Is There Any Value in Bitcoin?
You’ve heard stories of young people becoming billionaires off of Bitcoin. You might be feeling a little left out, and wondering, “How can I do that?”. Well, the purpose of cryptocurrency and blockchain has changed in recent years, and it’s not a get-rich-quick scheme anymore. If you’re looking to break into the crypto space, there are a few things to keep in mind. Most importantly, be safe and be careful where you buy it. Second, don’t invest more than you’re willing to lose. Bitcoin is extremely volatile, and it’s not a good idea to put your entire retirement fund in it. Here’s what you need to know to safely invest in crypto.
Types of Cryptocurrency
Broadly defined, cryptocurrency is any virtual or digital money. You can’t hold it in your hand like you can a dollar bill. There are many different types of cryptocurrency out there other than Bitcoin. Here are some of the most popular:
- Ethereum (ETH) is a decentralized software platform. The goal of Ethereum is to offer bank accounts, loans, insurance, and other financial products to anyone in the world. Applications on Ethereum are run on Ether, its platform-specific cryptocurrency. Many people use Ether to buy virtual items, collectibles, and virtual real estate. Ether is currently the second-largest cryptocurrency in the world by market capitalization.
- Dogecoin (DOGE) is seen by many as the first “memecoin”. It was originally created as a joke but has since risen in popularity due to increased demand.
- Tether (USDT) is one of the first “stablecoins”. In an effort to reduce volatility, this cryptocurrency aims to ‘tether’ itself to the value of the U.S. dollar. Tether is currently the third-largest cryptocurrency in the world by market capitalization.
You don’t have to invest in just one cryptocurrency. There are ETFs and other funds out there that allow you to invest in a slightly safer way.
How Bitcoin Gets Its Value
Bitcoin’s value is tied to its demand. When it first came on the market in 2009, it had virtually no value, and now 1 Bitcoin is valued in the tens of thousands of dollars.
Because Bitcoin’s value is determined by its demand, it is very vulnerable to market manipulation. To make matters worse, <1% of Bitcoin holders control nearly a third of its supply. The average person has effectively zero control over the value of their Bitcoin.
There are also regulatory risks that come with investing in cryptocurrency. Many people invest in Bitcoin thinking it’s safe from the government, but that’s not entirely true. The IRS can still tax you on the gains you make, and there’s the potential for heavier taxes on it in the future.
How NFTs Get Their Value
Many of you may find NFTs to be a bit silly. You might be thinking, “Who would actually pay millions of dollars for something that’s not even real?”. The value of NFTs comes from blockchain technology. Blockchain allows us to track a piece of cryptocurrency or digital item as it passes from person to person. Each transaction is added as another ‘link’ in the blockchain.
Blockchain makes it easy to verify the authenticity of a digital item, making NFTs attractive to collectors. Think of NFTs as an original Van Gogh or Picasso painting. The novelty of it is in owning the original.
Should I invest in Cryptocurrency and NFTs?
If you choose to invest in cryptocurrency and NFTs, our advice is to only invest a reasonable amount of money. It’s very possible that you could lose upwards of 50% of your investment, and not be able to access your money when you need to.
The financial advocates at DuPont Wealth Solutions can help you navigate through the crypto space safely. Give us a call at 614-408-0004 to schedule a free assessment.