Published by Daniel Morrison, Founding Partner and Wealth Advisor
By now it’s old news that we live in a digital world. So, it shouldn’t be surprising that the prevalence of digital assets increases as time goes on. And since the advent of bitcoin in 2009, cryptocurrencies have gone from being a relatively obscure and niche area of finance to more mainstream. In 2017, this new form of currency started trading at nearly $20,000 before plummeting to nearly a fraction of that price a few months later.
There’s inherent risk when investing in cryptocurrencies, which is probably why we at Jacob William Advisory have received a lot of questions about them. Before you decide if investing in cryptocurrency is the right move for you, let’s cover some basics to help strengthen your grasp of the cryptocurrency market.
What Are Cryptocurrencies And What Is Bitcoin?
Cryptocurrencies are digital assets that are stored in a computerized database ledger that uses strong cryptography to secure transaction records. Cryptocurrencies, such as bitcoin, use a collection of computers that run the cryptocurrency code and store transactions in blockchains.
Unlike typical currencies, such as the U.S. dollar or the British pound, cryptocurrencies are not backed by any country or centralized bank and are under decentralized control. They are also designed to be free from government manipulation and control, and in general remain entirely digital, and therefore intangible.
Bitcoin was the first decentralized cryptocurrency to be released in 2009, and it was relatively unknown and obscure until the currency attracted speculative investors and appreciated rapidly in May 2011 and November 2013. In 2017, it shot up to nearly $20,000 per coin but was trading for less than half that a year later.
In the 12 years since bitcoin was released, thousands of cryptocurrencies followed suit to varying degrees of success. So, what other cryptocurrencies should you be aware of? While we can’t offer you a comprehensive list here, we want you to be aware of some of the more popular cryptocurrencies, such as ether and litecoin.
Ether was launched in 2015 and is the second largest digital currency by market cap after bitcoin. Ethereum is ether’s decentralized software platform that allows users to create a suite of financial products that anyone can access. As of January 2021, ether had a market cap of $160 billion and $1,400 per-token value.
Litecoin was launched in 2011 by Charlie Lee, an MIT graduate and former Google engineer. Litecoin is very similar to bitcoin but boasts faster block generation rate and offers faster confirmation time. Like bitcoin, there are more and more merchants who are accepting litecoin as a form of payment. As of January 2021, litecoin had a market cap of $8.724 billion and a value of $134.20 per coin.
How To Invest
People interested in investing in cryptocurrency need to understand that both privacy and security are paramount when starting your cryptocurrency investment journey. Knowledgeable professionals advise that you keep your balance at a public address and keep the significant investment separate from the bitcoin that you use for transactions.
Choose An Exchange
The most common exchanges in the U.S. include Coinbase, Kraken, Gemini, and Binance U.S., all of which offer a growing number of cryptocurrencies. Remember to be extra secure in setting up your account: choose complicated passwords and opt for two-factor authentication.
Exchange Payment And Place Your Order
Certain exchanges will require you to provide identification and your Social Security number. With the aforementioned exchanges, you can connect your bank account, but you may have to check with your banks as to whether they accept crypto-related deposits. Purchasing cryptocurrency is legal in the U.S., so most banks will not have an issue with this. Also, you should be aware that some of these exchanges do require fees.
Once you have connected your bank account, you are ready to invest. These exchanges now have a variety of features, such as stop-loss orders, that can assist you in managing your investment account.
The interesting thing about this investment is that instead of acting as a medium of exchange, investors began to purchase bitcoin and other cryptocurrencies for their investment value. But what value does cryptocurrency actually hold, and is it a sound investment?
As it lacks guaranteed value, purchasing bitcoin or any other cryptocurrency carries inherent risks. Several investment alerts have been issued by American regulators, including the SEC and FINRA, among others. And it is still a new investment with a very short and rather volatile history that does very little to ensure stability.
However, it is growing in popularity and becoming more and more mainstream every day. If there is room in your portfolio for more high-risk, high-reward investments, cryptocurrencies may be the right choice for you.
Questions About Cryptocurrencies?
If you’d like some clarity on this type of investment, it’s wise to consult with a financial professional who can take your overall financial plan into consideration. We at Jacob William Advisory are here to help answer your questions. Contact our office by calling 410-821-6724 or emailing [email protected] or schedule an appointment at https://www.jacobwilliam.com/insights/#contact.
Daniel Morrison is a Founding Partner and Wealth Advisor of Jacob William Advisory, a wealth management firm whose sole mission is to service their clients’ needs beyond their expectations. Dan Morrison has 27 years of industry experience, and for the past decade, he has been committed to building Jacob William Advisory into one of the foremost wealth advisory firms. Dan graduated from Towson University with a bachelor’s degree of finance in economics and obtained his master’s degree in finance from the University of Baltimore. He is a CERTIFIED FINANCIAL PLANNER™ professional and holds the designations of Chartered Financial Consultant® (ChFC), Chartered Life Underwriter (CLU), and Chartered Advisor for Senior Living (CASL). He and his wife Beth reside outside of Baltimore, Maryland, and have three wonderful children. Dan is involved in his church and he enjoys spending time with his family, playing golf, and sailing. A good book is also never far from his reach. Learn more about Dan by connecting with him on LinkedIn.
*Some alternative investments involve a high degree of risk, and returns can be volatile. Investing in an alternative investment may only be suitable for persons who are able to assume the risk of losing a portion or all of their entire investment.