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Is it Too Late to Invest in Cryptocurrencies?

March 19, 2018

 

One of the biggest draws for the cryptocurrency market as an investment opportunity has been its openness and lack of prejudice. Anyone with internet access can buy cryptocurrencies and potentially become a millionaire overnight. Cryptocurrencies, because of the underlying blockchain technology, are breaking with traditional investing norms by removing the need for a centralized 3rd party. This inherently means little regulation, which has added an extra amount of risk not usually associated with traditional investing opportunities. Whether you want to invest in cryptocurrency to become the next kid with a Lamborghini, to make purchases, or you see it as a great store of value like gold or silver, it is crucial to be as informed as possible and understand as much context surrounding the investment as possible.

 

Brief History

The first blockchain database and Bitcoin, the first cryptocurrency, were created by an individual or group of individuals known as Satoshi Nakamoto who released a whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System which describes “a system for electronic transactions without relying on trust”. Since its creation in 2009, the value of bitcoin and other cryptocurrencies has varied wildly. New cryptocurrencies were being created at exponential rates seemingly out of nowhere due to bitcoin’s open source code, which allows developers to create their own. There are now hundreds of coins, altcoins and tokens that can be purchased from many different exchanges, which can make the process of purchasing a bit overwhelming. We will break that down here so you have a better understanding of the process and what to consider before purchasing.

 

Purchasing Cryptocurrencies

In order to purchase a cryptocurrency, you must connect your bank account to a cryptocurrency exchange. Vulnerable exchanges have been one of the major pain points in the public acceptance and adoption of a deregulated asset. Many exchanges have been hacked or gone bankrupt and left many crypto owners empty handed. Also, many exchanges only offer a few cryptocurrencies to purchase, leading people that want potential “up and coming” cryptocurrencies to exchanges that are riskier and more exposed to outside threats. Coinbase, the most used exchange, only offers 4 cryptocurrencies, for example. The only way to keep cryptocurrencies safe after purchasing them is to store them in a hardware wallet immediately after purchasing. After that the key is to not lose the wallet or forget the security code.

 

Additional Crypto Asset Purchasing Options

In addition to coins, there are tokens and altcoins that can be purchased. Altcoins are simply coins that were created as a bitcoin alternative with different “features”, built on bitcoin’s open sourced codes. According to masterthecrypto, “Tokens represent a specific asset or utility and facilitate the creation of decentralized applications”. In attempts to raise funds, new tokens are distributed publicly through a initial coin offering. The most notable being Ripple (XRP), which started trading for less than a penny and peaked at $3.65. Anyone that invested $10,000 in Ripple and sold at its peak 5 years later would be over $7 million richer. That is the reason there has been so much speculative investing that ends up being the catalyst for the fomo (fear of missing out) phenomenon that sends values to unimaginable levels. Recently, Coinbase announced the first Cryptocurrency Index Fund that will only be available to individuals with an annual income of at least $200,000 and a net worth of over $1,000,000. They are working to make it available to everyone, but, similar to any other ETF, the idea is to allow people to make a bet on all of the top cryptocurrencies instead of taking a chance on one or two.

 

Bottom Line: Should I Invest in Cryptocurrencies?

The bottom line is that there is likely many applications for the underlying blockchain technology, but the currencies still have a long uphill battle to get mass adoption in conjunction with fiat currencies or as an outright replacement, which makes it a very risky bet. While it initially appealed predominantly to criminals for its anonymity, those hedging their bets on cryptocurrencies will tell you that the world wide increases in adoption and use cases are inevitable. Due to its risky nature, many of the crypto millionaires and billionaires are much younger than the world’s richest. This is because in general they’re willing to take on more risk for what is viewed as the opportunity of a lifetime to those making the bet. More importantly, they understood all of the potential risks and rewards involved, and only invested what they could afford to lose. Many of the early miners were fortunate enough to only have dedicated their time, but for everyone else, if you’re going to invest, do your diligence and understand what you’re getting yourself into instead of investing from a place of fear.  

 

Polaris Greystone Financial Group, LLC is a federally registered investment adviser. The information, statements and opinions expressed in this material are provided for general information only, are based on data we believe to be accurate at the time of writing, and are subject to change without notice. This material does not take into account your particular investment objectives, financial situation or needs, is not intended as a recommendation to purchase or sell any security, and is not intended as individual or specific advice. Investing involves risk and possible loss of principal capital. Diversification does not ensure a profit or protect against a loss. Advisory services are only offered to clients or prospective clients where Polaris Greystone Financial Group, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Polaris Greystone Financial Group, LLC unless a client service agreement is in place.

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