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?
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