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7 Cryptocurrency Secrets Known by the Pros

You’d be hard-pressed to find a teenager today who doesn’t have an opinion about cryptocurrency, or even one without a story of a friend who saw a massive windfall from a well-timed crypto investment. 

The mystique surrounding the anonymous, digital tender is as dense as the reading required to adequately understand it. In short, cryptocurrency is complicated. But buried in any complexity are often opportunities, as well as risks. 

For those considering dipping their toes into the mystifying waters of cryptocurrency, it’s wise to speak with a financial advisor before doing so. There are also a few things you should know.

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1.

The number of cryptocurrencies on the market might astound you.

Think you’re familiar with the lay of the crypto land? Think again. By some counts, there are at least 13,000 cryptocurrencies in circulation. That news should come as a wakeup call: No, not all cryptocurrencies have wide backing or usership. Just because it’s classified as crypto doesn’t mean it’s worth your time -- or money.

2.

Cryptocurrencies are wildly speculative investments.

Unlike the gold standard that once gave dollar bills their value or the profit margins and revenue streams that largely drive the share price of stocks, cryptocurrency has value only because its users say it does. 

When fickle followers decide otherwise, your obscure “coin” could be deemed worthless in a flash. Moreover, fraudsters have been known to peddle promises of steep returns associated with cryptocurrency trade. As with any investment, if it sounds too good to be true, it likely is. It’s always smart to consult a financial advisor before making any large crypto investments.

3.

Some cryptocurrencies can’t be purchased with legal tender.

That’s right -- the dollar bill that explicitly describes itself as “legal tender” can’t be used to purchase some cryptocurrencies. Bitcoin can be purchased with U.S. dollars, but some others won’t take your George Washingtons or Benjamin Franklins. Some cryptocurrencies actually require purchase in bitcoin. Talk about an unusual arrangement.

4.

Trading cryptocurrencies is illegal in some countries.

Other countries aren’t as supportive of the opaque financial systems that enable anonymous trade, and with it, the potential for nefarious activity. 

China has basically banned the exchange of crypto funds, while other countries are watching it with a close eye. The key lesson here is that cryptocurrency is a new frontier. Future regulation could have a significant impact on the perceived and inherent value of the funds. When entering uncharted waters, do so with a lifeboat in hand.

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5.

Anonymity is a double-edged sword.

There may be a good reason to have a nameless and faceless pool of funds under your purview, but the flipside of that coin is significant: cryptocurrencies have been the subject of theft on more occasions than one.

Unlike a check cashed before a bank security camera or a car driven off in plain sight, stolen cryptocurrency can rapidly change hands and evade tracking. And while the FBI is catching up, there’s no guarantee your funds are safe.

6.

The FDIC doesn’t insure cryptocurrency.

After the Great Depression put a run on banks in the 1920s, President Franklin D. Roosevelt signed new regulation designed to instill confidence in the American bank account holder. 

The Federal Deposit Insurance Corporation guaranteed the funds in an FDIC-insured savings or checking account. Today, that amount is $250,000, but not so if your funds aren’t legal U.S. tender. Cash has Uncle Sam’s backing; crypto does not.

7.

Cryptocurrency has tax and estate repercussions worthy of a second pair of eyes.

As with any investment, cryptocurrency fluctuations can have a significant impact on your tax bill (or that of your beneficiaries). Moreover, the balance of speculative investments to more ironclad ones is a constant consideration that shouldn’t be taken lightly. For such significant matters that can affect your long-term financial standing, the bottom line is clear: don’t make these decisions without a lot of research and professional advice. 

A licensed financial advisor can help you navigate all of these considerations and make recommendations based on your personal interests and financial situation. 

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