Cryptocurrency is growing as a legitimized form of investment and payment as more retailers accept it and federal authorities seek to regulate it. It’s a hot topic of discussion, but the world of digital currency is still not widely understood.
It has become so common that President Joe Biden recently signed an executive order calling for monitoring of its risks and benefits.
But what exactly is cryptocurrency and how do you use it? How to avoid losing your investments? But first, where to start?
Financial adviser John McKean, of Comprehensive Advisor in Carlsbad, said: “The consumer would start by opening an account on Crypto.com (a cryptocurrency exchange) and they would fund that using everyday dollars. As a rule Generally, you would use an electronic transaction to buy or buy goods and in this case you can use Apple Pay or one of the other applications they use to be able to use these types of transactions.
McKean said investors would then put money in an account and “use that money…to buy things like Bitcoin and Ethereum and Dogecoin and all these different cryptocurrencies. The thing we have to understand is that’s unregulated, though, and so there’s no FDIC (Federal Deposit Insurance Corporation).”
The FDIC insures deposits. It reviews and monitors financial institutions for safety, soundness and consumer protection.
What you can do with cryptocurrency
The list of what you can do with a cryptocurrency like Bitcoin or Ethereum is growing.
San Diego State University (SDSU) recently accepted a massive bitcoin donation worth $25,000 at the time. It now encourages crypto donations.
Investors can also buy cars like a Tesla, owned by big Bitcoin proponent Elon Musk.
Even everyday goods and services like coffee and pizza purchases, tickets for entertainment, and home renovations are some of the most common things a person can get with crypto. The list of what can be purchased with Bitcoin or Ethereum is growing.
McKean said Home Depot accepts cryptocurrency as a form of payment, adding that “in this case, you would use the app to transact like you would use Apple Pay or Google Pay or any other type of app.”
The company can collect payment or invest in this crypto asset and watch it grow or fall in value.
Bit Digital, a sustainability-focused digital asset generator and NASDAQ’s largest bitcoin miner, recently launched a mining hub in Buffalo, New York, and operates there using 100% sustainable energy. The facility, housed in a former coal plant, houses thousands of hydropower-powered computers and is part of the broader trend in the crypto industry trying to go green.
Beware of risks
As with any investment, buying cryptocurrencies involves risk. One of the first things to consider is that the crypto is not FDIC insured. Moreover, its value can fluctuate wildly.
“On average, you can see big swings on a daily basis,” McKean said. “You can expect to see the crypto increase two or three times what you would normally see in the market.”
McKean cautioned, “it’s definitely not for the faint of heart.”
“In fact, my recommendation to my clients is that we don’t want to have more than 4-5% of a particular asset class in their portfolio,” he said. “So we try to keep them diversified and spread across many asset classes.”
McKean said he expects crypto to grow in popularity, especially as governments begin to embrace it as an alternative form of currency.
Colorado Governor Jared Polis tweeted that his state will become the first state to accept cryptocurrency for the payment of state taxes and fees.