In 2009, when the cryptocurrency, Bitcoin, cost fractions of a penny, an Australian game developer set up a rig to mine a few coins per day; he accumulated thousands of coins. Like anyone would have done, he saved them on a USB drive in case his PC crashed unexpectedly. After feeling secure with his backup plan, he forgot about his investment until he learned that Bitcoin reached $1,000. Tragically, when he remembered his great investment, his USB drive didn’t work. To this day, he remains anonymous to hide his financial blunder from his wife.
What is cryptocurrency? According to Investopedia, cryptocurrency is a digital or virtual currency secured by cryptography, making it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology-a distributed ledger enforced by a unique network of computers. Cryptocurrencies are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
History of crypto – Interestingly, cryptocurrency existed as a theoretical idea long before it debuted as the first digital alternative currency. It was meant to solve the practical and political shortcomings of “traditional” fiat currency. Cryptocurrency’s technical foundation dates back to the early 1980s when an American cryptographer named David Chaum invented a “blinding” algorithm that remains central to modern web-based encryption (moneycrashers.com).
Current use – Cryptocurrency has evolved since Bitcoin was released to the public in 2009 by Satashi Nacamoto, a pseudonymous person or group. Since then, there have been many new cryptocurrencies sprouting in the “crypto space.” Facebook even has the Libra, which is its alternative to fiat currency.
Future of crypto – Cryptocurrency is an exciting development that challenges nation-states’ near-monopoly on currency. It also offers the opportunity for global finance to become better. However, cryptocurrency is a work in progress. Those who can afford and are willing to invest a small portion of their portfolio can win big.
How to invest – Today, fortunately, you won’t have to worry about saving crypto coins on a USB drive. To invest in cryptocurrency, you only need to open an account on an exchange. Binance and Coinbase are two popular options. PayPal even offers accounts for buying, selling, and spending Bitcoin, Ethereum, and Litecoin. These trading platforms have low fees, and you can buy fractional coins. For instance, if you wanted to buy Bitcoin at $40,000 per coin, you could buy 1/100 of a Bitcoin for $400.
As a repair shop owner, you might consider accepting certain cryptocurrencies as payment for repair jobs. This could potentially attract customers that you’d otherwise not get. If you use PayPal, you can accumulate the crypto in your PayPal account or convert it to US Dollars immediately after the transaction is processed. Then you can transfer it to your business checking account.
While the potential upside for cryptos is exciting, volatility is a significant concern. Like most volatile investments, it’s best to have a long-term perspective. A conservative strategy for getting into cryptos is to buy it gradually, using “dollar cost averaging” to smooth out the fluctuations. This means that you purchase the crypto or cryptos of your choice in small bite-sized amounts over time regardless of the current value. Eventually, you accumulate a nice amount of crypto.
For investors wishing to learn more about cryptocurrencies or anything related to building a financial nest egg, we can help. While some full-service investment advisors are willing to accept smaller accounts, at empiriKal partners, llc©, we’re geared to help all ATRA members, regardless of their stage of life or portfolio size.
Let us help you rather than going it alone. If you already have an investment advisor, congratulations. However, if you’d like to learn more about what investment advisors do for their clients, please feel free to reach out to me at empiriKalpartners.com for an individual assessment.
Edward Vela is an Investment Advisor and Estate Planning Specialist at empiriKal partners, llc©, with 13 years of wealth management experience. He earned a Journalism Certification from the University of Massachusetts, a BA in Political Science, a Financial Planning Certification at UCLA, and an MBA from the UCLA Anderson School of Management. You can contact Edward at 925-300-8805 or email edward@empiriKalpartners.com.