Editor’s Note: we use the word “Bitcoin” throughout this article to collectively refer to all legitimate, recognized cryptocurrencies.
What’s Your Persuasion RE: Cryptocurrencies?
Perhaps you’ve been monitoring the debut of bitcoin and cryptocurrencies into the mainstream economy for a couple years now, or at least a few months. You’ve undoubtedly seen and heard a dizzying array of good, bad and inconclusive data about this emerging new money. In applying your own discernment, you’re beginning to form your own opinions about cryptocurrency. And if you’re reading this article, then perhaps like us you also belief this is a transformative moment in financial history and this new sound money may be here to stay.
So are you ready to make a big move into bitcoin now? After all, we all want to be driving a Lambo next year, right?
Solemn Lessons Learned in Q4 2017
In November and December 2017 during the rapid runup in bitcoin price, something very unhealthy was occurring in the crypto space. Newbies, despite not even understanding what bitcoin even is or why it may be useful nonetheless flocked to the exchanges on a buying spree. It was euphoria, with FOMO and emotional buying as the primary drivers of their decision to “get in” on bitcoin.
Of course, folks who bought in during that short period of unsustainable price appreciation have endured a major correction. Some, unfortunately, used leverage to exchange into bitcoin and have been forced to liquidate their holdings at a loss. Others have just decided that bitcoin “was a fad” or just is not for them and sold their holdings at a loss.
The lessons we can ascertain from that period are many-fold, but might include: 1) don’t just follow the herds to bitcoin because you believe it’s a get rich quick scheme; 2) take the time to obtain at least a basic understanding of what bitcoin is, and that its utility as an investment is secondary; and 3) set investment parameters for yourself, including using money you won’t need in the short term, and also realizing that your new money will fluctuate in value in the coming months and years.
First, Start Experimenting with Cryptocurrency
Our experience in dealing with hundreds of exchange customers tells us that experiencing bitcoin is a hugely important first step. In many cases, acquiring and using one’s own cryptocurrency yields not only a useful logical tutorial, but also a powerful enlightening experience including a series of “ah ha!” moments.
All hyperbole aside, if you haven’t already gotten your feet wet via some or all of the following practice exercises, then please consider the following before acquiring significant amounts of cryptocurrency:
1) Acquire a small amount of cryptocurrency- even $20 or $50 worth- which regardless of amount will lead you through the ceremony of exchanging $USD fiat for cryptocurrency. For some folks, making this first exchange is a big moment; it renders tangible the value of the digital currency one is exchanging into versus the $USD from which they are parting. You may choose to create an account at a reputable online exchange, or use an OTC exchange or cryptocurrency ATM. Consider the important differences of these exchanges before making your decision.
2) Once in possession of your first funds, render them liquid for spending by placing a small amount of at least 0.002 BTC on your chosen wallet app on your smartphone. Transferring (aka spending) funds between wallets is an essential core skill for cryptocurrency users. Practice either the transfer, import or sweep of your new funds, whichever the case may be, onto your smartphone’s wallet app. We suggest using small amounts initially in case you accidentally lose some funds by making a mistake while learning. You would not be the first person.
3) Send some funds to a friend in person via your smartphone apps- you spend and they receive. While wallet software varies, its generally self explanatory to conduct a basic transaction in this manner. Take note of the QR codes, the public wallet addresses, the transaction mining fee, how many confirmations it takes until your funds are clear and spendable. These are importance nuances of using cryptocurrency given today’s available technology, which you may note is quite primitive compared with what’s to come.
4) Place a small order with an online retailer who accepts bitcoin. Place something useful in your shopping cart, like the book The Internet of Money by Andreas Antonopolous, and checkout with bitcoin as your selected payment method. Experience the mechanics of this transaction, including how the website requests payment from you, whether or not you need to manually enter the purchase price amount, and other nuances of the transaction.
Soak up the above, rich learning experience.
Your Smartphone Crypto Wallet = Your New Checking Account
With your first set of exercises under your belt, begin routinely using your smartphone wallet and consider it your shiny new checking account. Use it as much as possible by repeating the above use exercises. At first, you may be clumsy with each transaction. Don’t be critical of yourself- those clumsy and sometimes “whoops” moments are learning opportunities on your path to cryptocurrency fluency. Sorry, the editor told me that alliteration aides in readers’ memory retention.
Cryptocurrency as an Investment
Many are asking, “is cryptocurrency an investment product or class, like stocks, bonds, mutual funds or real estate?” or “are bitcoin, litecoin or ethereum companies- what are their quarterly earnings and how do I get my return on investment?” or “will be bitcoin be listed on the stock market exchanges?”
The answer to all of these questions is no, thankfully bitcoin is not akin to any of these Wall Street vernaculars.
Instead, bitcoin is a new form of sound money that is by the people, for the people. It’s original genesis is for it to be money for peer-to-peer payments, and currently that initial thrust still seems to define its chief utility.
It just so happens that bitcoin is also experiencing an overall trend of price appreciation relative to the dollar due to many factors, chief of which is net positive demand from varied and diverse users and investors around the world. Admittedly, there is some aspect of speculation from said investors that bitcoin is indeed on track to become a significant world currency. Anyhow, this secondary utility of bitcoin as an appreciating financial investment stems from its quality as a fairly robust store of value. Next, given ever increasing use in global commerce, its quickly becoming a medium of exchange. And finally, experienced people within the cryptocurrency community hypothesize that bitcoin will likely one day stabilize in price in order to become a unit of account. These three sequential epochs of bitcoin- a store of value, a medium of exchange, and a unit of account- together comprise the maturation cycle of sound money, according to Austrian Economics.
In essence, bitcoin has shaped up to be both a money to pay for goods and services, as well as an investment with likely appreciation potential.
Only you will know if and when you’re ready to hold larger amounts of cryptocurrency for investment purposes. At the very least, it’s useful to hold some bitcoin as an elegant and convenient sound money for use in basic commerce. At most, bitcoin may also serve a role as an interim investment as it experiences price appreciation as adoption continuously increases and it advances its way through the money maturity cycle.
In any event, do your own research, use your own discernment and also consult your financial advisor regarding what portion of your own personal assets you may consider allocating into cryptocurrency. If you’re ready to get started, contact us today at Luxolo Financial.