The most well-known cryptocurrency, Bitcoin, was invented in 2009, although there is still some conjecture about who the actual inventor is. Cryptocurrency is a form of digital currency – no paper, no coins. It exists in a digital ledger with very strong ‘cryptography’ to ensure its security. Some of the more well-known forms of cryptocurrencies are Bitcoin, Ethereum, Litecoin and zcash. Because scarcity drives demand, the various iterations of cryptocurrency are usually capped at a maximum number of units able to be sold (e.g. 21 million for Bitcoin) or a limited number of units released per year (as is the case with Ethereum).
In June this year El Salvador became the first country to accept Bitcoin as legal tender. On the other hand in September China, the world’s largest market for cryptocurrency, declared all cryptocurrency transactions illegal.
How much are they worth?
The prices of crypto currencies vary wildly and they are extremely volatile. For example one unit of Bitcoin is currently priced (at time of writing) as US$63,090. It peaked at US$65,000 in April this year but then sank to US$32,979 in May. It is the price volatility of cryptocurrency which is one of the most concerning features.
A form of cryptocurrency was released recently as a ‘tie-in’ with the popular television series, Squid Game. It quickly jumped more than 310,000% in value (yes, really) before losing all its value just days later, when Twitter flagged the cryptocurrency’s account due to what was called ‘suspicious activity’. The website and social media accounts disappeared soon after.
Many cryptocurrencies are not that easy to purchase, either, as you will need a secure private internet connection. You will also need to create a ‘hot’ wallet or ‘cold’ wallet (with higher security) for trading.
For this reason, some investors are preferring to purchase this new form of currency through a traditional broker or an Exchange Traded Fund (ETF). Two cryptocurrency brokers which trade in Australia are Coinspot and Binance.
It is very important to understand that investors are not insured for exchange failures or theft. Whilst Bitcoin and other cryptocurrencies were declared legal in 2017 by the Reserve Bank, the Australian Securities and Investments Commission (ASIC) does not regulate all cryptocurrencies and related products and services. So if your investment fails, you may lose the lot and be totally unprotected by the financial regulator.
In August this year, ASIC released a warning about unlicensed entities who deal in cryptocurrency. It reminded investors that they need to check if the entity from which they are purchasing this investment has either an Australian Financial Services (AFS) licence or an Australian Market Licence (AML).
Some people have made a lot of money from investing in cryptocurrency and as a result some of us might suffer from ‘Fear of Missing Out’ (FOMO) when we hear stories of overnight fortunes being made. But this is when FONK (‘Fear of Not Knowing’) is even more useful. The only way to judge whether a financial product or service is appropriate for you is to fully understand what it is, how it works, whether it is legal, supported by the regulator and a strong fit with your existing financial strategy. The financial system regulator ASIC and Moneysmart both have useful information on Cryptocurrencies and things to watch out for.
For most retirees just getting their Centrelink entitlements sorted out and dealing with their super and any debt will be the most important part of their retirement strategy. Our advisers can help with this. You can find out more about our advice services here.
This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read any relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions
I am undertaking professional training in mastering successful strategies in CryptoCurrency for long-term investment and day-to-trading strategies.
Totally agree it can be a risky investment and it is volatile. The one thing that is sure is that the Crypto market is not going away. It is now often being referred to as Internet Mk2. Like the internet changed the world we live in so will people having control and ownership of their own crypto without the banks or governments having ultimate power on what you can and can’t do with it.
Yes it is hard to grasp for most older people but so was setting up your first gmail account but you learnt and now you can do it with ease everyday. 4 years ago I had a 16 year old son of a friend introduce me to it and taught me how to set up an account. My advice would be if you want to invest in Crypto get a friend who is doing it to help you, do not trust anyone on the internet who says they will do it for you.
I remember saying back in 2009 “Why do we need another method of money – we have banks and a financial system – we don’t need another system” Wish I had bought just $100 of Bitcoin back then, now it is worth $48 million.
What will $100 of Bitcoin be worth in 2034?