Cryptocurrency is in the headlines again as El Salvador recently became the first country to acknowledge bitcoin as legal tender. The adoption had its problems, however, with technical glitches, angry protesters, and a dip in value. For physician investors new to cryptocurrency, the topic may seem a bit strange and even far-fetched. How could this virtual money be real?
That’s the reaction of many first-time cryptocurrency enthusiasts. As with any potential investment stream, information and understanding are vital before investing. Let’s start at the beginning. What the heck is it? Cryptocurrency is a digital currency that obtains its security through a technology known as cryptography, which makes counterfeiting it nearly impossible. Many cryptocurrencies use decentralized networks based on blockchain technology. So basically, blockchain is the technology and cryptocurrencies are a way of using that technology.
Some of the investors who favor cryptocurrencies do so because they believe it to be immune to government interference or manipulation. Rob Michel, Chief Investment Officer at Glen Eagle Advisors, LLC shares that, ironically, this motivating factor may not last forever. “Some Investors are attracted to cryptocurrency because of its decentralized structure,” he says. “However, as it gains in popularity, governments are starting to step in and impose regulation. In the short-term, this may put a damper on value, but in the long-term, it may strengthen cryptocurrency as a more viable investment asset.”
Talk of cryptocurrency will definitely draw a crowd at your next dinner party, as it has no shortage of excitement associated with it, but the wise investor knows that excitement and volatility are often synonymous in the investing world. For example, like gold, cryptocurrency’s value is based on what people think it is worth. Your hope is that someone will want to pay more for your cryptocurrency than what you paid for it. It is very emotionally driven.
So, stay informed using traditional sources like the Wall Street Journal and Bloomberg, and seek out a financial advisor with some experience in cryptocurrency. As long as you are prepared for a risky and volatile investment experience, cryptocurrency may be an exciting investment vehicle for you to dip your toe in.
