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THE CHANCES are that you feel behind.
You probably know that Bitcoin has grown. You also probably know that it is a cryptocurrency, which suddenly becomes everyone’s favorite topic when its value rises or falls, and that it has been around long enough that you should probably know more about it than you know now.
Do not worry. We went back to basics with financial advisors to update you and help you answer a question that may be burning in the back of your mind lately: should I buy Bitcoin – and how?
Whenever Dan Herron typed “how to invest in Bitcoin” into Google, he received “10 million sources and no authority”. This concerned the financial advisor to Elemental Wealth Advisors in San Luis Obispo, California. He wanted to learn about cryptocurrency for his millennial clients and, of course, he had watched the asset price rise this fall. So he recently attended a two-day Bitcoin conference. This also left him with more questions than answers and a feeling that the culture around the currency might be a little too “jagged”.
Then he found Coinbase. Digital currency exchange, the largest in the US and most commonly used in the UK, is increasingly the primary way for individual investors to buy Bitcoin in many countries. The exchange is registered in the United States with the Financial Crimes Enforcement Network and has an e-money license from the Financial Conduct Authority in the United Kingdom. Other notable exchanges include Kraken, Bittrex, and Binance, the largest spot cryptocurrency exchange in the world by trading volume.
Exchanges typically charge fees of several percentage points for depositing funds and trading. Users may also have to pay exchange rate fees if the exchange only operates in a foreign currency.
For Mr. Herron, creating an account was like joining Robinhood, the digital platform for stock trading. During the Thanksgiving holiday, he entered his local bank details, verified his identity, and then bought $ 100 worth of Bitcoin by transferring money to his new account. The trading fee was around $ 3.
New cryptocurrencies
Bitcoin may be the most famous digital currency in the world, but it is far from the only currency in the universe.
A number of new cryptocurrencies have entered space in recent years, including Ethereum, Ripple and Tether. Facebook also launched a cryptocurrency project in 2019, later called Libra, but it almost immediately got a regulatory backlash. The association behind the project has now changed its name to Diem.
Bitcoin as a long-term investment
Billionaire investor Mike Novogratz said he sees “tons of new buyers” amid “little supply” of Bitcoin.
The Galaxy Digital founder hasn’t been shy about his views on cryptocurrency and said last month that it could reach $ 65,000 (it’s at around $ 19,000 now).
He was replying on Twitter to Maisie Williams, who plays Arya Stark in Game of Thrones. He asked his 2.7 million followers if he should invest in digital currency.
Other celebrities who have previously backed cryptocurrencies include Snoop Dogg, Ashton Kutcher, and Mike Tyson.
Elemental Wealth’s Herron sees Bitcoin as part of a broader conversation, particularly with younger investors who have a 25-30 year time horizon and a penchant for digital finance.
He wouldn’t advise anyone to rush to put their emergency savings in cryptocurrency. But he sees it as part of an overall mix that could “boost your returns a little” in today’s low-rate environment. “You might want to consider it if you have the ability to put maybe 5% of your portfolio in there and let it grow and see what happens,” he said.
Future investment
Theresa Morrison, founder and partner of Tucson-based financial advisor Beckett Collective, also sees cryptocurrency as an investment for the future.
He believes that, as “the Internet’s native currency,” it could work well as a hedge against inflation if customers hold small amounts, such as about one percent of their portfolio value.
Others worry about its volatility
On the other hand, Bitcoin “lacks some of the basic integrity of a real market,” said Gary Cohn, former business chief of Donald Trump and former member of the Goldman Sachs Group this week.
“Part of the integrity of a system is knowing who owns it, knowing who owns it, and knowing why it’s being transferred,” he said. “The Bitcoin system today has no transparency. So there are a lot of people wondering, why would you need a system that doesn’t have an audit trail.”
The Bitcoin blockchain records every transaction in a public ledger. However, it does not reveal the names of the people or organizations that buy and sell the digital asset, just a string of random characters.
Dana Menard, founder and CEO of Twin Cities Wealth Strategies Inc, is optimistic about the currency’s performance but has regulatory concerns.
“Without the blessing of the SEC, the hard thing for Bitcoin is the lack of supervision and wild West speculation that has led to prices making big moves in short periods of time,” he said, referring to the US Securities and Exchange Commission.
Additionally, Mr. Menard urges caution when consulting Bitcoin advice online. “It’s not regulated, so anyone and everyone can give advice,” he said, adding that not everyone will have the best interests of the individual investor in mind.
“It looks like fool’s gold to me,” said Mike Caligiuri, founder and CEO of Caligiuri Financial in New Albany, Ohio. The pay-only planner is primarily concerned with currency volatility. “It is a relatively new asset class that has a relatively unproven track record.”
For this reason, Mr. Caligiuri disputes a common refrain from Bitcoin advocates: that it serves as a useful hedge in a portfolio because it is unrelated to the performance of the stock or bond or commodity markets. BLOOMBERG
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