Money Minutes for Doctors #37: HODL ~ Welcome to Cryptocurrency
Are your hands made of paper, or are they made of diamonds? Did you buy the dip? And did you hold on for dear life when your position sank lower?? If any of this makes sense to you, then the world of crypto is not a strange place. If you were scratching your head, and the south Atlantic Ocean below the 40th latitude seems more familiar, then sit tight as we explore the ever changing world of cryptocurrency. Back again to assist with a basic primer on this brave new world is our intrepid navigator of all things finance, Ms. Katherine Vessenes, JD, CFP®, RFC, Founder and President of MD Financial Advisors.
About Ms. Vessenes:
Ms. Vessenes works with over 300 physicians and dentists from Hawaii to Cape Cod. Her firm uses a team of experts to provide comprehensive financial planning to help doctors build their wealth and protect their wealth while reducing taxes now and in the future. Katherine is a longtime advocate for ethics in the financial services industry; and has written three books on the subject of investment strategies. She has received many honors and awards including: numerous tributes from Medical Economics as a top advisor for doctors, multiple 5-Star Advisor Awards, honored as a Top Woman in Finance, in addition to being selected to be on the CFP® Board of Ethics. Katherine can be reached at: Katherine@mdfinancialadvisors.com or 952-388-6317. Her website: www.mdfinancialadvisors.com.
Cryptocurrency and Bitcoin
Definition: Electronic currency without the “middle man” with the goal of a direct transaction between parties. Developed to be a system allowing transfer of money directly between parties.
Bitcoin, introduced in 2009, is a common term that is used to represent all cryptocurrency however there are thousands of different types of cryptocurrencies.
Meteoritic rise in value, lots of variability, rapid cycling in value - a very risky investment
Cons:
(1) Hard to know the true value given how much variability thus difficult to use for purchases
(2) Each transaction is a taxable event
(3) 90% of all bitcoin controlled by 2.4 % of all accounts – a select few control significant power
(4) Significant supply of bitcoin (20%) is trapped in lost/stolen digital wallets
(5) Unregulated investment – no checks and balances, no audits therefor no clear way to know that transactions are fair
(6) No solid financial backing so can become worthless overnight /NO government oversight
(7) There are so many cryptocurrencies hard to know when/what/if to invest
(8) Potential for environmental destruction given how much electricity is used to run these super computers
Pros:
(1) Best performing asset category - unbelievable profits beating all other categories 10-fold.
(2) Viewed as scarce asset so will hold its value
(3) Accepted by currency if some circumstances: Coin Base, PayPal
(4) Can bring transactional availability to those in countries w unstable banking system
(5) Transactions can occur any time of day w no need check clearance given no intermediary channels.
(6) Unlimited potential to increase in value
Take home:
For most doctors let’s wait for more regulation. If you have extra money and your financial portfolio is secured then potentially can invest but be comfortable losing the amount of money you invest.