Ten years ago, most people would laugh if you said that you own a portion of your investment portfolio in cryptocurrencies, a type of virtual currency that is protected by various means of encryption and computer. But these days, you may be considered late if you are not currently investing or have never traded a Bitcoin, Ethereum, or Litecoin in your life.
Like it or not, cryptocurrency is pretty much everywhere these days and it's no longer just for obsessed, everyday traders. In fact, many traditional companies integrate cryptocurrency into their platforms in some way, or use it as a way to launch other types of products.
Example: In October 2020, PayPal launched a new service that allowed their account holders to buy, sell or hold cryptocurrencies or use them to buy things from 26 million different merchants.
According to the payment platform, the predominant use of cryptocurrencies has been "greatly hampered by its limited usefulness as an exchange tool due to volatility, cost, and speed of transaction."
However, they believe that their platform could provide a way to make cryptocurrency more useful as a payment method.
"The shift to digital forms of currencies is inevitable, which brings with it clear advantages in terms of inclusion and financial access; the efficiency, speed and flexibility of the payment system; and the ability of governments to disburse money to citizens. quickly, "Dan Schulman, PayPal's president and CEO, said in a press release.
Edmund McCormack, founder of cryptocurrency investment platform DChained, says the move on behalf of Paypal PYPL -0.9% was expected, but was also necessary to bring cryptocurrency into the mainstream.
"This decision directly addresses three of the most common objections that cryptocurrency has faced in the last ten years, including the practicality of daily purchases, a clearly defined market, easy to use and legality," he says.
McCormack is also targeting the Square SQ -2.2% payment platform, which reportedly invested $ 50 million in Bitcoin in October of last year.
Right now, he can choose from an impressive array of cryptocurrency savings accounts. In the near future, you may also be able to sign up for the world's first Bitcoin rewards credit card, which will be offered by BlockFi. The BlockFi Bitcoin Rewards credit card will work like traditional reward credit cards, except that you will get 1.5% cash back on every purchase in Bitcoin instead of the other reward currency. This card is currently on hold.
What does this all mean? As more and more companies and platforms find ways to use cryptocurrency, or allow their customers to use it, it will become more popular than it really is. But should you invest in cryptocurrencies?
The answer depends on who you ask.
According to Claire Lovell, associate director of product management at Gemini (cryptocurrency investment platform), Bitcoin is reaching all-time highs and legacy financial institutions embrace cryptocurrency, which means that digital currencies are finally becoming a major part of finance and financial technology.
In terms of benefits, Lovell says that cryptocurrencies give consumers more choice, independence, and opportunities in their finances. Additionally, the decentralized and open source nature of cryptocurrencies helps "eliminate the weaknesses of the modern banking system by providing direct access to consumers," she says. This makes it easy to buy, sell, store and exchange the best performing assets of the last decade.
Not only that, but Drew Hamilton, CEO of Rubix.io (cryptocurrency platform) says that cryptocurrency is in its infancy. This means that if you invest now, you could be on the ground floor "even if the prices seem high."
After all, some experts have suggested that Bitcoin could be worth up to $ 100,000 per day. A leaked (and often cited) report from Citibank showed that one industry insider believes that digital currency could exceed $ 300,000 per coin by the end of 2021.
Attorney Len Garza, Esq of Garza Business and Estate Law, agrees that investing in a new investment tool like Bitcoin has the potential to generate massive profits (plus huge losses). Furthermore, cryptocurrency is easily one of the most liquid investment assets since the creation of trading platforms around the world.
However, not everyone thinks that investing in cryptocurrencies is a good idea, at least not for the average investor.
According to Garza, the other side of the "novelty" of cryptocurrency is the staggering volatility we've seen so far. Simply put, investing in cryptocurrencies is not for the faint of heart.
For example, a Litecoin could have cost you more than $ 300 at the end of 2017 ($ 306.87 on December 15, 2017), but the coin has dropped to roughly $ 30 in January 2019. At the time of writing, the Litcoin's value is One costs $ 140.96.
And we all know that Bitcoin fell below $ 4,000 per coin in January 2019 before hitting an all-time high (so far) of $ 41,940 on January 8, 2021. While it's always fun to win, it's a journey. A desert that many people never want to be in.
Volatility aside, Garza says the cryptocurrency is ready for scammers, as there are no regulations governing the different markets.
He says, "Buyer, be careful."
Finally, hacking is a huge threat if you invest in crypto. Online exchanges allow you to trade your cryptocurrencies on mobile apps and websites, exposing you to hackers who steal your entire investment. And if someone gets their hands on your cryptocurrency, there is nothing you can do about it.
Ryan Shuchman, a partner at Cornerstone Financial Services in Southfield, Michigan, also notes that cryptocurrency investors must use unconventional custodians to obtain and manage their money. Unfortunately, Shuchman says companies like Coinbase and Gemini lack the track record for security and stability that rangers like Fidelity, Vanguard, and TD Ameritrade have earned.
For these and other reasons, Robert R. Johnson, Ph.D., Certified Financial Analyst, CAIA and professor of finance at the Hider School of Business, Creighton University, said that Bitcoin and other cryptocurrencies are "the prerogative of speculators." No one should consider buying Bitcoin or any other cryptocurrency as an investment, he says.
The only way to value cryptocurrencies, Johnson says, is through the big fool theory, which requires a bigger fool to pay you more than you paid.
But he says you don't have to listen to him. Instead, Johnson says he listens to Berkshire Hathaway BRK.B -0.7% Vice President Charlie Munger, best known for sharing his thoughts on investing in cryptocurrencies:
"It's like someone else is exchanging an inheritance and you decide that you can't stay out."
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