Cryptocurrencies are digital currencies that were created with the goal of providing an alternative to traditional payment systems, such as credit cards or cash. With the industry’s skyrocketing growth, many investors are considering cryptocurrency for their personal wealth portfolio. As with any investment, education is key to maximizing return and minimizing risk. Learn more about cryptocurrency and how it could make your net worth portfolio more profitable!
What is Cryptocurrency?
Cryptocurrencies are digital forms of currency that use cryptography to secure transactions and verify ownership. They’re created through a process called ‘blockchain mining.’ In order to mine crypto, computers solve complex mathematical problems using specialized hardware.
The first cryptocurrency was released in 2009 by Satoshi Nakamoto, a pseudonymous person or group who published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Since then, several other cryptocurrencies have been developed, such as Litecoin and Ripple, but Bitcoin remains the largest and most popular.
Advantages of Cryptocurrency
Next, let’s take a look at some of the reasons why the cryptocurrency industry is growing. From privacy to speed, there are several key advantages that crypto offers:
Unlike traditional banking methods where your information can be tracked, you can’t be identified through blockchain technology. This means that no one knows who owns any specific wallet address.
Since cryptocurrencies don’t have central servers like banks, they’re less vulnerable to cyber attacks. And if a hacker does gain access to your private keys, then they would only be able to steal your coins but not change ownership.
Transactions are directly between buyer and seller without the involvement of third parties. This translates into lower fees and faster transactions since they’re processed almost instantly, usually taking less than 10 minutes.
Important Investing Considerations
As more people adopt crypto, there will be more opportunities to make money from it. However, there are several factors you should consider before investing:
The value of cryptocurrency doesn’t appear to be correlated with the price of stocks, bonds, or other asset classes. That said, cryptocurrency has only existed for about a decade, so the data is currently limited. Theoretically, though, it makes sense that the price of crypto is unrelated to the price of traditional assets.
Cryptocurrency has produced extremely strong returns as adoption increases. Some even believe that the expected return for a sound cryptocurrency investment is greater than that for stocks. Do your research and find out for yourself.
Unlike stocks, some cryptocurrencies provide utility. A couple of examples include Bitcoin, which can be used for payment, and Etherium which can be used to purchase another type of crypto asset, non-fungible tokens (NFTs), which can be used to represent ownership of unique physical or digital items.
With crypto, you don’t have the same protections as you do when investing in the heavily regulated stock market. Furthermore, increased regulation may decrease the demand for some cryptocurrencies, adding risk to the investment.
Even though CryptoCurrency is meant to be decentralized and non-government associated, the good old IRS has decided to treat it like stocks in recent years. If you sold crypto at a profit, you’ll owe capital gains taxes. Most crypto wallet platforms now provide you with tax information.
Cryptocurrencies are high-risk investments, in which the owner must understand that their entire investment is at risk. Again, diversification across many asset types like bonds, stocks, and cash is also important.
Boost Your Wealth Portfolio
Cryptocurrency has the potential to be a good investment— but one should never invest more than you’re able to lose. A general recommendation by financial advisors is to allocate 1-5% of your portfolio to crypto. However much you decide, always proceed with caution and only allocate up to your risk tolerance. One of the best ways to determine and manage your target asset allocation is with wealth management software.
Tracking your Crypto Currency in Ripsaw®
CryptoCurrency support and tracking are now in Ripsaw! Crypto Currencies can be added as manual accounts in Ripsaw®. Prices are updated automatically for most major cryptocurrencies! You can also see your Crypto holdings as real assets throughout the platform.
Sign up now for a free trial of Ripsaw® Wealth Tools to start optimizing your personal wealth portfolio for higher profits!