Learn all you need to know about bitcoin
Learn all you need to know about bitcoin and find out if you have missed the opportunity to grow your money. Speak to your financial advisor before you invest.
When it comes to bitcoin or more specifically cryptocurrency and crypto assets you tend to get very polarised responses with the typical reaction of financial advisors being “Danger Stay Away!” To the tech community hailing it as the greatest thing since sliced bread.
Being a professional certified financial planner myself, most would think I would side with the general feeling in the financial advice community.
I can’t honestly place myself firmly in that camp without being a bit of a hypocrite since I have been a cryptocurrency enthusiast for over 4 years and have been dabbling since long before bitcoin was on everyone’s lips.
So, I suppose the question is would I as Certified Financial Planner advise a client to invest in cryptocurrency?
The answer is Yes & No. It really depends on the client. Very much the same way that if someone asks me if they should invest in shares, it really depends on their circumstances.
An example of this would be the difference between the needs and Risk capacity of a 25-year-old with a potential investment time horizon of 40 years compared to a 60-year-old who is planning on retiring in 5 years time.
I am a firm believer that you should only invest in something that you understand. This is perhaps my biggest concern regarding cryptocurrency.
Most people I talk to, in my opinion, have not educated themselves enough to make an informed investment decision regarding bitcoin and cryptocurrency. In short, I don’t think the average investor knows what they are getting into.
Understanding Bitcoin and cryptocurrency
Cryptocurrency, as an asset class, is also harder to get your head around than teaching yourself to understand Equity (shares) and bonds or property, drivers of value and how to analyse such assets.
The reason for this is that besides being an essentially new asset class it is also a technology. Serious investors not only have to get to grips with the technicalities of being an investor but also the technicalities and jargon of programming and cryptography.
What disturbs me is how many people are jumping on the bitcoin bandwagon without knowing the difference between concepts such as;
- “proof of work” &
- “proof of stake”
Nor is there a clear understanding of the concept of cryptography and all the other technical aspects of cryptocurrencies.
I don’t claim to be a cryptocurrency buff nor a programmer or developer of any kind.
My expertise has come from spending months reading and learning everything I could get my hands on before I bought my first bitcoin. And then learning through implementing my readings by actively investing (sometimes even getting burnt).
Why am I so obsessed with individuals teaching themselves before investing in this new phenomenon?
Know that you are not protected when it comes to bitcoin investment
bitcoin is currently unregulated! That means that there are no professional bitcoin or cryptocurrency advisors to guide you in making your investments.
Therefore, most financial advisors are telling clients not to touch cryptocurrency. They simply are not licensed to advise on cryptocurrency as an investment product or asset category.
What this means for you as a client is that you have no recourse or regulatory protection against a person that advised you poorly in a cryptocurrency investment.
There is no regulator or board that you can appeal to take action against your “crypto advisor”. This means you have less protection than you would have had relative to other investments types.
The other problem with Cryptocurrency not being regulated and being rather technical in nature is that it is hard to keep truly safe. You are usually dependent on third-party systems and infrastructure to store and trade your coins or tokens.
This problem has been widely exploited and there are numerous examples of hacks and programming weaknesses and exploits that have lost investors literally hundreds of millions of dollars globally.
Search “Mt Gox hack”, “Bitfinex hack”, “DAO exploit” etc.
To keep your bitcoins safe, you need to understand online account security, how to use encrypted email services (recommended), online and offline wallets etc.
What really bothers me is not that people are investing in cryptocurrency but that the people who are investing don’t seem to truly understand the risks.
Know the risks to avoid disappointment
I have friends and acquaintances coming to me very excited about their new investments when I know for a Fact that this person is conservative and uncomfortable investing even in shares.
This alone tells me they don’t necessarily understand what they are into since I am certain of one thing: IF YOU THINK INVESTING IN THE STOCK MARKET IS TOO RISKY FOR YOU THEN YOU SHOULD NOT EVEN THINK OF CRYPTOCURRENCY INVESTMENTS!
It’s also typically the same people who don’t like internet banking or need help setting up their email accounts on their phones or PC's that are now suddenly comfortable investing in a “cyber only” environment.
From what I have written it might seem like I believe only educated professionals should be investing in Bitcoin and Crypto assets. Nothing could be further from the truth;
- I firmly believe that the underlying technology that all crypto assets are built on the “Blockchain” is the technology of the future.
- I believe with time all transactions will eventually take place on a blockchain network of one kind or another.
Whether Bitcoin is the best implementation of that technology is debatable. I believe there are already better blockchain technologies out there but that is a discussion for a different time.