have a preexisting account. While Robinhood and TD Ameritrade are the only traditional brokers who offer access to purchase and sell cryptocurrencies, note that other brokers will eventually support crypto transactions. Aside from purchasing through a broker, one can buy Bitcoin directly from individuals, though exercise extreme caution. The final option is through investing in Grayscale Bitcoin Trust which tracks Bitcoin’s market price. This allows you to mitigate worries of storage, but shares are priced at a premium. Above all else, do your research to minimize risk. 

If you decide to directly hold Bitcoin or other cryptos, you will need to store your investment in a digital wallet. A hot wallet stores your cryptocurrency in the cloud and allows for faster transactions, but is prone to security breaches. On the other hand, a cold wallet stores your investment in a portable, encrypted device and is by far the safer option.

Once you have completed the steps listed above, you are now ready to make a purchase! Despite a single Bitcoin being close to $50,000, fractional shares allow you to acquire as much or as little as you’d like. 

A general rule of thumb is to allocate 1-5% in your portfolio in Bitcoin. However, everyone’s financial situation and risk tolerance are different, so only invest what you are comfortable with. Play the crypto space with a long-term mindset to avoid frequent turbulence. Finally, remember that cryptocurrencies are considered property, so you will need to track capital gains or losses. 

Take-Home Points

Cryptocurrencies are widely considered the currency of the future. They offer privacy, user accessibility, and are disrupting the future of banking. However, be mindful of its current volatility and do not invest what you can’t afford to lose. With that being said, the world of crypto is always changing, so be sure to keep up with the news. Reach out if you’d like to talk more!