This year everyoneâs holiday wish is to be able to intelligently discuss crypto and actually make sense.
Weâve all heard of it but still cannot figure it out.
After all, the best way to confirm you know something is to tell your family of all ages. When you can explain it to a toddler in a few words, you are officially an expert.
Unfortunately crypto, blockchain, NFTs, and DeFi are one of the most perplexing worlds, investments, assets, things, who knows what they are at this point that have rose to prominence as media moguls have Tweeted, touted, promoted, and punched them this year.
Whether or not you have extra play money from a birthday or graduation lying around, Iâm not here to tell you what to do with it. All I can say is that you would most likely appreciate it more down the road if it was invested than spent today. Time in the markets > timing the markets.
The true reason I cannot provide you investment advice besides not being a CFA or holding a Series 65 license, just yet, is becuase I would need to know your risk tolerance, short/long term goals, time horizon, and financial health to make an educated portfolio recommendation. Asking for investment advice wonât get you a simple answer from a trusted advisor. Plus, it should be personalized, for you, not for me so Iâll let you make the final decision if you want to include crypto as a part of your stocking stuffer this holiday season.Â
Searching in Google, âwhat should I invest inâ is the worst Google search of all time. Itâs good to gauge perspectives and what people are following but snooping for a âget rich quick schemeâ is a âget poor quick messâ. All Iâll say to buying crypto for the holidays is that you need high-speed internet, patience, and a couple thousand at this point to get into this speculative, wild west investment.
Crypto Craze
Although the housing bubble is on the verge of overheating and has burst into sweat multiple times this past year and a half, crypto seems to have gone through a volatile boom as well. We are currently living in the age of Web 3.0 which supports DeFi, decentralized finance which takes traditional banking services such as lending, sales, underwriting, and trading and automates them through software a.k.a cloud technology. This is the digitalized, AI, blockchain cloud age that fully supports the functioning and transactions of crypto currency.
So why is crypto so enticing and hot?
Just like NFTs and art, it is precious and scarce. There is limited supply of bitcoin. It still cannot be used to buy really anything at this point. That soon might change but as of now, you have to continue using your countryâs currency. The only way to make money from crypto is to sell it to a buyer for a higher price than what you bought it for or hold it as a store of value until it appreciates. This isnât a friendly nor common strategy amongst short-attention span Gen Zers and Millennials.Â
Before we begin describing crypto, letâs understand where it is found under the investment world umbrella. It is considered an asset class. Now this is highly debatable since a true asset is considered something with a store of value and crypto is one of the most specualtive assets ahead of GameStop!
Meme stocks alike are extremely volatile since they are based on othersâ predictions with no intrinsic value or IRR (internal rate of return). They go up or down based on expectation not demand. Iâm sure youâve heard more about Bitcoin than your favorite high-flying unpredictable stock these days since it has caught the attention of billionares, HFT (high frequency traders), and crimals! Yes, criminals. Blockchain, which is explained below is an accesible gateway for them to launder and transfer money in no time bypassing transcation fees and pesky expense ratios. Thankfully majority of users and owners of NFTs and stable coins on the blockchain arenât crimals. Hopefully⊠There is a lot of controversy whether or not crypto is a viable or valuable asset class let alone an investment. If you have any opinion on it which Iâm sure you do, I would be curious to hear it. If you are still trying to absorb all this info, hang tight.
Here we go. Crypto isâŠ
Cryptocurrency is a broad group of digital assets. It originated in 2009 with bitcoin by creator Satoshi Nakamoto from Japan. In 2008 he released a 9 pg paper describing a new system of electronic cash, an alternative to the existing financial system based on tangible paper money. Back then it was seen as social movement, something innovative, sparking the movement in FinTech, the cloud, AI, and everything digital nothing physical. Data became known as the new oil and people were hypnotized.
Satoshi wanted to create a digital currency and it became increasingly popular after the recession in 08. Some say it could be a legal tender like El Salvadaor has put into place, replace gold or the dollar, be the worldâs reserve currency, a ponzi scheme, a possible trend or a gambling game! So many opinions not enough info on what it could be considered just yet. I believe it is a mix of both and personally donât own any bitcoin for these reasons. I would not be able to sleep at night knowing my investment could drop 30% if Tesla mentions they wonât offer it.
What To Do With Bitcoin
Besides bragging to your friends you are educated enough to know what it is, whatâs the purpose of dishing out ~$50k on something you can loose by not remembering your password? Refer to this article for reference. Yes, unfortunately a guy lost millions because of it.
Bitcoin is made for trading purposes. Anyone with an internet conneciton can transfer this value, or coin, asset, whatever you think it may be in a mere few minutes without a central intermediary such as a central bank, Fed, bank, exchange or middle-man. It is top secret. This also gives crypto a skeptical unique allure away from the public eye.
Through a small transcation fee, you can tranfer, send unlimited amounts of money, and the exchange can be settled within minutes.
Where? In the Air?
We wish. Cryptocurrencies operate on software networks, where various computers run programs and these computers are linked through network, a decentralized network, similar to Defi: Decentralized network finance. This network process transactions and the database maintains the records and stores them.
These transactions are batched into âblocksâ that are then connected in order to a long, unbroken âchainâ. If you piece that together and arenât lost yet, you would come up with the word, âblockchainâ. Very innovative huh? Probably the easiest concept in this world behind learning crypto!
These software programs run by these networks are open source programs. Similar to Twitter, any web service can integrate its program with Twitter through an API. Cryptoâs database records transactions which is visible to anyone on a ledger, similar to an exchange. The transaction history is open to ensure no one counterfeits currency, bribes, blackmails or steals anything although it happens more often than anywhere.
Another concern with cryptocurrency is the physical and environmental cost. Mining coins requires a lot of energy on computers through huge servers. This is contributing to climate change and warming our planet. More computers, more pollution.
Crypto Coolness
Besides the crave, why is it so cool and powerful?
Having Bitcoin released on an open-source software platform, anyone can replicate the code and create their own verison of it by tweeking it for an entirely different purpose. There are thousands of platforms created based on cryptocurrency itself from decentralized services (DeFi) to different coins such as stable coins, dogecoin and Ethereum, and kinds of collectibles and art such as NFTs that are constantly evolving.
Speaking of NFTs, the third most popular word of the year behind cryptocurrencies and vaccines, NFTS are non-fungible tokens that have been crazy popular this year adopted from the blockchain as well. If you are looking for a fun definition, check out SNLâs parody on NFTs. It will confuse you even more!
NFT WHAT?
For simplicity sake, it proves ownership.
These are unique bits of code on blockchain that are associated with an image, art, audio tape or I hate to say it, anything that may look like art or not! Web 3.0 (talked about earlier, if you are still here) has helped scale the decentralized network that facilitates speculation, the democratiziation of finance, and commercialization of NFTs on the blockchain. This is the place to buy them if you have the funds. If you are looking to own an alternative appreciable asset such as art that has beaten the S&P 500 for the last few decades, you can own shares of MasterWorks, a company that sells artwork. You donât need to own millions of dollars worth of artwork to be a part of the hype. The digital art work by American artist Mike Winkelmann, better known by his artist name Beeple was auctioned by Christieâs this past year. His NFT âEverdays: The First 5,000 Daysâ sold for $69 million!
Cryptocurrency is lightly regulated investment class and considered the wild west. There are frauds, crimes, and suspicious dealings that go on and the SEC and Federal Trade Commission have warned investors to watch out for any fraudulent activity and Ponzi schemes such as guaranteed money.
What sounds too good to be true usually is.
Enough?
Before investing into anything, I would first get to know what it is, if you can explain it to yourslef, and expect volatility and uncertainty since no knows what the future holds. Investors would pay big bucks for a crystal ball. It would be worth 100x more than any coin. The only things that are certain are death and taxes so stay vigilent and humble. You are never smarter than the markets.
Crypto could be a complete fad and destory itself overnight for all we know! Donât follow the Winklevosses for everything. Maybe just Facebook. They got that bet right becuase they created it!
Anyways, the most common way to buy crypto is through a crypto exchange. The most popular platforms to do so are on Coinbase or Gemini. These are companies that recently went public and like crypto, they are expected to be volatile stocks. If you are still uneasy about this relatively new asset class but want to get a piece of the pie, I would suggest owning shares in crypto companies not owning crypto itself. This will not only help you mentally from the price swings but your wallet as well since Bitcoin isnât cheap. You can also go through a mobile broker trading service such as Rbinhood or WeBull. Of course they offer crypto assortments.
Many institutionalized traditional brokerages, legacy incumbents, and bulge brackets donât tend to offer crypto and or other altenraive invemstnts just yet since they have a more established older clientele that arenât interested in loosing 50% of their money overnight. They also donât day trade. They are about building generational wealth and paying zero income tax instead.
Whatever you do, always stay diversified and risk whatever youâre willing to loose. Invest in yourself and your money so it can work for you not against you. Happy mining.