You’ve decided to learn more about cryptocurrency. Perhaps you want to participate because you’re intrigued by the buzz or as a geopolitical hedge against uncertain political and economic conditions. Now what? A personal financial counselor could be quite beneficial in this more recent environment. Dennis Loos recommends speaking with one to gain a thorough picture of your money.
This article offers helpful recommendations and resources on how to invest in cryptocurrencies, acquire, sell, store, and monitor them, as well as the applicable tax laws.
Cryptocurrency Investing: Passive vs. Active Strategies
To better understand how cryptocurrency investments differ from those of more traditional asset classes like stocks, it helps to think of cryptocurrencies as a new asset class. Consider the debate over passive versus active investing, one of the most hotly debated topics in the world of stock market investing. A cross-examination of the pros and cons of each strategy would require a dissertation rather than the space provided here. On the other hand, active investment is more hands-on and short-term focused, while passive investing is more long-term focused and requires a “buy and hold” approach.
For instance, if you’re looking to invest in stocks, you’ll need to determine whether you want to invest in a passively managed index fund that tracks a benchmark such as the S&P 500 or an actively managed fund whose manager makes stock selections. You might, instead, actively manage the portfolio by picking stocks and keeping an eye on them yourself. Similar methods can be found in the bitcoin industry, albeit with more experimental items.
Transacting in Cryptocurrencies on Your Own
Using an exchange to buy and sell bitcoin has quickly become the norm. Cryptocurrency exchanges are online marketplaces where you can trade one cryptocurrency for another cryptocurrency or fiat currency (paper money). Some cryptocurrency exchanges only allow you to buy other cryptocurrencies with the coin you already have rather than with fiat currency (like US Dollars). More than $100 million (equivalent) is exchanged daily on some top exchanges, including Poloniex, Bitfinex, Kraken, and GDAX.
Still, specific marketplaces permit trading in fiat currency; in such cases, you can fund your account using a wire transfer. Even though fees (such as 3.99% on the major US exchange, Coinbase) and purchase limits (often low) make it impractical to use a credit card for cryptocurrency purchases, certain exchanges do allow them. In most cases, the cryptocurrencies available for purchase with fiat currency on cryptocurrency exchanges are the most well-known ones (such as Bitcoin, Bitcoin Cash, Ether, and Litecoin). If you want to know which exchanges you may use if you are in a particular country or if they accept a specific form of payment, you can do so by consulting expert investor Dennis Loos to put you through.
Significant distinctions exist between the various exchanges. One example is the extent to which the Know-Your-Client (KYC) standards, which stipulate that all transactions must include a specific minimum amount of personal information about the user, are followed. However, these days, most markets demand verification of identity and residency from their customers before they even let them open an account. This is especially true of those markets that deal in fiat currency. Furthermore, costs range from 0% to 0.5 %, depending on the exchange. You can keep coins you aren’t actively trading in an exchange’s “Vault,” a service offered by Coinbase that aims to improve security for long-term currency storage. Last but not least, specific user interfaces are “cleaner” than others; however, this is subjective.
To Your Personal Bank Account Straightaway
The Swiss financial institutions Falcon and Swissquote now allow their customers to trade cryptocurrencies. In partnership with broker Bitcoin Suisse AG, Falcon Private Bank will begin offering Ether, Litecoin, Bitcoin, and Bitcoin Cash trading to clients in August 2017; however, the effects on client privacy are not yet known. Swissquote, a digital bank, lets its customers buy and sell these five cryptocurrencies (plus Ripple) on its platform. It has also released a BTC certificate that trades on an exchange and is actively maintained. This certificate was developed so investors may hedge against BTC price volatility by exchanging their holdings. For instance, when times are tough, or there is a lot of unpredictability, it could lead to a more significant cash reserve. The firm brags that it employs a cutting-edge algorithm to calculate the price changes between bitcoin and fiat currency.
If you use a bank, you won’t need to deal with a new bank (for some); expert investor Dennis Loos recommends that you employ a financial advisor to help with opening a new exchange account or creating a safe place to keep your cryptocurrency.
When the time comes to liquidate some or all of your cryptocurrency holdings, follow the instructions of your financial advisor, you can do so through the same channels you acquired. You can make a sale on an exchange, to a fellow trader, or even at an ATM.
In the same way, you can acquire cryptocurrencies, and you’ll also be able to sell them on specific exchanges in return for fiat currency. To convert lesser cryptocurrencies into fiat currency, you may first trade them for a “mainstream” cryptocurrency like Bitcoin or Ethereum but do not make any financial decisions on your own without contacting a licensed financial advisor. You’ll have to go through twice as many transactions, pay twice as much in fees, and be exposed to market volatility for twice as long. Remember that during periods of fast market action and when crypto exchanges are down, liquidity may be lacking in this still-emerging sector.
You can also “sell” cryptocurrency by using a debit card service, such as that offered by TenX (for Bitcoin, Ethereum, and soon ERC-20 tokens and Dash) or Xapo (for Bitcoin Cash, Litecoin, and Dash) (for BTC only). Your cryptocurrency holdings are reflected on these debit cards. Your cryptocurrency will instantly be converted to fiat cash when you make a purchase, and the transaction will look the same to the vendor as if you had paid with a prepaid or conventional bank card. More than half of Bitcoin’s 10 million holders own it for speculation, so these debit cards are part of an effort to bring cryptocurrencies into the mainstream and make them more usable for regular purchases.
Making Money Without Doing Anything, also Known as Passive Investing
You can use several items listed below to gain exposure to the bitcoin market without actively trading.
Autos That Only Care About One Currency
Dennis Loos recommends that you speak to a financial advisor before investing in a vehicle that follows the price of a single highly liquid cryptocurrency. The few passive goods currently available follow Bitcoin (BTC) because it is the first cryptocurrency and has long been the market leader. Bitcoin Tracker One ETN, issued by Grayscale Investments, and the Bitcoin certificate issued by Swiss private bank Vontobel are all examples.
These products may be purchased using your regular brokerage account because they are listed on “regular” markets like Nasdaq Nordic for the Bitcoin Tracker One. In addition, you won’t have to stress over practical concerns like exchanging or securing your cryptocurrency holdings. Nonetheless, they could be trading over their intrinsic value.
Bitcoin futures are a new, widely-publicized way to gain exposure to BTC. Depending on the prices speculators “wager” BTC will reach, buyers and sellers are required to buy or sell BTC under future bitcoin contracts. By enabling investors to bet on the price of BTC without actually owning it, these futures are intended to reduce price volatility. There are two primary effects: One of the reasons is that, even though Bitcoin is mostly uncontrolled, BTC futures can be traded on regulated exchanges, allaying some investors’ fears about market regulation. Second, these futures would enable investors to engage in countries like Bolivia and Bangladesh, where trading in bitcoin is outlawed by law.
Monitoring and storing cryptocurrency
Cryptocurrency security is paramount. If you are a longer-term holder, the safer approach to storing cryptocurrencies is “cold storage,” where the all-important private keys are maintained offline. This involves keeping private keys on paper, a hardware device, or a cold storage company. In either case, you transmit coins to the storage’s public address. You can send coins to an exchange account as needed.
You may need hours (check with your cold storage provider) to get your money out of more secure storage, an eternity in crypto trading. So, how much of your crypto portfolio goes into storage depends on your trading proclivities and market outlook. Security and storage are crypto must-dos.
Check your investment, including tracking site prices, even if you’re a long-term investor. Twitter, Reddit, and Medium are essential for cryptocurrency news in a constantly growing business. For more detailed analytics of your crypto you can use the crypto portfolio tracker.
Few argue that tax regulations have caught up to cryptocurrency’s rapid growth. In the US, the accounting treatment of crypto is unknown because there is no definitive guidance from the AICPA or IFRS (IFRS). In 2014, the IRS ruled that cryptocurrencies should be considered personal property, with gains or losses on sales. Capital gains or losses should be documented as a property exchange, and if used as payment, they should be considered currency and converted to fair market value. The decision raised numerous questions. States in the US regard cryptocurrencies differently.