How Cryptocurrency Differs from Traditional StocksIf you aren't well versed in the technology and fundamentals of cryptocurrencies, it’s easy to think of them in the same way as other assets like stocks or bonds. However, behind the scenes, cryptocurrencies function in a vastly different way to stocks, especially Bitcoin. Despite being intended as digital money, Bitcoin has evolved to act more like digital gold than a currency. In this way, it acts differently to both stocks and foreign exchange. Whereas a stock price is linked directly to the performance of the company, Bitcoin has no shareholders, no CEO, and is not linked to any country or government. This puts it in a league of its own—an entirely unique method of safely storing and transferring value with no need for a broker, bank, or third-party intermediary. Traditional investors may find this lack of intermediation unsettling but it has many advantages. Like gold, Bitcoin is immune to inflationary practices that damage fiat currency or insider trading that can damage the value of a company. Bitcoin offers all the same 'hard money' benefits of gold but in a more secure, easily transferable digital format. Nowadays, you can buy cryptocurrency with a variety of methods: either directly from a seller, on an exchange, through an investment fund, or as part of a product like an IRA. Thousands of financial institutions are beginning to offer cryptocurrency investments to their customers so they can benefit from this burgeoning new asset class.
Key Differences Between Stocks and Crypto
- Hours: Cryptocurrency trades 24/7, 365 days a year, unlike stock markets which keep office hours.
- Regulation: Stocks are regulated by government agencies, cryptocurrencies are secured by blockchain technology.
- Volatility: Cryptocurrencies are typically more volatile than most stocks.
- Ownership: Stocks remain tied to a company whereas with cryptocurrency you take full ownership and responsibility of the asset.
How Does Digital Currency Work?Digital currencies like Bitcoin are recorded on a transparent and immutable ledger technology called a blockchain. In the same way that a bank keeps a record of your savings on its computers, Bitcoin keeps a record of your investment on the blockchain. However, unlike a bank that can run out of cash reserves, the exact amount of Bitcoin that you own is always available to you. There is only 21 million Bitcoin available and it's impossible to create more, so Bitcoin will never lose value due to inflation. Once all the Bitcoin available has been issued, its scarcity will ensure it continues to hold increasingly high value. Other cryptocurrencies use similar or equivalent methods of supply control to protect against rampant, uncontrolled printing that results in endless inflation. Due to the large choice on offer, many people are unsure which crypto to buy. Generally, the best way to judge a reliable crypto asset is to see how long it has been running. Bitcoin, Ethereum, and Litecoin have all been around for many years, proving themselves as reliable investments. Unlike some new crypto coins that may die after one year, these coins show strong promise as a safe, long-term investment.
Key Bitcoin Statistics
- 11 years of secure operation
- Limited to 21 million coins
- US$1 trillion market valuation
- 408.8 percent mean annual return
Why Both Bitcoin and Stocks Make a Good InvestmentAs you can see, cryptocurrency and traditional stocks offer very different investment opportunities. There are advantages and disadvantages to both asset classes, which is why it's always best to diversify your portfolio in a balanced way. Investing a percentage of your money into Bitcoin and stocks will ensure you don't miss out on the great returns of cryptocurrency while maintaining a secure long-term stock position. Statistically, Bitcoin offers the best returns of any asset over the past decade but the technology is still relatively new and lacks strong regulation. It may still take some time for governments to develop effective regulatory policies in the cryptocurrency sector, assuring traditional investors that cryptocurrency is safe. Stocks, on the other hand, have a long history of profitable and safe investment opportunities. If you do your research, keep an eye on emerging trends, and pick good stocks, you can be assured a decent return on investment (ROI). Companies like Apple, Amazon, and Microsoft have proven excellent long-term investments, although for each one there was also a promising company that has failed.
Should You Buy Cryptocurrency? Diversification is KeyWhatever you choose to invest in, always remember that diversification is key to ensuring your portfolio always stays in profit. No single asset or asset class is immune to losses, so make sure you don’t put all your eggs in one basket. A good investment portfolio should include a well-balanced mix of stocks, precious metals, and cryptocurrencies. For this reason, many people choose to invest in both stocks and a cryptocurrency product like an IRA, helping to protect against any single failure. Investing in a mix of cryptocurrencies and stocks can provide an extra level of protection, balancing out any losses against gains and providing a stable ROI.
An Introduction to IRA accountsAn individual retirement account (IRA) is one of the most popular ways to save for retirement giving you some of the best tax-saving benefits. Many savvy investors will begin contributing to an IRA as soon as they start working and earning income to complement their employee-sponsored 401k retirement account, or to plan early for their retirement when their employer does not have a 401k or other employer-sponsored plan. You can also choose what to invest your IRA money in, from commonly held stocks, mutual funds, and other equities, to real estate, cryptocurrency, and other digital assets. IRAs provide several advantages over a typical savings account, most notably tax savings and diversified investment options. For example, depending on your income level, you can get up to 100% tax savings on contributions made to a Traditional IRA. A Roth IRA is funded with after-tax dollars and grows tax-free, while a SEP IRA, a Simplified Employee Pension, has its own advantages for those who are self-employed or own a business, one of which is higher annual contribution limits than a Traditional or Roth IRA account.
What is a Cryptocurrency IRA?A Cryptocurrency IRA describes an IRA where the investment of choice is any digital currency, including Bitcoin. In 2018, the IRS defined cryptocurrencies as “property” rather than securities. This change made it possible for institutions to start offering cryptocurrency as an investment in a Self-Directed IRA. Cryptocurrency IRAs offer the option of a single cryptocurrency or a mix of carefully selected, eligible cryptocurrencies for a more diversified crypto portfolio. As with any IRA, your custodian must hold the assets. Bitcoin is the most popular choice for a Cryptocurrency IRA, because it has been around the longest and proven to be the most widely accepted. However, over the years, other cryptocurrencies such as Ethereum and Litecoin have also proven to be stable and profitable. Many Cryptocurrency IRA custodians offer a narrow range of digital assets to choose from if you wish to diversify beyond just Bitcoin, avoiding the riskier altcoins.
The Difference Between a Conventional IRA and a Cryptocurrency IRACryptocurrency IRAs must adhere to all the same IRS guidelines as conventional IRAs according to the type of IRA it is (Traditional, Roth, SEP). This includes transfer eligibility, contributions, distributions, and taxable events. In addition, IRS code dictates that all IRA assets must be held by a trustee or custodian. A custodian is the financial institution that is responsible to not only safeguard your investments but also to report any contributions and distributions to the IRS. Because the IRS categorizes cryptocurrency as property and not a security, only a self-directed IRA that allows the account holder to invest in alternative assets can facilitate an investment in cryptocurrency. A Cryptocurrency IRA is simply a Self-Directed IRA that can invest in cryptocurrency. With a Self-Directed IRA, you, as the IRA account holder, choose how and when your IRA funds are invested - in this case, crypto rather than stocks, bonds, and mutual funds. However, not all Self-Directed IRA custodians have the capability of offering cryptocurrency as an alternative investment option, since they have very specific trading, tracking, and storage requirements.
What Cryptocurrencies are eligible to be placed in IRAs?The oldest and most popular cryptocurrency is Bitcoin, well known around the world for the incredible growth it has enjoyed over the past decade. Nowadays, there are over a thousand cryptocurrencies, but only a select few are eligible for IRA investment. Each custodian who offers cryptocurrency as an option determines which ones are eligible for their account holders. As Bitcoin gains institutional and individual acceptance, more and more investors are choosing Bitcoin and other cryptocurrencies as an IRA investment option.
But is cryptocurrency safe?Over the past decade, Bitcoin has become known for both its rapid growth and decline, prompting many to ask - is Bitcoin a good investment? Is it a stable investment? After all, we have seen cryptocurrencies move up or down in value by as much as ten or twenty percent in a day. These seemingly unpredictable and rapid swings make traditional investors wary and give the impression of an unstable investment. Bitcoin’s volatility during these times increased its implied risk. While its acceptance was still in question, analysts struggled to determine what were the driving forces behind these market gyrations. However, Bitcoin has shown consistent growth with a mean annual return of 408.8% over the past decade. Recently, however, Bitcoin has attracted the attention and acceptance of financial institutions like Microstrategy and tech giants like Tesla, both having invested billions of dollars into digital currency. These firms, along with many others, see Bitcoin as a hedge against inflation, similar to the way investors viewed gold during previous times of economic uncertainty. This type of large-scale corporate investment validates the legitimacy of Bitcoin and gives it more stability in the long run.
Get your own Cryptocurrency IRA today from Coin IRACoin IRA and its preferred custodians provide qualified Cryptocurrency IRAs helping thousands of customers enjoy the benefits of this new and exciting asset class. Our highly-qualified consultants will help you choose from a range of options, including Bitcoin, Ethereum, and Litecoin with no maximum purchase limit. Investing in cryptocurrency opens you up to a modern asset class that has out-performed every other asset in the past decade. Furthermore, it allows you to maximize the diversification in your investment portfolio, mitigating risk and hedging other markets. Speak to a Coin IRA Cryptocurrency Specialist today about how you can better secure your retirement with a Cryptocurrency IRA. Our team will expertly and efficiently guide you through the process from start to finish. It's easier than you might think.
A great year for Bitcoin
While most of us found 2020 to be a difficult and confusing year, Bitcoin enjoyed a period of strong growth throughout the year. Things started off a bit rocky when the COVID-19 pandemic caused financial markets worldwide to crash, sending Bitcoin to a 12-month low. However, by May, it had made a full recovery and continued to grow, registering a new record high price by year-end.
Coming into 2021, Bitcoin has faced some mild volatility but continues to move in an upward direction. After breaking above $30,000 in early January, it quickly reached $40,000 before running out of steam and cooling off for a period. Most recently, a renewed rally has seen the leading cryptocurrency break through the significant $50,000 mark.
What to expect in 2021?
The unexpectedly strong growth over the past few months has left many analysts wondering what we can expect to see from Bitcoin in 2021. There are several important factors to consider that are likely to affect the price, some that stem from historical movements and some with more immediate ramifications. In order to accurately assess the direction in which Bitcoin is headed, we need to investigate three core elements that define its price: public perception, institutional investment, and the underlying technology.
Public perception is one of the most critical factors driving the price of any asset. In the case of traditional company stocks, the reputation of the company can make or break public perception. In the case of Bitcoin, there is no easily definable product, service, or use case backing the asset. Digital assets like Bitcoin lack a physical product, so their value is largely derived from whether or not people believe it has value. In the past, Bitcoin has received criticism from conservative financial groups who didn't take the time to understand the technology and couldn't see where the value came from.
More recently, however, big names in the fintech world are realizing the incredible use cases of cryptocurrencies, helping to drive a wider understanding of their importance. Equally, government regulators have begun to act more favorably towards cryptocurrencies, helping to improve their public image. People from all walks of life are finally beginning to see cryptocurrency as an investment for the future.
When it comes to money, the average person tends to trust their bank or financial advisor more than themselves or their friends. For cryptocurrencies to find a truly lasting foothold within the global economic landscape, acceptance by established financial institutions is paramount.
Over the years, Bitcoin has enjoyed a modicum of support from some high-profile analysts like Thomas Lee of Fundstrat Global Advisors. With 25 years of equity research experience, Lee has long touted Bitcoin's value, recently predicting even stronger performance this year than in 2020. Overall, the sentiment is high, and the vast majority of analysts see further growth for Bitcoin in the medium to long term.
Over the past few months, institutional investment into the crypto market has exploded, with major tech and finance firms like Paypal, Tesla, Greyscale, and Microstrategy all buying up massive amounts of Bitcoin. These companies have taken the time to research whether Bitcoin is a good investment, evaluating risk, and making a calculated decision - they're not the type of firms to make speculative bets!
Those who truly understand Bitcoin usually have a basic understanding of blockchain, the underlying technology that makes cryptocurrencies entirely different from any other asset class. Blockchain is a highly secure ledger of transactions maintained by a decentralized network of computers that can be programmed to control the supply and demand of a digital asset.
Historically, Bitcoin has enjoyed strong periods of growth following a change to the network that ensures scarcity. Known as a 'halvening,' this hard-coded event occurs approximately every four years and halves the amount of Bitcoin that is created daily. The third and most recent halvening occurred on May 11th, 2020, putting us currently in the midst of a .
Unlike traditional currencies or assets, Bitcoin has a supply cap of 21 million units and follows a release schedule of increasing scarcity that nobody can ever tamper with. Many financial experts believe this baked-in scarcity model is what gives Bitcoin its exceptional value and long-term viability.
During times of financial uncertainty, many governments print money in large quantities to inject stimulus into the economy, resulting in rapid inflation and damage to the value of the currency. Bitcoin's carefully controlled scarcity and immunity to oversupply make it an excellent hedge against periods of inflation, leading many analysts to .
Is cryptocurrency safe?
Despite their exceptional long-term growth and widespread acceptance by top institutions, many people remain fearful of cryptocurrencies. This is largely due to a negative image painted by conservative economists and a fear-mongering media that doesn't understand the technology. In reality, Bitcoin is designed to make it one of the most secure monetary networks in the world.
The decentralized, transparent, and immutable nature of blockchain technology makes it near impenetrable to theft or fraud. In fact, in over 11 years, the core Bitcoin network itself has , theft, or data breach. However, when interacting with any blockchain network, there are some inherent dangers that could occur as a result of human error.
This is why the majority of users enlist the help of a third-party company when they want to buy and sell crypto. If done through a trusted third-party, there is no reason why you should have any trouble dealing in cryptocurrency. Yes, fluctuating market conditions mean you could lose money trading cryptocurrencies, but this is no different from any other asset class.
The benefits of a cryptocurrency IRA
If you're looking to diversify your retirement portfolio into an asset with a high potential for profit, a Cryptocurrency IRA could be the ideal product for you. The traditional stock market is facing a tough time at the moment as economic uncertainty shakes confidence globally. Precious metals traditionally offer a safe hedge against this situation but historically provide only mild returns.
Diversifying a portion of your IRA into Bitcoin will expose you to the incredible potential that this new asset class has to offer. The expert advisors at can help guide you through each and every step of opening a cryptocurrency IRA. It's a small decision that can make a big difference!
A Brief History of Bitcoin’s PriceThe Bitcoin software was made available to the public for the first time in January 2009, which is when the first Bitcoin block was mined as well. During the first few years of its existence, the worth of one Bitcoin was no more than a few dollars. In 2013, the digital coin started getting more and more exposure in the media. Bitcoin’s value increased at $13.40 and kept going up, creating a price bubble. In mid-2015, the price of one bitcoin was around $300. This was when the second growth period started so that in January 2017, Bitcoin could reward investors with a 1,350% return and even reached an all-time high of $20,000. In 2018, things took a turn for the worse with Bitcoin’s price falling down to $4,000 by the end of the year. This year-long bear market greatly affected crypto-related businesses. Luckily, the currency got back on track the following year and even surpassed its all-time high in February 2021.
Macroeconomic OverviewBitcoin’s price crashed twice, both in 2013 and 2017. Nevertheless, these declines were not a result of any major incident. The digital coin was mostly cut due to some speculations such as worries about hacking risks which hampered the advancement progress of cryptocurrencies in 2018. In 2020, however, Bitcoin and other cryptocurrencies experienced a real financial crisis with the outbreak of COVID-19. Cryptocurrencies were not resistant to the crisis caused by the pandemic, though, as investors began to sell off equities in February. However, regardless of the substantial losses in March 2020, and the disordered Covid-19 response by governments, worldwide markets have managed to make exceptional progress. Research by Dr. Marcin Watorek showed that Bitcoin did not frighten investors; quite the opposite - they didn’t shy away from including it in their investment portfolios. Moreover, his research confirmed that during the Covid-19 pandemic, the cryptocurrency market turned out to be mostly unaffected by the turbulence experienced by all global markets during this period. This observation is in line with and complements the previously published results on the approached stability and maturity of the cryptocurrency market in the past couple of years.
Why 2021 Is the Right Year to Buy Bitcoin
Bitcoin’s Network Is Increasing in SizeSlowly but surely, Bitcoin trading has been increasing in popularity, especially over the past few years. There are more wallets, exchanges, and platforms than ever before. According to the Bitcoin block explorer service data, the number of blockchain wallets used by traders shows an increase from 43 million to over 62 million wallets in the past twelve months. Furthermore, more and more vendors are starting to accept Bitcoin. There are even Bitcoin debit and credit cards that allow users to spend their bitcoins anywhere where Visa cards are accepted. These novelties mean that Bitcoin usage is set to increase in the foreseeable future.
Bitcoin Appears to be Following the Stock-to-Flow ModelAn investing concept called “stock-to-flow” can be used to quantify the scarcity of a good. Stock represents the total supply in circulation and flow represents the amount of new supply per year. Supporters of this model have foreseen that the price of Bitcoin should reach somewhere between $100k and $200k at some point in 2021 or 2022. This prediction was a result of a study that covered the demand and scarcity of this asset and compared it to other assets, like gold. Similar to gold, Bitcoin represents a rare asset class but even more importantly, it’s the first rare digital object. When Bitcoin was created, its supply was hard-capped at 21 million BTC but the complex mathematics keeps the supply rate more or less even by increasing the mining difficulty, so that every 10 minutes, a new block containing 6.25 BTC is being mined. While there are critics of the stock-to-flow model, other high profile investors have taken note. In a July 2020 report by Fidelity, the U.S. investment house stated that "Commodities with a [high S2F] have historically served as superior stores of value. Bitcoin’s stock-to-flow will eclipse that of gold following the next halving (2024)."
Bitcoin’s Price PredictionsWhen it comes to future Bitcoin price growth, the majority of experts, investors, and crypto analysts share a positive outlook with more and more major financial institutions embracing crypto as a payment or investment choice. In that context, Bloomberg analyst Mike McGlone is setting a target of $50k in 2021 and $170k in 2022 for 1 BTC. Moreover, according to the Winklevoss twins, the founders of the US exchange Gemini, Bitcoin might reach $500k by 2030, at which point its market cap would come near that of gold. Finally, as mentioned above, estimations based on the stock-to-flow model show a possibility of Bitcoin rising to $200k in the next couple of years.
Final WordsIf you’re wondering when to buy Bitcoin, the answer is now. We can conclude that Bitcoin is a good investment in 2021 and here’s why. Experts agree that the crypto industry is well-positioned to maintain its attractive place in the financial market. Moreover, the history of Bitcoin’s price indicates that Bitcoin is poised to surpass its most recent all-time high again. In addition, the value proposition of Bitcoin is ideally suited to the macro climate since it turned out to be mostly unaffected by the turbulence experienced by all global markets due to Covid-19. Finally, the fact that Bitcoin follows the stock-to-flow model is another sign that it’s a good investment for 2021 because it proves that the asset is scarce and, in turn, more valuable. Let Coin IRA show you how simple it can be to join the growing masses adding Bitcoin to their IRA. With a clear picture of Bitcoin’s forecast, this may be your once in a lifetime opportunity to dramatically impact the quality of your life in retirement.
What Factors Affect Bitcoin’s Price?
ScarcityOne of Bitcoin’s key trump cards that makes it an attractive asset and drives its price forward at the same time is its built-in scarcity. When Satoshi Nakamoto designed the world’s first cryptocurrency, he set an upper limit of 21 million for Bitcoin’s supply. Today, over 18.5 million BTC are already in circulation. However, the increasing mining difficulty ensures that new bitcoins are introduced at a fixed rate. Moreover, the number of BTC that enters a blockchain block together with the miners’ reward get slashed in half every four years in an event known as the halvening. Although we won’t run out of new BTC overnight, scarcity builds up buying pressure and the increased demand drives Bitcoin’s price up. It’s hardly surprising that the hype around every subsequent halvening resulted in a Bitcoin rally, no matter how small-scale or short-lived it was.
SovereigntyA major difference between fiat and cryptocurrencies is that fiat currencies are backed by the government and central banks and possess no intrinsic value other than the one determined by these central authorities. Bitcoin, on the other hand, is backed by a complex algorithm and proofing mechanism that prevents any third-party meddling. Instead of relying on intermediaries and financial institutions, Bitcoin’s network functions in a decentralized and transparent manner. The network participants or “miners” verify the transactions by solving a cryptographic puzzle and storing them on a digital ledger called the blockchain. In times of financial crisis, Bitcoin is seen as more secure than fiat currencies. It represents a “safe haven” alternative for many investors and, as a result, increases in value against fiat.
UtilityBitcoin’s price largely depends on its utility, i.e., the number of use cases that Bitcoin enthusiasts can find for their coins. Massive adoption will lead to higher demand but because of Bitcoin’s scarcity, the price of the asset will skyrocket. Gradually, Bitcoin is turning into a global currency as more and more people become interested in contactless and, above all, decentralized money transfers. Free from any ties to financial intermediaries, Bitcoin transactions are faster, cheaper, and more secure. Prompted by the Covid-19 pandemic, more and more merchants and retailers around the world have started supporting Bitcoin payments and research shows that the number of their customers has increased significantly.
Why Is Bitcoin Going Up NowIn the last couple of months, Bitcoin investors have anticipated an even larger-scale Bitcoin rally than the one in 2017 when Bitcoin’s price went from around $5,000 in October to almost $20,000 by the end of December. Unfortunately, the spike proved to be a bubble, and Bitcoin’s price was back to $7,000 by April 2018. However, this time things are different because Bitcoin’s adoption is higher than it was three years ago. PayPal has just made it possible for its users to buy, sell, and hold Bitcoin via their PayPal accounts. The company is also planning to allow users to purchase goods and services from PayPal’s 26 million merchants with Bitcoin in the future. Apart from the growing acceptance of Bitcoin as a means of payment, we’ve seen a rise in its potential as a store of value too. Both high-net-worth individuals and tech companies have taken a liking to this digital asset. For instance, CoinTelegraph informs that the leading business intelligence company, MicroStrategy, has recently announced that it has raised $650 million worth of convertible senior notes to purchase BTC as part of the company’s strategy to convert part of its cash reserves into alternative assets. Similarly, the American payment provider Square has purchased $50 million worth of Bitcoin for company purposes. Finally, Covid-19 has accelerated the digitalization of many industries. People have had no choice but to turn to online transactions during lockdown and many have, in a way, been initiated into the digital world. This is beneficial for Bitcoin because it takes away part of the stigma and suspicion that people might have towards new financial technologies. At this point, you might be asking yourself what these recent events and price surges mean for you as a future Bitcoin investor. Is this upward trend going to continue, or are we in for another bursting bubble? The truth is, no one knows for sure. The cryptocurrency market is largely built around speculations and market predictions (more so than other markets) because of its volatile nature. Conservative experts and Bitcoin nay-sayers are quick to dismiss Bitcoin’s potential by arguing that once Bitcoin’s price reaches its peak, it will tumble down within a few months. But the majority of financial experts and economists believe that this time there’s hope for a more steady growth that will continue throughout 2021. If we look at Bitcoin’s price history, we’ll see that although it’s true that it’s full of ups and downs, Bitcoin has always managed to recover and double if not triple in price. Moreover, its price fluctuations are directly linked to financial events, such as increased restrictions, new market players, economic crisis, large-scale purchases, etc. There is one thing that can’t be disputed, however, and that is that Bitcoin remains the most popular cryptocurrency,
Bottom LineWe hope our guide can help you make a well-informed decision about Bitcoin and potential Bitcoin investing. If we managed to spike your interest, we encourage you to browse through our Coin IRA website and get acquainted with our mission and services. Getting started in Bitcoin is easier than you think. Speak with a Coin IRA Crypto Specialist today about the benefits of crypto ownership. With our help, saving for your future has never been easier!
Why Choose Cryptocurrency?In order to understand why so many people are investing in cryptocurrencies, let’s take a look at their main features and use cases.
Decentralized PaymentsThe main incentive for designing the first cryptocurrency, Bitcoin, back in 2009, was to replace the central authority in charge of people’s transactions with a new model based on cryptographic proof. This model is implemented on a peer to peer (2P2) network that uses blockchain technology to store and secure the transactions. As a result, cryptocurrency transactions are faster, cheaper, and more private than bank transfers. The blockchain only incurs a small mining fee with no additional service costs. Even if you’re making an international payment, the procedure is quite straightforward, unlike wire transfers where the processing time of the recipient’s bank typically delays the payment. Moreover, when sending cryptocurrency, both the sender and recipient’s names are hidden. Instead, the blockchain shows their public key, i.e., an encrypted address that functions as a pseudonym. That’s why we say that cryptocurrency transactions aren’t anonymous but pseudonymous.
ScarcityScarcity refers to the total supply of a given cryptocurrency or the number of coins in circulation. Unlike the unlimited supply of fiat currencies, the supply of most crypto assets is limited. For instance, Bitcoin’s founder, Satoshi Nakamoto, hard-capped his coin at 21 million BTC. What’s even more interesting, despite the growing demand, is that the cryptocurrency mining process continues at the same rate. When the demand for the crypto assets increases, so too does their mining difficulty. This supply inelasticity is what causes price volatility, a quality that turns cryptos into a risky but profitable investment.
UtilityCryptocurrencies are gradually turning into global virtual currencies thanks to their multifaceted utility. On the one hand, they’re lucrative investment assets that allow investors to diversify their portfolios. On the other, they’re becoming increasingly used as mediums of exchange. During the COVID-19 pandemic, contactless payments have become both a necessity and the rule, resulting in more and more merchants accepting cryptocurrencies as a payment method. For example, in partnership with the payment processor Salamantex, over 2,500 merchants in Austria support payments made with Bitcoin, Ethereum, or Dash. On top of that, leading payment companies like PayPal, Visa, and Mastercard are standing up for crypto assets as well. Cryptocurrencies are also increasingly used as utility tokens. It all started when the Ethereum platform created the first self-executable smart contracts, where tokens were used to foster a bond between the involved parties. In turn, smart contracts made it possible for developers to build decentralized applications.
What Are the Challenges of Cryptocurrency?One of the main challenges that cryptocurrencies are facing today is the lack of regulation. Their decentralized nature makes it harder for governments to design suitable regulatory frameworks. On the one hand, this might compromise their decentralized nature but on the other, it can provide better user protection. In countries like Australia, the US, the UK, and Canada, cryptocurrencies are treated as property. As a result, crypto profits are subject to capital gains tax. Another challenge that affects crypto investors is the unstable and volatile nature of the crypto market. You should be very careful when choosing the asset you want to invest in, as you don’t want to be an easy target of experienced investors’ pump and dump schemes. These investors, known as “whales”, create a hype around a new cryptocurrency to lure novices to buy coins and drive their price up. When this happens, the whales sell their shares, but the tricked investors lose their money.
What Does the Future Hold for Cryptocurrency?We’ve seen how cryptocurrencies are used today, now let’s see what the future has in store for these assets.
Central Bank Digital CoinsThe interest in both stablecoins and central bank digital coins (CBDCs) is on the rise across the world. For example, the Bank of China is currently testing its CBDC pilot program in some major Chinese cities. The Bank of England, the Bank of Sweden, and the Bank of France are all showing interest in CBDCs as well. Experts predict that this shows their readiness to recognize the potential of cryptocurrency and blockchain technology. They see it as a step towards solving the problem with financial inclusion in many under-developed and developing countries.
Bitcoin’s All-Time HighAt the start of 2020, a lot of experts predicted that Bitcoin’s price would experience a major surge after its halvening. A halvening takes place every four years and marks the date when the Bitcoin mining reward gets cut in half. The last Bitcoin halvening was in May 2020. Since then, Bitcoin’s price has more than doubled! In an interview for Forbes, Bloomberg analyst Mike McGlone predicts that Bitcoin can reach $20,000 or even more by the end of the year, hitting a new price record. This might cause a chain-reaction leading to other cryptocurrencies gaining in value.
Ethereum and the Rise of DeFiNext to Bitcoin, Ethereum is the second most popular cryptocurrency on the market, both in terms of its value and market capitalization. When talking about utility, we mentioned that Ethereum is used to fuel smart contracts and decentralized applications. Apart from them, developers can use the Ethereum network to build new cryptos too. In order to improve the performance of the network and increase its scalability, Ethereum is planning to launch the Ethereum 2.0 blockchain. Among other improvements, this blockchain will use a different consensus mechanism called Proof of Stake that requires less computing power to mine new coins. The PoS will make the network more scalable, secure, and decentralized. Although we can only speculate on the future of cryptocurrency, we can’t neglect the fact that the majority of these predictions are highly promising. One can never be too careful when dealing with a volatile market, but we’re confident that if you do your research and choose a reliable cryptocurrency, there’s no room for doubt. We encourage you to invest in cryptocurrency and speak to a Coin IRA Crypto Specialist about the benefits of opening a Cryptocurrency IRA account. That way, you’ll be both saving for your future and protecting your assets from inflation and devaluation. It's easier than you might think!
What’s Cryptocurrency?Cryptocurrency is a digital or virtual currency created and secured with cryptography. It’s mined on a peer-to-peer network using a cryptographic proof of work consensus mechanism that involves a complex algorithm called a hash function. The cryptocurrency transactions are recorded and stored on the blockchain, an impenetrable and irreversible digital ledger. Organized in this way, the electronic payment system isn’t regulated by any central authority and isn’t tied to any bank or government institution. This makes crypto transactions faster, cheaper, more private, and more secure.
Why Do People Use Cryptocurrency?Let’s take a look at some of the main reasons people are attracted to cryptocurrencies:
- Cryptocurrency transactions are faster.
- Cryptocurrency transactions are cheaper.
- More privacy and security.
- There’s no risk of inflation.