With the New Year fast approaching, you might be considering diversifying your portfolio with some new assets. And, in turn, those new assets might make their way into your estate plan for your beneficiaries one day. One new asset that has grown more and more popular over the past decade is cryptocurrency. This article will serve as a basic “101” guide to crypto, its advantages and disadvantages, and how it fits in to your estate plan.
What Is Cryptocurrency?
Cryptocurrency is a type of digital currency, often used as an alternative form of payment. Crypto is created through encryption algorithms, which means that it is both a currency and a virtual accounting system. Popular cryptocurrencies include Bitcoin, Litecoin, Dogecoin, Ethereum, Tether, Binance Coin, and more. Crypto is usually separated into three categories, much like regular currencies: majors, minors, and exotics.
Cryptocurrency represents a new monetary paradigm, promising to streamline financial architecture and, in turn, make it faster and cheaper to handle money and pay for things. Crypto’s technology means that you can exchange value and money without involving intermediary institutions like banks and governments.
The State of Crypto
The thing about cryptocurrency, which some view as a negative and others as a positive, is that it is very volatile. Currently, as of December of 2022, crypto is in a bit of a flux. It is a risky investment, and a major reason for this riskiness has to do with the collapse of crypto broker FTX, which incurred a $32 billion meltdown in November of 2022. This has shaken the crypto industry, though, quite possibly, this digital currency will bounce back over time.
How To Invest In Cryptocurrency
Everyone’s financial situation is different, but there are still similar overarching steps to investing in cryptocurrency. Here is an overview of how to invest in crypto in 2022:
- Choose Your Currency. You might choose a major currency, such as Bitcoin or Ethereum, or you may want a minor currency or exotic. According to Go Banking Rates, a financial website, Bitcoin is the best currency in which to invest if you are a crypto newbie. It has been around for a long time, and it has a price and market cap that are higher than a lot of other coins.
- Select An Exchange. The easiest way to buy and sell crypto is through an exchange. Popular exchanges include Binance, eToro, TradeStation, Webull, Robinhood, and Gemini. Do your own research to find the exchange that works best for you.
- Decide How Much You Want To Invest. Lastly, you’ll want to decide how much you want to invest. Start conservatively, especially if you are new, and consider adding this asset to an already diverse portfolio. Once you’ve made your financial decision, you can invest and become part of the crypto industry (as a buyer). Monitor your investment over time to decide whether you want to sell or hold.
Advantages & Disadvantages Of Investing In Crypto
Crypto has its pros and cons, and there are reasons to invest in and reasons to shy away from this digital currency. Common advantages of crypto include:
- Crypto is protected from inflation, due to its centralization.
- Crypto is self-managed and self-governed.
- Currency exchanges are easy.
- Crypto is private.
- It is cost-effective, in terms of transaction.
- Crypto is a quick way to transfer funds.
- Some exchanges have incurred cybersecurity issues.
- The price is volatile.
- There is a lack of inherent value.
- Cryptocurrency has a scalability issue.
- Crypto has not proven a safe long-term investment yet.
Your Estate Plan & Crypto
So, how does crypto tie into your estate plan? You can leave crypto as an asset, much like anything else, but you must include the keys and other ways to access it. The field of crypto in estate planning is still developing, and the digital currency has presented unique challenges to estate planning attorneys as a result.
While this guide is not the be-all-end-all to crypto information, hopefully, it has gotten you on the path to learning more about this fascinating digital currency and what it can do for you. Visit our website to learn more.