As our children are getting older, conversations around the diner table are changing and getting quite interesting. They are curious and asking questions about investments, real estate, stock market and all kinds of topics found on social media. Lately, the big questions is; should we invest in cryptocurrency? As parents, we are fortunate that our children are curious and interested in these types of conversations but the answer is not always at the tip of our tongues and sometimes, a bit of research is needed.
When did cryptocurrency start?
Over a decade ago, Satoshi Nakamoto created the first and most popular cryptocurrency in the world, the Bitcoin. This type of digital and virtual currency operates independently from central banks and lets you buy goods and services, or trade them for profit. As there are no physical coins, they offer the promise of lower transaction fees compared to traditional online payment mechanisms. As of January 2021, there are more then 4,000 cryptocurrencies available on the market.
Why are cryptocurrencies so popular?
- Investors see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, before they become more valuable
- Cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation
- Some people like the technology behind it, the blockchain, because it’s a decentralized processing and recording system and can be more secure compared to traditional payment systems
- Others like the facts that they are going up in value and it’s a great way to move money.
Are they a safe investment?
As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment community have advised investors to avoid them. Legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money just because they can transmit money?”
Currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while Bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as $3,200 in 2018. By December 2020, it was trading at record levels of $40,000.
Best cryptocurrencies by market capitalization:
Here is a capture of the 5 largest trading cryptocurrencies by market capitalization as tracked by CoinMarketCap, a cryptocurrency data and analytics provider:
As I dig deeper in this topic, I realize that this is much more complicated then I thought. There is an enormous amount of information out there regarding cryptocurrency and frankly, this is beyond my knowledge. If my children decide to eventually go down this route and invest in crypto’s, we’ll have no choice but to consult a personal financial adviser…
What are your thoughts on cryptocurrency investments? Any suggestions?
References:
Bitcoin Definition (investopedia.com)
The History of Bitcoin | Investing | US News
7 of the Best Cryptocurrencies to Invest in Now | WTOP
The 10 Most Important Cryptocurrencies Other Than Bitcoin (investopedia.com)Is Bitcoin Safe? – NerdWallet
Cryptocurrency Prices, Charts And Market Capitalizations | CoinMarketCap
Social Media Links:
Twitter: Investing in crypto… https://bit.ly/3jY52M8
Facebook: Cryptocurrencies, should we invest? https://bit.ly/3jY52M8
Algonquin College Social Media Certificate Program 
I thought your blog on Cryptocurrency was interesting. It is an expanding market and people have sure found a way to make big money off it recently. My concern with investing in something as unsure as crypto is that its as unpredictable as penny stock. You can make a lot of money but there does not seem to be a lot of reason why the different crypto’s go up and down. Like you mentioned, Bitcoin is on such a roller coaster I am not sure how you could prudently forecast to make an informed investment. The very reason people like Bitcoin, because its not regulated is the reason its so volatile. Currency is only as stable if its back by a strong economy and the ability to adjust interest rates.
Another interesting factor in crypto is that you can just lose large amounts of it. See this attached article where a man in the UK accidently threw away a hard drive with 7500 bitcoins on it. (htt15) That would be worth over half a BILLION dollars today. Cash can also be lost but there are physical and regulatory limits on how much you can have on hand. I would also think that the chances of theft of crypto would also be much higher as hackers can gain access to anything that is digital these days.
I wonder in the future if crypto keeps getting more popular if corporation backed crypto might become more stable. Products like Libra from Facebook seem like they might become a more secure product in the future. A wealthy corporation would have an interest in regulating and keeping its chosen currency afloat. That is a valid point though by Warren Buffet, if blockchains are basically cheques how much money can they be worth on their own?
My last thoughts on this would be the ethical side of crypto. Although people do have the right to privacy and anonymity, crypto so far has been used mostly for illegal business. When dark web sites like the silk road were still operational, they did all their business in crypto. Perhaps there needs to be a balance between privacy and something that really encourages illegal behavior. Cash can also be thought of in the same way but that is another reason there are so many rules about it. For example, you cannot deposit more than $5,000 per day at a Canadian financial institution without declaring where the money came from.
This is an interesting topic that will surely continue to develop. I think you are right our children will continue to know more about it then we will!
I enjoyed your blog. Crypto has been a topic of conversation around my home also for the past few months. I have a friend who just invested in Crypto a few months ago and she said she has doubled her money so far. Although I am glad for her, I am still on the fence about it. Unfortunately, other than continuing your research, and not putting all your eggs in the same basket, that’s all I have to suggest to you at this time.