Video transcript summarized below:
Cryptocurrency or "crypto" as some refer to it as, is hot right now. Investors of all shapes and sizes are pouring their hard earned dollars into a variety of digital coins including bitcoin, ethereum and even dogecoin, a cryptocurrency created by two people in a few hours as a joke. In this video, I’m going to share the top three things you should know about cryptocurrency.
Hello and welcome to another video from One-Up Financial. I am your host Eric Presogna here to help you increase income, reduce taxes and invest smarter in retirement.
Let me start by disclosing I'm no cryptocurrency expert by any means. I've followed bitcoin's rise for years, read commentary from crypto investors and institutions and have invested modestly in the space more for experience and knowledge on the subject than as a long-term investment. So everything you hear from now until the end of this video is a simplified, watered-down version of the crypto space and not meant as an in-depth endorsement of bitcoin or litecoin or any other cryptocurrency.
1. What exactly is cryptocurrency?
Cryptocurrency is a virtual currency that’s created by encoding strings of data into units of currency on a digital ledger, otherwise known as blockchain. Bitcoin, the largest and most prominent cryptocurrency on the market, is created (mined) and monitored by thousands of computers and miners around the world. Unlike the U.S. dollar, cryptocurrency is not issued or backed by any government, it’s not regulated, and it doesn’t have a physical form. It’s like buying virtual tokens or credits that you can only use in certain places — and that you can’t necessarily cash out when you want to.
2. Why are people buying?
As with any hot investment fad, there are lots of different reasons people might invest in cryptocurrency. Some companies invest in it as a way to hedge against inflation. Tesla recently invested $1.5 billion of corporate cash into bitcoin. 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.
Recently, Morgan Stanley announced they're endorsing a small percentage allocation to bitcoin as an alternative asset class. Additionally, hedge funds are now investing serious money into crypto so you have institutional acceptance which is also contributing to run up in price.
3. 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 relatively new market (Created in 2009 by a phantom known as Satoshi Nakamoto, whose whereabouts and existence remain a mystery to this day) and extremely volatile — investing in crypto is definitely a gamble. You will hear experts on TV refer to bitcoin as a "store of value." Remember, a store of value defines how an asset can be saved, withdrawn or exchanged at a later date, and whose future usefulness is predictable. 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.
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.
Lastly, exchanging bitcoin in the marketplace for a product like a Tesla Model T may result in a taxable event if you purchased the bitcoin at a discount prior to the exchange.
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 contact us at oneupfinancial.com or email me at email@example.com.
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