by Dave Kutcher
Cryptocurrency; What is it, how does it work and how can you use it in your financial life.
Cryptocurrency is a digital form of currency that is transferred between parties via the internet.
Cryptocurrency does not exist in physical form and is typically built using blockchain technology where transactions can be recorded and processed. There are no third-party transfer agents such as a bank as you would find in transferring fiat currency for goods and services on platforms such as VENMO and PAYPAL, all which require a bank as a third party to handle the transaction. Cryptocurrencies use their encryption and block chain technology to perform similar actions as might be performed by a central bank in monitoring transactions and preventing fraud and other criminal activity.
Cryptocurrency uses two keys in transacting exchange, a public key which dictates your unique way to send money and a private key which provides you alone your access to your crypto. Think of the public key like you might a routing number for a financial institution and think of the personal key more like your personal PIN for your online banking credentials.
There are more than 25,000 cryptocurrencies in the world today, but by far Bitcoin and Ethereum make up the majority of the market, accounting for almost 70% of all cryptocurrency available.
How can I use Cryptocurrency?
Transacting business:
As a currency, cryptocurrency initially boomed, with acceptance as a currency to transact business reaching almost 20% of small businesses in the U.S. That acceptance has ebbed and flowed over time and continues to add to the volatility of crypto pricing along with several other factors.
As an Investment:
With huge swings in pricing, investors have been enamored with crypto as an investment seeking to take advantage of opportunities to make money beyond the use of traditional investment assets such as stocks and bonds. Cryptocurrency is seen as a very attractive investment by investors under age 30 with almost 1/3 indicating they have invested in cryptocurrency of some sort.
Additionally, large institutional investors are making their way into the market too, with more than 2/3 of institutional investors expressing their intent to allocate funds to these digital assets.
It is important to remember here that cryptocurrency is not regulated and protected like registered securities and do not enjoy consumer protection program under agencies such as FDIC and SIPC.
Store of Value:
Cryptocurrency is used to store value in transacting worldwide, 24/7 transfers of goods and services across the globe without subjecting those transactions to changing fiat currency value.
Can cryptocurrency act as a hedge?
People have considered precious metals as the best way to protect an investment portfolio from deterioration of value due to changing monetary policy by the government. When governments increase money supply by printing new fiat currency, inflation ensues and investors send their funds to more stable investments … traditionally, this has been Gold.
But today, people are seeing the use of crypto as a long-term store of value. We aren’t sure that’s such a viable move in a world with so many unknowns. We are years away, perhaps, from knowing how well crypto can act as a long-term store of value. Some will likely serve this role better than others.
What are the risks;
If the large swings in pricing aren’t enough to convince you of the significant risk to investing in cryptocurrency, add the uncertainty of government regulations that could be forthcoming, the susceptibility of digital assets to criminal behavior and the vulnerability of the platforms on which these assets reside to the mix and you will find that you should NOT be investing in cryptocurrency with any investment you cannot afford to lose.
Price volatility is rampant and can be easily influenced by factors that have nothing to do with the cryptocurrency itself nor any real economic influence.
This article should not be considered to contain specific investment advice or recommendations. Every investment and trading move involves risk. Readers should conduct their own research when making a decision.
My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio. Frontier Retirement, 10928 Eagle River Road; Eagle River, AK 99577, (907) 795-7452.
