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The Bitcoin Craze!!

by | Dec 11, 2020 | Blog

Bitcoin and other cryptocurrencies have been all the rage and have come back into the spotlight after a steep increase in value, edging close to $20k per coin for the first time since 2017.  The blockchain technology that it is based on is been said to be almost unhackable, but storage on the wallet used can be hacked (see more about Wallets later in the overview). With Bitcoin and other Cryptocurrencies trading at these highs, we thought it would be helpful to give a quick reference guide to help people navigate some of the questions that might arise in potential investor and users’ minds.

What is Cryptocurrency?

Simply stated: a new form of digital money that is decentralized.  The foundation of cryptocurrencies is a new technology called blockchain.  Blockchain is an online public ledger that is used to track transactions.

Below are a few good documentaries on the rise of cryptocurrency.

Learn more about blockchain:

https://www.investopedia.com/terms/b/blockchain.asp

 What is the hype behind crypto currency? 

This digital asset class has caught some steam by being accepted by some major institutions and high net worth and high-profile individuals.  This recognition has legitimatized the currency more than ever.

 Why own Bitcoin or any other crypto currency?

  • Discretion – coin is not associated with a person’s identity
  • No need for it to clear through a bank, can go directly to the person receiving it. This not only makes it easier, but cheaper.
  • All you need is a cell phone, you don’t need a credit card or a bank

What is the Value of Bitcoin?

Bitcoin is based on Supply and demand.  Unlike fiat money or precious metals, it is not backed by the faith of any government or the tangible metal itself.  Because of that it really has no underlying “worth” other than its use and the supply and demand of the currency.

Crypto Wallets:  wallets don’t hold money like we think of as a conventional wallet.  Instead, it holds a record of transactions.  You don’t have to choose one.  Hard wallets are considered better for larger holdings because they are more secure, while software and web-based wallets might be more convenient for frequent transactions.

  • There are three main forms of crypto wallets.  Some exchanges, like Coinbase, also have built in wallets.
    • App-based/software wallet services; Binance is very popular through its Trust Wallet.
      • Can be hacked; not considered as secure as hard wallets.
      • Considered more secure than web-based.
      • Potentially more convenient than cold storage.
    • Offline services, or cold storage, or hard wallets.  Ledger Nano S is a popular one.
      • In short, a flash drive with advanced security
      • Considered the safest way to store crypto
      • Risk it could become corrupted or lost
      • There are also paperwallets, which are exactly what they sound like; printing out QR codes of your public and private keys.
    • Web-based services: big difference here is you never get access to your own private keys.  This is really about trusting the provider, which for some hardcore crypto fans, is a deal breaker.

Below are some helpful articles that go into detail on the different types of wallets and options.

Crypto Currency Tax Implications: 

  • Crypto Currency is taxed as short-term capital gains when held for less than 12 months and long-term capital gains when held longer than 12 months.
  • You must check a box on your tax return disclosing that you transacted in crypto currencies in the tax year.
  • Applications like cointracker can help simplify year end filings.

Some helpful articles to reference.

 Crypto News Websites:  Below are a few good websites for news on crypto currencies.

 Best charting websites and tools: Similar to stocks, many cryptocurrency traders use charts to make more informed decisions.  Below are some possible options to explore to help with that.  Tradingview  is comprehensive and also covers traditional assets like stocks.

Info on Exchanges: There are many cryptocurrency exchanges.  Some of the key things to look for when choosing a platform may include:

  • What cryptocurrencies can be traded on the exchange
  • Security/Reputation of the exchange
  • Trading fees
  • Payment Methods accepted
  • Verification Requirements
  • Restrictions
  • Complexity of use
  • Customer service

The following articles are really helpful to find the right exchange for you.  We recommend researching this topic thoroughly before making the plunge.

We hope you found this information helpful as you learn more about cryptocurrency or consider getting involved.  We don’t engage in cryptocurrency directly, but feel it is important for us to be educated on the matter and be a resource for our clients on thinking through whether it might be appropriate.

Please reach out with any questions to info@grwealthplan.com.

Thanks to Sebastian Varela for his help in putting together this article!  Great work!