Monday Market Update – June 21st

Forefront’s Monday Market Update

What’s all the hype about crypto?

Unless you have decided to stop paying attention to the outside world, I am willing to gamble that many of you reading this today have heard of Bitcoin and cryptocurrencies in general. It is hard to avoid it when every time you walk into the local Deli, the guy behind the counter is telling you about his Doge Coin trading activity. For many though, they have no idea what Bitcoin any crypto-currency even is, and are past the point where they want to ask about it. 

Definitions

Cryptocurrency in a very crude way, is internet cash. It is a way to buy goods and services electronically, without the participants in the transaction able to be identified. Unlike cash though, while the participants in the transaction remain anonymous, the actual transaction is recorded via Blockchain technology, and once its “on chain” it can’t be removed. 

Blockchain, is the technology that crypto currencies are built from. It is the technology used to facilitate and record transactions, very similar to a ledger that a bank keeps on all of their transactions. Instead of this ledger being centrally controlled by the bank, block chain is decentralized, and controlled and maintained by thousands and thousands of computers worldwide. 

The reward for maintaining this ledger you ask? Bitcoin, or some other crypto currency. That is part of what is behind “mining” for crypto currencies.  So blockchain creates an irreversible timeline of data that is decentralized so that information isn’t just stored in one place, but in thousands of places. 

The publics crypto mistake

A big reason why many are drawn to Cryptocurrency is the decentralized nature of owning it and the anonymity in transacting business with it. Except there is one major flaw with this. The majority of people maintain their Cryptocurrency in some sort of company like Coinbase, which lets you buy and sell your coins as well as holds them for you. When you open your account though, you are required to give them all of your information. So much for anonymity. These companies can be hacked, and bitcoin/cryptocurrency can be stolen. Mt.Gox was hacked for 400+ Mil in crypto in between 2011-2013. This is just one instance, there are many others.  

Should I own it?

Thank you for reading the rest of this to get to the part where we ask the really important questions, should you own cryptocurrency? 

As a small part of your overall financial plan there is no harm in owning cryptocurrencies. I always encourage my clients who are interested in investing to have a small trading account for themselves where they get to take risks on things like Bitcoin etc. All advisors should be able to speak about cryptocurrency with you and guide you towards a decision. Be extra cautious around the advisors who immediately dismiss the idea, and immediately try and tell you something else you should own. That is an advisor who isn’t concerned about providing you guidance and advice, but rather having you invest in something they get paid from. 

If you are going to trade your crypto, then a Coinbase type account is really your only option. If your plan is similar to mine, where you want to buy it and hold it for a very long time, then the only way to get the full benefit of crypto is to use your own digital wallet that you create. Just don’t lose the password because there is no getting it back if you can’t access the account.