You are probably feeling behind.
You probably know that Bitcoin has been surging. You probably also know that it’s cryptocurrency, that it suddenly becomes everyone’s favorite subject when its value is stinging or sinking, and its been around long enough that you probably should know more about it than you do now.
Do not worry. We’ve gone back to the basics with financial advisors to update you and help you answer a question that may be burning in the back of your mind lately: Should I buy Bitcoin – and how?
Every time Dan Herron typed “how to invest in Bitcoin” in Google, he was getting “10 million sources and no authority.”
This was about the financial adviser at Elemental Wealth Advisors in San Luis Obispo, California. He wanted to learn about the cryptocurrency for his millennial clients and, of course, had been watching the asset’s price hike this autumn. So he attended a two-day Bitcoin conference recently. That even left more questions than answers and a sense that the culture around the currency could be a bit too “bro-tastic.”
Then he found Coinbase. The digital currency exchange – the largest in the US and most used in the UK – increasingly represents the mainstream route for individual investors to buy Bitcoin in many countries. The course is registered in the US with the Financial Crime Enforcement Network and holds an E-Money License from the Financial Conduct Authority in the UK Other major exchanges include Kraken, Bittrex and Binance, the largest spot crypto exchange in the world by trading volume.
Exchanges typically charge several percent fees on deposit and trading funds. Users may also be required to pay exchange rate fees if the course operates only in foreign currency.
For Herron, setting up an account was a lot like registering for Robinhood, the digital stock trading platform. Over the Thanksgiving holiday, he inputted his local bank details, verified his identity and then bought $ 100 worth of Bitcoin by transferring money into his new account. The trading fee was approximately $ 3.
Bitcoin may be the most famous digital currency in the world, but it is far from the only coin in the universe. In recent years a series of new cryptocurrencies have entered the space, including Ethereum, Ripple and Tether. Even Facebook launched a cryptocurrency project in 2019, then called Libra, but it hit a regulatory blow almost instantly. The association behind the project has now changed its name to Diem.
The case for Bitcoin as a longer-term investment
Billionaire investor Mike Novogratz has said he sees “a ton of new buyers” in the middle of a “little supply” for Bitcoin. The founder of Galaxy Digital has not been shy about his views on the cryptocurrency and said last month it could reach $ 65,000 (that’s about $ 19,000 now).
He was replying on Twitter to Maisie Williams, who plays Arya Stark in “Game of Thrones.” He asked his 2.7 million followers whether he should invest in the digital currency. Other celebrities who have previously supported cryptocurrencies include Snoop Dogg, Ashton Kutcher and Mike Tyson.
Herron Wealth Elemental sees Bitcoin as part of a larger conversation, especially with younger investors who have a time horizon of 25-30 years and a penchant for digital finance.
He would not recommend anyone to rush to put their emergency savings into the cryptocurrency. But he sees it as part of an overall mix that could “suck your earnings a bit” in today’s low-rate environment. “You might consider it if you have the ability to put maybe 5% of your portfolio there and let it pick up and see what’s going on,” he said.
Theresa Morrison, founder and partner at Tucson-based financial advisor Beckett Collective, also sees the cryptocurrency as a future investment. She feels that as “the native currency of the internet,” it could work well as an inflation hedge if clients have small amounts, such as about 1% of the value of their portfolio.
Others worry about his volatility
On the other hand, Bitcoin “lacks some of the fundamental integrity of a real market,” Gary Cohn, former economic head of Donald Trump and former Goldman Sachs Group Inc. honoree, said this week.
“Part of the integrity of a system is knowing who owns it and knowing who owns it and knowing why it is being transferred,” he said. “Bitcoin’s system today has no transparency to it. So many people question, why would you need a system that has no audit trail. ”
The Bitcoin blockchain records all transactions in a public ledger. However, it does not reveal the names of the people or organizations buying and selling the digital asset, just a series of random characters.
Dana Menard, founder and CEO of Twin Cities Wealth Strategies Inc., weighs the currency’s performance but has regulatory concerns.
“Without the SEC’s blessing, the difficult thing for Bitcoin is the lack of oversight and speculation of the Wild West that has caused prices to make big moves in short periods of time,” he said, referring to the U.S. Securities and Exchange Commission.
What’s more, Menard urges caution when consulting online Bitcoin advice. “It’s unregulated, so anyone and everyone can give advice,” he said, adding that not everyone will consider the individual investor’s best interests.
“To me it looks like fool’s gold,” said Mike Caligiuri, founder and chief executive of Caligiuri Financial in New Albany, Ohio. The fee planner alone is mainly concerned about the volatility of the currency. “It’s a relatively new asset class with a relatively unproven history.”
Because of this, Caligiuri disagrees with a common refrain from Bitcoin advocates: that it acts as a useful hedge in a portfolio because it is unrelated to the performance of stock markets or bonds or commodities.
“Investors not only want assets in their portfolio that are not correlated,” he said. “They want assets in their portfolio that are not correlated and assets they believe will have a high degree of certainty will increase over time.” For Caligiuri, Bitcoin has not yet made its case strong enough. He does not recommend the cryptocurrency for any of his clients.
Buying Bitcoin: The Basics
What Do You Really Buy?
Not a physical coin. “It’s literally just a number,” says Carsten Sorensen, an associate professor at the London School of Economics who is leading a course on cryptocurrency. Depending on how much you want to spend, you can buy one Bitcoin, 10 Bitcoin or a fraction of Bitcoin. According to its set-up protocol, only 21 million will ever be mined.
Because Bitcoin can be divided into eight decimal places, small fractions can be purchased in their entirety. So then, if you bought $ 100 worth of the cryptocurrency when it was trading at around $ 19,000, you would get roughly 0.0053 of Bitcoin.
I’ve heard of ‘Bitcoin wallets’. Do I Need One?
Yes, you cannot buy Bitcoin until you have a wallet because this is the address you will give for sending the purchased currency. Wallets are what they sound like – places to store currency – just in the case of Bitcoin, they are virtual. Some popular wallets include Blockchain.com, Exodus, Electrum and Mycelium. You can access them on your phone or computer.
Hardware wallets, which are places to store your Bitcoin that are completely separated from the Internet, add an extra layer of protection from hackers. The good news is that opening many wallets is free. You pay a minimum fee to move Bitcoin into or out of a wallet.
If you have read about Bitcoin, you will know that it has a reputation for being anonymous. Wallets allow for this. You need a wallet to transfer Bitcoin, but you don’t need to associate your name or phone number with many wallets.
How Do I Buy Bitcoin?
As mentioned above, your most likely destination is the Bitcoin exchange (yes, you may have seen Bitcoin vending machines in person, but these are mostly novelties).
You create an account and enter a payment method. At respectful exchanges you will be asked for information such as your bank account or debit or credit card details. You will then need to prove your identity with a driving license, ID or passport. Once you are checked, you can start buying Bitcoin with the payment method of your choice, transfer it to your personal wallet and watch with more interest as its price fluctuates.
Can I Buy Stuff With My Bitcoin?
Sure. Some vendors have begun to receive it as payment. These range from small shops to a Swiss ski resort. But most people don’t really use Bitcoin to buy things, and instead use it as an investment or store of value – in the way that people buy gold but don’t use it to buy objects every day.
Some skeptics suspect that the cryptocurrency will become a universal currency anytime soon. But Bitcoin as a payment method got a boost this year, when PayPal Holdings Inc. announced it. in October that it would allow customers to use it and other virtual currencies to shop at the 26 million merchants on its network.
What About Bitcoin Fund?
Bitcoin funds have been in the news this year, but they are still beyond the reach of most ordinary investors. In August, Fidelity announced the launch of its first Bitcoin mutual fund. The passively managed Bitcoin-only vehicle will be available to eligible buyers through family offices, registered investment advisers and other organizations, according to an individual familiar with the matter. Fidelity Digital Assets will keep the fund, and the minimum investment is $ 100,000.
This, according to Twin Cities Wealth’s Menard, means that these types of funds are probably not right for most people. Bitcoin is usually supposed to be a small portion of most portfolios. “If the minimum amount to enter is $ 100,000, and the maximum amount you want to allocate to your portfolio is 5%, you would be better off swinging with a big, fat sack of cash,” he said .
Bitcoin derivatives have also come under scrutiny this year. In October, US prosecutors accused the founders of BitMEX, a crypto-derivatives exchange in Hong Kong, of failing to prevent bad actors from using the platform to launder dirty money. And starting in January, there will be a sale of crypto derivatives to retail investors prohibited in the UK
– Supported by Suzanne Woolley, Emily Cadman, and Matthew Leising
(Adds Q + A on Bitcoin fundamentals.)