There has been a lot of buzz about cryptocurrency recently, particularly over the past year. Some people consider it a scam, and others think it’s a golden opportunity. If you’re curious about cryptocurrency, it’s important that you know the facts before you invest.
Let’s break down what cryptocurrency is, and how to know if it’s a good option for your portfolio:
Cryptocurrency: What it is
Cryptocurrency – also referred to as “crypto” – is a digital, unregulated currency. It works by using technology called blockchain, which manages and records crypto transactions.
The most common form of cryptocurrencies are bitcoin and ethereum, but there are actually thousands of publicly traded cryptocurrencies. At the time of publishing this article, around 13% of Americans have money in cryptocurrency.
Security and Usability
One of the appeals of crypto is that it’s not regulated by a central bank. The problem that can come up there is that many of its security measures, like storing cryptographic keys, fall on the user. As crypto becomes more common, there will also likely be more hackers looking to steal it.
Furthermore, crypto proponents are excited about its potential to become mainstream, but there is no guarantee that will ever happen.
Who Should Invest in Cryptocurrency?
Right now, cryptocurrency is not a core component of a long-term, passive portfolio plan. It’s worth is heavily based in speculation, and that makes it a risky investment.
You can certainly invest in cryptocurrency if you’re interested in it, but only if you’re okay with potentially losing that money. Crypto has bounced back since it dipped earlier in 2021, so investors are seeing higher returns now. But again, this is a very volatile investment, and its behavior is difficult to predict.
That being said, cryptocurrency could rise in popularity as time goes on. That’s the draw for many investors; they feel like they’re getting in early by learning about, and investing in, cryptocurrency right now.
How to Protect Yourself When Investing in Cryptocurrency
If you do want to include some cryptocurrency in your investments, just remember to follow the same principles you would for any other investment: don’t invest money that you can’t afford to lose, don’t buy or sell on impulse, and try not to time the market.
And make sure to educate yourself beforehand, so you feel comfortable and confident in your decision. Avoid investing in things you don’t understand.
As Warren Buffett has said in his criticism of cryptocurrency, “I get in enough trouble with things I think I know something about. Why in the world should I take a long or short position in something I don’t know anything about?”
Here are some ways to protect your investment:
- Protect yourself on and offline. There are two options for crypto wallets; online and offline. You should keep most of your crypto in an offline physical wallet, which is similar to a USB. This leaves you less vulnerable to hacker attacks.
- Have a very secure password, and don’t reuse passwords.
- Understand your crypto management, including apps and wallets. Get to know how they work and where they are vulnerable, so you can recognize signs of a security breach.
- Do not share your secret key, which allows users to access their cryptocurrency.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.