Should I Invest In Cryptocurrency?
We have noticed that we’re starting to get a number of people ask us about cryptocurrency and if they should invest in it.
This is no surprise considering the insane returns that these currencies have had over the last year.
So, what is it?
Crypto-currency, or Virtual currency, is not like traditional currencies like the Australian Dollar, US dollar or British Pound. They live online and there are no physical assets representing them.
One of the biggest differences is that they are not backed by a trusted central controlling authority like a Government. Instead they are backed by the network behind them. The tokens or coins are held on a public ledger online. The core innovation that makes cryptocurrencies special is that they use consensus in a massive peer-to-peer network to verify transactions.
There are many different cryptocurrencies with Bitcoin being the most known.
Other ones are:
Here is an article that explains how Bitcoin works in simple terms.
Every cryptocurrency is a little different, but most of them share these basic characteristics:
Irreversible: Once you send a cryptocurrency there is no way you can get it back.
Anonymous: No ID is required to open a wallet (an account) and your transactions are usually highly anonymous
Global and efficient: As everything is online it is extremely quick, cost-effective and there are no barriers of moving money around.
Controlled and limited supply: The amount of currency is limited by the network. This means that you are aware of the total supply available.
Should I invest in Cryptocurrency?
Let me start by letting you know that I haven’t myself.
Am I a little bit frustrated that I haven’t? Of course I am, but this is a common feeling as there is always some investment that goes through the roof each year.
Did I actually have a friend who is an expert in the industry tell me that I should look at it when they were about a 10th of the price back in May? Yes I did.
Why didn’t I invest? Basically, I felt that there were too many unknowns and I wasn’t yet knowledgeable enough to make a sound decision.
I do believe in the concept of cryptocurrencies and that they will be here to stay, so this is supportive of the recent large increase in price.
This is how I like to explain my view on CryptoCurrencies: It is very similar to the dot com crash in 2001. The internet did not die after the crash.
That’s because the underlying technology and function of the internet was a huge innovation and was here for good. What was lost was all of the hype and the speculative companies trying to leverage this hype. I believe we are now in a very similar situation.
The underlying concept of CryptoCurrencies and the associated technology is an amazing innovation and is here to stay. However, there will be a huge shakeout and the landscape in the future will look very different from how it does today.
I am always wary to invest in something which has been the recent star performer as history tells me that they are often next year’s worst performer.
I know that it is still a very undeveloped market and it can remind you of the stock market trading days of the 80’s.
There are a lot of cowboys out there, and a few people on the inside have knowledge that the rest don’t and they can influence the market.
I am not investing right now as it would be a big gamble for me. But if I ever do, I’ll let you know.
We’re not comfortable in recommending you invest in cryptocurrencies as we’re not experts in them and feel that they’re still too many risks involved.
If, however. you’re one of our more financially free members who have a keen interest in these type of investments then we would be happy to help you make your decision on how much you should invest and from which vehicle.
Crypto is an extremely high risk/high return investment and would form part of your aspirational standard of living goals and should not be more than 5% of your portfolio. (Closer to 1% would be better!)
We have some close friends who are very involved in the Crypto World and would be happy to have a conversation with you.
So if you are thinking of getting into Bitcoin and the world of other cryptocurrencies, get in touch. We’d love to point you in the right direction.
Find us on: firstname.lastname@example.org
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Disclaimer: all information contained within this article is of a general nature. It should not be relied upon when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.