Unless you’ve been living under a rock for the past few years, you’ve probably heard us talk about Cryptocurrency, and more specifically; Bitcoin. This cutting-edge investment option is taking over the world, and we believe that everyone should know their Bitcoin basics as we head into the exciting future of Cryptocurrencies. So what exactly are Cryptocurrencies like Bitcoin and how do we get our hands on them?

A BRIEF INTRO

Cryptocurrencies are digital assets that can be used in a very similar fashion to money. They have value, can be exchanged for goods and services, and are subject to value fluctuations just like the Canadian dollar. Today there are thousands of Cryptocurrencies being traded on the market; some popular examples include Bitcoin, Ethereum, and Litecoin.

The key difference between Cryptocurrencies and Fiat currency (i.e. government-issued money) is that Cryptocurrencies are not controlled by a bank or government body. Instead, these digital assets are owned by regular people and stored in computers all over the world which creates a synchronized network known as ‘the blockchain’. This network validates all transactions and recordings with a highly secure system known as cryptography. Since private transaction records are copied onto millions of computers all over the world, it is virtually impossible for one of these blocks to be changed or compromised without the discrepancy being flagged immediately.

Cryptocurrencies are unregulated, but that doesn’t necessarily make them bad. In many countries like Canada, it’s perfectly legal to own and trade Cryptocurrencies. Cryptocurrency often gets a bad rap because it has been used to facilitate a number of illegal activities in the past. This negative connotation is unfortunate because Cryptocurrency has the potential to do a lot of good for the world. The decentralized system which governs Cryptocurrency is one of its most desirable attributes, as there is no single institution that determines its value. Historically, government-issued currencies such as the Canadian dollar have suffered during times of economic crises because the cash has no value in and of itself.

 COVID-19 pandemic is a perfect example of the problem with traditional Fiat currencies like the Canadian dollar. In order to keep consumers and business-owners afloat, the Canadian government has printed billions of dollars as a way of stimulating the economy. The problem with printing additional money is that it gives people greater spending power, which encourages individuals to pay more for products and services. Consequently, prices rise and the economy suffers from inflation.

While the government can increase or decrease the value of their currency at any moment, the value of Cryptocurrency is derived from its utility. The value of Cryptocurrency rises and falls based on the supply and demand of the currency, its current price, what it costs to mine coins, and the emotions of people trading that Cryptocurrency. These factors make assets like Bitcoin so much more attractive than government-issued money as a method of transaction.

Let’s take a look at some of the reasons why Cryptocurrencies have gained so much popularity in recent years.

WHY ARE CRYPTOCURRENCIES SO POPULAR?

Cryptocurrencies offer numerous benefits. Here are a few of the main reasons why digital assets like Bitcoin have so many supporters:

• People are anxious to buy Cryptocurrencies before prices rise, as they are believed to be a major player in the future of our economy

• This decentralized system takes the control over pricing out of the hands of major banks

• The blockchain method offers far more security than traditional methods of transaction

• Cryptocurrencies are rapidly increasing in value

SO HOW DO I GET MY HANDS ON THIS MAGICAL INTERNET MONEY?

Some Cryptocurrencies like Bitcoin are widely available and can be purchased using traditional Fiat currency. However, some Cryptocurrencies require the buyer to pay for these assets using another Cryptocurrency.

You may be wondering how exactly these digital currencies are stored and traded. Cryptocurrency owners use an online wallet to collect their assets and present them to potential investors. By purchasing Bitcoin, Ethereum or another Cryptocurrency on an exchange using Fiat currency, it will automatically be deposited into your online wallet through the platform.

Cryptocurrencies have been in circulation for just over a decade, which means many exchanges are still struggling to create a reliable marketplace where they can be traded safely. It is important to do your due diligence in order to find an exchange that offers low commissions, rapid deposits and other essential features.

For the past five years, we have been trading Cryptocurrency on a variety of online exchanges. After trying several different platforms, we have found Coinsquare to be the absolute gold standard in terms of user-friendly exchange platforms. One of our favourite features is the simple registration process, which took no longer than 24 hours to complete. On Coinsquare, depositing and converting cash into Cryptocurrency takes just a few seconds, making the whole process convenient and straightforward. The company even launched a mobile app called Quick-Trade which brings the same features from Coinsquare that we’ve grown to love, right to your mobile device!

WE’VE TALKED ABOUT CRYPTOCURRENCY, BUT WHY ARE WE SO HIGH ON BITCOIN SPECIFICALLY?

Bitcoin has not been around for very long, which means despite what you may have heard, you are not too late to the party. All of the driving factors that made Bitcoin an overnight success when it was first introduced a decade ago are still rapidly increasing its value today. Let’s go over a few reasons why you may want to get on board:

It’s Still Relatively New: Bitcoin has the potential to greatly increase in value due to a variety of large and diverse markets which are sure to benefit from this Cryptocurrency in the future. Seasoned traders are confident that Bitcoin is on its way to becoming a multi-trillion dollar asset. In just over ten years, this Cryptocurrency has nearly surpassed the value of gold. It has been speculated that Bitcoin will become the currency of choice for countries like Venezuela, which have suffered from hyperinflation. It is also very likely that Bitcoin will become a popular choice for mobile transactions. These are just a few of many possible use cases.

The Currency of Our Generation: It is estimated that approximately $68 trillion will trade hands in the next 25 years. Decentralized assets like Bitcoin will serve as a major disruption to the economy as they rise in popularity among younger generations. A recent survey revealed that millennials are much more likely to buy, hold, and trade Bitcoin than older generations. As millennials begin to establish themselves in their careers and earn higher incomes, there will be far more money invested in Cryptocurrencies.

Secure International Transactions: Bitcoin is incredibly secure due to its use of a blockchain network. Therefore, this Cryptocurrency can be quickly sent across borders with minimal fees, and without the help of a third party. Over 100,000 businesses across the globe are now accepting Bitcoin as a form of payment, and that number is growing. As this Cryptocurrency finds its footing in the current economy, trading institutions and consumers are quickly learning the best ways to complete transactions and store the currency.

Build a Diversified Portfolio: Cryptocurrencies like Bitcoin make an excellent addition to a diversified portfolio. Bitcoin could be considered a high-risk investment due to its recent emergence, which means it has greater potential for high returns. Bitcoin is a unique investment option, as it does not move in the same way as traditional stock and bond markets. This divergence from mainstream market activity could be extremely beneficial during times of economic crisis. 

Bitcoin has proved to be a lucrative addition to our portfolio, however it is important to consider the risks associated with volatile marketplaces such as this! Your best bet is to invest no more than an amount you are willing to lose in the event that the market experiences a serious dip.

WHAT ARE THE RISKS OF OWNING CRYPTOCURRENCIES LIKE BITCOIN?

Cryptocurrency is still in its infancy, which makes it a highly volatile market. Making a sizable investment in Bitcoin is a serious risk given its potential to rapidly rise and fall in value. For this reason, it is best to treat Cryptocurrencies like Bitcoin as a gamble, and ensure a major loss does not severely affect your savings. It is also, however, possible to mitigate risks by maintaining a highly diverse portfolio, which contains a mix of high and low-risk investments.

For example, we initially invested 2% of our portfolio into Cryptocurrencies with plans to add more. But the recent surge in Bitcoin price quickly took us to over a 6% weighting. We may trim our Bitcoin and Ethereum holdings when it comprises 15% of our portfolio, reducing it to 10%. When or if it moves to 15% again, trim back to 10%. Rinse and repeat. Our risk is managed, as we are then in a very positive position at the very first trimming—even if we were to lose the remaining position.

One of the unique risks associated with Cryptocurrency is the possibility for hackers to interfere with the blockchain network or the online exchange platform of your choosing. Fortunately, the blockchain network is extremely secure, and has not yet been compromised by hackers. However, Cryptocurrencies like Bitcoin are traded on various third-party platforms - many of which have been hacked into. One of the ways that you can protect yourself against hackers is by keeping an offline wallet where you can safely store your Cryptocurrencies.

The QuadrigaCX scandal was a perfect example of Cryptocurrency hacking. Upwards of 80,000 individuals were affected by this, with over $2 million in losses as a result. This was however, a unique event where the founder passed away before the company could resolve the issue.

Considering the novelty of this digital asset, it’s important to keep your eyes peeled for unprecedented risks. For example, Bitcoin and other Cryptocurrencies pose a major threat to government-issued money, which means there is potential for government interference. Additionally, the decentralized nature of this asset could be a risk if the majority of it lands in the wrong hands.

INVESTMENT TIPS

Prepare for a successful investment in Cryptocurrency by reading the following important tips:

Protect Your Savings

When diving into the world of Cryptocurrency, it is important to keep your risk tolerance in mind and be prepared for serious losses. We only recommend investing money that you can afford to lose. However that being said, Bitcoin has serious gaining potential, which is why many individuals are making it a part of their investment strategy.

Maintain a Diverse Portfolio

If you are planning on investing a large portion of your income, we strongly recommend diversifying your portfolio with various levels of risk. Low-risk investments like government bonds are practically guaranteed to make you money, however this will happen slowly over time. Low-risk investments should therefore make up the majority of your investment portfolio. Once you have secured the majority of your savings, you can consider investing in medium and high-risk investments like Bitcoin.

WHAT TO EXPECT FROM CRYPTOCURRENCY IN THE COMING YEARS

Predicting the future of a volatile investment like Cryptocurrency is a challenge. However, those who choose to invest even a small portion of their income into Cryptocurrencies may be in for a drastic increase in wealth.

Bitcoin’s recent establishment means that it has been rising at a rapid rate in the past decade. Therefore, investors may want to wait for prices to fall before investing in this Cryptocurrency. However, the buzz around Bitcoin has not stopped in the past few years, which means you may want to invest now so that you can reap the benefits of this asset while it is still on everyone’s minds.

This new Cryptocurrency marketplace has initiated a whole new business sector with many tech startup companies finding innovative ways to manage Cryptocurrencies and host transactions. Investors may therefore want to consider investing in some of these startups as a way of further diversifying one’s portfolio.

FinTech companies are steadily increasing the potential of Cryptocurrency to disrupt a wide range of markets. The industry is also becoming more competitive, which means companies are finding cheaper ways to manage this digital asset.

If you are concerned about the potential security risks of investing in Cryptocurrency, we are confident that the future is bright. With emerging competition in the industry, companies are zoning in on the best security methods to keep your investments safe.

Ultimately, we highly recommend that you continue looking into Cryptocurrencies and try Coinsquare if you are ready to invest in this exciting digital asset!

Disclaimer: Our recommendations come from personal experience and should not be taken as professional wealth management advice.