Should you invest in cryptocurrency?
With Bitcoin going up from 3 cents to $20,000 in just ten years, cryptocurrency has become an enticing asset for investors around the world.
But, with great gains comes great volatility – so, it is worth the risk? Should you invest in cryptocurrency?
According to Nathan Birch from Binvested, it’s not so much a question of whether you should invest in crypto, it’s more a question of how you should do it.
Cryptocurrency – “The ingenious way of screwing over the system.”
Nathan Birch is no stranger to investing. While most people know him as one of Australia’s most successful self-made property investors, the 34-year-old man from Western Sydney also invests in other asset classes.
Crypto is one of these.
“I am pretty heavily invested in cryptocurrencies, even though cryptocurrencies are very, very volatile,” he says.
“I have certainly endured the highs and lows of owning cryptocurrency.”
Since it is something you can make huge profits from – and lose huge amounts on – Nathan is keen to share his knowledge and experience with the Binvested community.
“I think it’s important that people understand what it is and how it could benefit their lives.”
But, the information he shares is just that – it is not advice. So, if you want to invest in crypto, you should seek professional advice from a qualified financial planner first.
How does it work?
Cryptocurrencies such as Bitcoin are unique because they work in a way that could be considered the complete opposite of how our ordinary money works.
“The money that we’ve got in the system is a debt-based, fiat, Ponzi scheme,” says Nathan.
As a fiat currency, money as we know it is subject to inflation – which means it buys less and less over time.
Bitcoin is the opposite.
The person who made Bitcoin created a currency with just 21 million coins. That’s it. There will be no more made in the future.
After releasing the first million coins into the marketplace, less and less have been released during every four-year period since. By the time it hits 2040, there will be no more new coins rolled out.
While conventional money loses value over time because there is always more of it being made, cryptocurrencies such as Bitcoin actually rise in value due to scarcity.
“It was built as a digital cash, but it is becoming more like a digital gold as a store of wealth rather than as a medium of exchange.”
But this is not the only thing it has got going for it.
“It’s purely decentralised – there has never been anything like crypto built throughout the lifetime of humanity,” says Nathan.
This means it cannot be manipulated by policy makers.
It is also quite secure. Nathan says that for Bitcoin to be hacked you would need to turn off all the power in the world.
What does the future look like for currency?
Nathan thinks certain cryptocurrencies are likely to play a key part in our financial future.
“We are looking at a world where everything is turning digital,” he says.
“We are also going to start seeing the downfall of the monetary system.”
According to Nathan, the current recession is fast approaching a global financial depression. The only way governments can fight this off is through quantitative easing and introducing stimulus.
He says, once quantitative easing comes into the market, we are going to see crypto prices go up like never before.
Further down the track, as currencies around the world die, Nathan believes we will see an increasing need for the decentralised systems of crypto.
This is because in a hyperinflated economy, the good cryptocurrencies will hold their buying power against the dying dollar.
Not all crypto is equal.
The value of cryptocurrency goes up with the size and the value of the network, so it will only be coins with a strong user base that are likely to have a future.
Nathan says in the crypto industry, about 80-90% of coins probably won’t have a place in the world within the next five to ten years.
There are also a lot of scams out there where people lose good coins in exchange for dodgy ones.
How does Nathan invest in crypto?
While he sees the future value of certain cryptocurrencies such as Bitcoin, Nathan says he only speculates in it.
He doesn’t recommend that anyone sell their house to buy it. He also doesn’t think investors should swap all their gold or super for it either.
“With crypto, I look at it as a potential to hedge against inflation, to potentially speculate against,” he says.
He says, investors should be extremely cautious.
“Never invest more than what you are prepared to lose.”
He says he knows people who have hit rock bottom after investing in cryptocurrency.
“I have seen people that sold their house and bought cryptocurrency. They started with Bitcoin but then invested into some speculative coins and lost everything.”
“It’s important to understand that it is volatile – it is a new market that has high levels of risk.”
How does it compare with precious metal?
“If you look at gold and silver, crypto has very similar parameters,” says Nathan.
They are both a good hedge against inflation as they tend to hold their value over time.
The difference is that precious metals have been around for thousands of years, whereas crypto has only been around for a decade. This makes it more volatile and a much riskier investment.
On the other hand, crypto is better than physical gold and silver in the sense that you can instantly send the money on a global scale. The crypto market is always open and never goes offline.
In this way, it is even better than a bank transfer. For example, Bitcoin transfers can occur instantly, whereas, if you go to the bank and transfer money on a Friday, it won’t be accessible until Tuesday.
How to invest.
Nathan says he thinks everyone should have at least $10 in cryptocurrency because if you lose it, it won’t really matter, but you will still gain experience in handling it.
“Get to understand the parameters of it because it’s going to have a big place in the future of humanity,” he says.
The most popular coin, Bitcoin, has seen incredible growth since it was created.
“As a new asset class, it’s gone up from 3 cents to $20,000 in 10 years,” says Nathan.
“No other investment in the history of humanity has ever done that.”
In fact, if you had invested $100 in Bitcoin ten years ago, it would be now worth about $1 billion.
He says there are knock off versions of Bitcoin – different types of coins that use similar parameters – but there has to be a network use case for them to have future value and, for most, there is not.
“There’s only a handful of coins that I trust for having a good strong future ahead of them.”
This is why research is so important. You can buy crypto from online exchanges such as Coinspot and BTC Market. Nathan says, once he has purchased it, he prefers to store it on his own hardware because it is more secure – like a private safe.
Some benefits of investing in cryptocurrency.
- If you haven’t invested in it you can get into it for as little as 50 cents.
- You can sell it whenever you want
- You can buy it or trade it.
- It can’t be stolen and has never been hacked
- You can get your money out at any point in the world if you can remember a security string of 24 words
- The downside risk of buying it in small quantities is minimal
- It can be a good hedge against inflation
Some downsides of investing in cryptocurrency:
- It is extremely volatile
- There are heaps of dodgy coins out there.
Do you want to know more about which channels of investments are best for you, your goals and your portfolio?
Book a portfolio review with Nathan himself. Our team will be in contact to discuss this with you, just click below.