Cryptocurrency

More and more, cryptocurrencies are becoming a medium of exchange. But they’re not your average dollar.

Cryptocurrency—or digital currencies that are based on blockchain technology—is a thing of the present, and the future. With Bitcoin prices soaring and more cryptocurrencies coming online, this new, digital financial instrument is drumming up more interest than ever. 

Investors these days are wondering if it’s too late to invest in Bitcoin. And, if so, what are the other options available to investors who want to buy cryptocurrency?  

Big banks are also trying to figure out how to modernize and innovate for the purposes of meeting customer interest in cryptocurrency. This has some banks creating their own currency exchange networks. Silvergate Capital’s Silvergate Bank, for example, offers the Silvergate Exchange Network (SEN), a digital payments network that facilitates 24/7 transfers of cryptocurrency. 

Others, like J.P. Morgan Chase, are launching their own digital coins. Still others are providing services to manage the new currency. In early 2021, the Bank of New York Mellon, the nation’s oldest bank, announced that it would begin financing bitcoin and other digital currencies. It is the first traditional bank to offer services for digital assets. 

Since they were first introduced, cryptocurrencies have developed into an alternative high-risk asset for affluent investors. As a financial innovation, they appeal to customers because they allow for real-time value movement, improving transaction speed and removing limitations on business hours.

Here’s what investors should know about the Bitcoin Cash and how is it different from Bitcoin.

What Is Cryptocurrency?

In order to describe Bitcoin Cash, it’s important to understand its predecessor, Bitcoin. 

Unlike paper bills (fiat), cryptocurrency is strictly digital. Instead of a centralized bank monitoring currency purchases and exchanges, cryptocurrency “uses encryption techniques to control the creation of monetary units and to verify the transfer of funds.” Each transaction is recorded on a global public ledger recorded via blockchain technology. 

Bitcoin was first described by an anonymous person(s) who went by the name Satoshi Nakamoto in 2008. Bitcoin was later released publicly in 2009. Although blockchain was first thought of as far back as 1991, it was really only first implemented as a currency model in 2009, the birth of Bitcoin. 

Bitcoin is fundamentally different from other commodities. These days, it is typically used as an investment and exchange platform. (While it can be used to complete certain types of online purchases, these tend to be more complicated than paying with dollars.)

Bitcoin also allows for anonymity, as no central entity verifies buyers and sellers. Rather, the blockchain allows the ledger to be peer-to-peer, with no one entity maintaining ownership or control over the ledger. 

A signature feature of Bitcoin transactions is that they have low fees and lots of flexibility. Think no more waiting two business days for a transaction to clear. 

And, in the case of Bitcoin, there is a fixed amount of 21 million available. That nulls the issue of inflation that other currencies are subject to. 

But, that fixed number, an increase in demand, and a flux in transaction fees is in part is what led to Bitcoin Cash…

In the years following Bitcoin’s launch, the cryptocurrency evolved from a fringe boutiquey interest to a more mainstream purchase and investment. As Bitcoin began to capture more and more interest from the general public, the blockchain technology that was pivotal to the use of the currency faced major challenges, resulting in increasing fees and less reliable transactions. 

Out of that problem, Bitcoin Cash was born. Created on August 1, 2017, Bitcoin Cash was designed to help solve these scalability issues. In the world of blockchain it is considered a “hard fork,” or basically a new coin. 

There are only 21 million units of Bitcoin Cash available in total, similar to Bitcoin. A major difference, however, is that Bitcoin Cash has larger blocks (between 8 MB and 32 MB), which allows space for more transactions per block. These larger blocks also make the system faster and more reliable. 

Why Invest in Cryptocurrency?

The cryptocurrency market has yet to mature, but when it does, you might be happy that you decided to stuff your digital wallet with Bitcoin Cash in the early days. 

Even now, to do so, you’ll have to dish out big bucks. As of March 16, 2021, 1 unit of Bitcoin Cash had the cash equivalency of about $523.

But, that’s much more affordable than the original Bitcoin. As of late February 2021, one Bitcoin was selling for $47,032.52. As of January 30, 2021, there were only 2,385,193 bitcoins remaining available for mining.

Bitcoin Cash, on the other hand, entered the market at $900 and has since reached an all-time high of $3,785.82. While the price of Bitcoin Cash in late February 2021 was about $515.93, predictions put Bitcoin Cash at higher than that, reaching $738.03 by December 2021. 

Bitcoin Cash is faster and cheaper, at about $0.20 per transaction. (Bitcoin transactions cost about $25 per transaction, but fees have reached as high as $60.)

While Bitcoin Cash isn’t valued nearly as high as Bitcoin, Bitcoin Cash is still one of the top ten cryptocurrencies in the world. 

The cryptocurrency world is still relatively new, but in many ways, Bitcoin has set the standard for these currencies. It is anticipated that in the long-term, Bitcoin Cash has the ability to take on some of Bitcoin’s market share, eventually becoming the most dominant cryptocurrency. 

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The information and data are as of the March 30, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. 

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.

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Globalization is driving the economies of the world toward greater and more profound integration. People across the globe are now connected through vast, complex supply chains that span oceans and continents. 

From the comfort of your home in the U.S., you can log on to Etsy and order a beautiful, handmade blanket from Turkey that will arrive at your door in a few weeks. You do not need to travel to Turkey to purchase the blanket, and the Turkish vendor is happy that their products are available to a global market. 

The growth of these kinds of international peer-to-peer transactions is hindered by the fact that most countries each have a distinct currency that is government-controlled and that generally cannot be spent elsewhere. The process of transferring money between people in different countries can be quite complex as the funds need to pass through intermediary banks along the way. This complexity takes time and adds a cost to the transfer in the form of fees. 

A little over a decade ago, an ingenious new digital currency known as Bitcoin was launched that sought to address these and other global currency problems.

An unknown individual (or group of individuals) going by the name Satoshi Nakamoto invented Bitcoin (and the underlying blockchain technology) and shared the idea in a groundbreaking 2008 paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System. The introduction of this paper states that: “Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.” 

Bitcoin relies on what Nakamoto refers to as “cryptographic proof” (hence, cryptocurrency) instead of trust. This proof comes in the form of Bitcoin’s blockchain ledger, which unlike the ledger of a traditional bank, is open to and shared amongst users in the Bitcoin network. 

As a complete reimagination of the traditional currency and banking system, the transformative potential of Bitcoin is enormous. A decentralized digital currency that is free from government control offers users an entirely new way to move and make money.

For those interested in the investment potential of this innovative new currency, there are a few important points to understand.

What Is Bitcoin?

Bitcoin is a decentralized digital currency. It is not backed a government or issued by a central bank, and its value relative to local currency moves with the forces of supply and demand.

As of early 2020, there are roughly 18 million Bitcoins in “circulation,” with another 3 million yet to be added. New Bitcoins enter circulation by a process known as “mining.” People using powerful computers (“miners”) compete with each other to solve complex mathematical problems in a race to verify a new set of Bitcoin transactions. The first miner to do this correctly is rewarded with a certain number of Bitcoins.

Mining is a costly, energy-intensive endeavor, but it is not the only way to acquire Bitcoins – most people simply buy them. The process is relatively straightforward. Start by downloading a digital wallet, which is a kind of program that stores your Bitcoins and payment information. Next, simply go to the Bitcoin website (or an exchange where Bitcoin are traded), link your digital wallet, and select how much Bitcoin you would like to purchase. Once your payment goes through and after the transaction is verified by miners, you will be the proud owner of some quantity of shiny new Bitcoin.

As a decentralized alternative to the traditional banking system, Bitcoin can be bought and sold anywhere in the world where there is an internet connection. 

This is an important point because traditional banking does not adequately function in many places across the world. Take Venezuela, for instance, where hyperinflation over the past few years has led to a rampant devaluation of the nation’s currency, causing food to become extremely expensive and widespread hunger to run rampant. Venezuela’s leaders staunchly refused humanitarian aid from outside countries and slapped heavy fines on incoming money transfers. 

Desperate citizens turned instead to Bitcoin for help. Bypassing the incompetent Venezuelan government entirely, people from around the world sent Bitcoins directly to Venezuelan families in need.

Why Invest in Bitcoin?

As an investment, Bitcoin is undeniably in the high-risk, high reward category. Bitcoin prices have fluctuated wildly over the past several years. A single Bitcoin cost about $1,000 at the beginning of 2017, and by December 17, 2017, Bitcoin hit a peak price of about $20,000. You may recall that there was something of a Bitcoin “frenzy” during this price runup. Alas, the party was not to last, and prices fell sharply throughout 2018 before rebounding moderately in 2019 to a respectable $7,200 by New Years Day 2020.

Volatility aside, it is hard to deny Bitcoin’s outstanding performance when looking at the entire price history. According to data compiled by Bloomberg, Bitcoin posted gains of more than 9,000,000% since July 2010. As a point of comparison, the S&P 500 and Dow Jones each roughly tripled during the same period. 

Past performance is, of course, no guarantee of future results, and radical changes are underway in the cryptocurrency market that will create heavier competition for Bitcoin.

Facebook is planning to launch a digital currency called Libra, and countries such as China, Russia, and Iran are looking to create their own forms of cryptocurrency to circumvent U.S. sanctions. 

Bitcoin is the original cryptocurrency and has been around long enough to work through many of the kinks that have arisen. Interest in Bitcoin is likely to remain high for the foreseeable future, and it will continue to be a potentially highly-lucrative, if risky, investment option for adventurous investors. 

How to Invest in Bitcoin

There’s no arguing the investment potential of Bitcoin and its related technologies. But the fact remains, with that high upside comes the risk of big downsides as well, and Bitcoin prices have been on something of a roller coaster over the last two years. 

However, investing in a mutual fund or ETF that offers exposure to the Bitcoin market and its underlying technologies can be a way to temper some of this volatility. Although there is still no pure cryptocurrency ETF available, a search on Magnifi suggests that there are a number of funds available today for those investors interested in investing in the technology without buying Bitcoin directly.

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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.

The information and data are as of the January 17, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. 

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.