Cryptocurrency Decrypted
Cryptocurrency Decrypted with Hector and Garrett
On this episode of Financially Naked: Stories from The Financial Gym, our host is Hector Lopez, L.A.-based Financial Trainer, and he is joined by his coworker, Garrett Faulconer, to discuss Bitcoin.
Podcast Notes
Around 2017, when Bitcoin was starting to get hot and was around $10,000, Garrett opened a Coinbase account and invested in it. After that, the value of Bitcoin fell dramatically. He still has that investment to remind himself to research things more thoroughly.
Hector bought into Ethereum first, which is a type of cryptocurrency. There is a lot of talk about cryptocurrency and it is easy to get swept up in it without fully understanding. Hector currently has .0003% of a Bitcoin.
Recently, Bitcoin went past $61,000 per coin and it has already come down from that threshold. In a day it can drop thousands. Know what you are getting into and think long-term about it, if you are in a place to get invested in it.
Tesla bought a significant amount crypto, and PayPay started experimenting with accepting Bitcoin as a payment. The Dallas Mavericks are allowing people to buy merchandise and tickets with Dogecoin. More and more financial companies and retailers are allowing cryptocurrency as payment.
If you can’t sum up the core of cryptocurrency in a few sentences, you shouldn’t buy it. When you are looking to invest, know what you are investing in. Don’t get caught up in FOMO.
Bitcoin: A digital currency that can be used to buy goods and services, but uses an online ledger with strong cryptography to secure online transactions. Crypto currencies work using block chain technology, which is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal is that it is secure.
There are more than 6,700 different types of cryptocurrencies available.
There are only 21 million Bitcoins available. If you are purchasing Bitcoin, you are purchasing part of a collection. The intrinsic value is based on everyone else’s perception and valuation of that item. The more exclusive something is the more valuable it is.
If you put $100 into Bitcoin, you get a percentage of it. If more people want it, the price will rise. It is getting a lot of traction, because big finance players are talking about it and buying it. Bitcoin is qualified as property for tax purposes, which carries a 28% tax.
If nobody is interested in buying Bitcoin, the value is going to drop.
If you are interested in buying Bitcoin, or other cryptocurrency, talk to your trainer and do some research.
In order to track Bitcoin transactions, there is a digital ledger that is held by everyone. Everything is transparent and trust is a big part of it. This is how block chain works.
Other popular cryptocurrency is Ethereum, which uses smart contracts. In the future, you may be able to buy a house with Bitcoin, but you write the mortgage contract with Ethereum. Dogecoin started off as a joke and is very approachable.
An NFT means non fungible token. The main application is being a unique copy of digital art. It’s related to crypto currencies but it is different, but it uses block chain technology.
Where can I buy crypto currency? Coinbase is the popular, mainstream exchange. Gemini is another platform that is getting more traction right now. When you are purchasing, understand what you are buying. When you purchase from Robinhood, you are purchasing a promise, because they are a third party seller.
What are the tax implications? Crypto currencies are taxed as a property. If you buy Bitcoin for $10,000 and sell it for $13,000, your capital gains will be $3,000 and you will be taxed on those gains. If you sell it for $7,000, you will owe nothing and you are able to use the $3,000 loss to offset other gains. There is also a difference if you hold it for longer than a year versus less than a year.
Is Bitcoin being used? Tesla, Square, and Visa bought into it. Adoption of it is becoming more and more apparent. Treat it as a serious thing.
Cons of crypto currency? Price volatility. Recently it was at $61,000 and two days later, it was at $55,000. One person’s tweet can massively swing where this can go. If people are making money on it, it will be in the news, so beware.
Are there hacking concerns? Something is safe, until it is not. Always be skeptical and have a backup, emergency plan. Have a healthy level of skepticism. There are online wallets that are more encrypted where you can store your crypto. It isn’t secured by SIPC, which insures brokerage accounts up to $500,000.
When it comes to crypto currency and single stocks, only allocate a small amount of your investments to it, like 5%.
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