Bitcoin: What Every Baby Boomer Needs to Know
2020 is the year Bitcoin caught fire with Baby Boomers. 20% of those aged 55+ now own the popular cryptocurrency. That’s up from 7% in 2019, according to the Financial Conduct Authority (FCA).
My personal experience with Bitcoin started at the end of 2017 when media coverage of Bitcoin and it’s skyrocket from $2500 to over $20,000 practically overnight was impossible to miss. A lot of people were getting rich and I was afraid I was missing out on an unusual opportunity to make some money.
I’m not someone who loves risk and Bitcoin felt risky me. So, I waited for the price to drop a bit and in January 2020, I bought a little — only as much as I’d be comfortable losing. Since then, the value of Bitcoin has moved strongly in both directions — mostly down. Thankfully, my investment is worth close to what I paid for it (at least as of today at 1:45 pm!)
I have no idea where the value of Bitcoin is going but personally, I’m glad I have some.
In this article we will explain…
- What Bitcoin is
- The Potential Risks and Rewards For Investors
- How to Invest in Bitcoin
- Bitcoin Scams You Should be Aware of
So… What is Bitcoin?
Bitcoin is a cryptocurrency (sometimes referred to as digital currency) launched in 2009 by a person (or group of people) who go by the pseudonym, Satoshi Nakamoto. Several people have claimed to be Satoshi over the past decade or so, but no one knows for sure who created it.
Like other digital currencies, Bitcoin is a decentralized medium of exchange, which means it isn’t controlled or regulated by a central bank in any way.
In some ways, Bitcoin’s decentralized nature can be a benefit for users of the currency, as it means complete anonymity for everyone involved, and its value isn’t prone to manipulation by a central bank (at least not in the traditional sense).
However, there are also some drawbacks, and this cryptocurrency has gained a reputation for often being used in scams or other criminal activity due to the level of anonymity it offers.
But, Bitcoin is predominantly used for legitimate purposes by individuals, businesses, and even some governments — and it’s likely we will see it continue to be adopted more widely. However, strict regulation is a potential obstacle to its growth in some countries.
Is it the Same Thing as Blockchain?
While Bitcoin and blockchain are often mentioned together, they are fundamentally different. Bitcoin is a digital currency, while blockchain is essentially a type of technology used for storing data in a secured and organized fashion in “blocks.”
Many other digital currencies — use blockchain technology to store their data and track who owns how many Bitcoins via a public and secure digital ledger.
Keep in mind that blockchain technology has countless potential applications outside the cryptocurrency sphere. It is used as the basis of many different types of “smart contracts” in industries such as energy, health care, and fintech.
Should I Invest in Bitcoin?
A few people have made fortunes by investing in Bitcoin — and while most made their millions by investing in it during its infancy when it was trading at just a few cents or dollars, many others have made plenty of cash by trading Bitcoin in 2020.
So, despite what some people may tell you, it isn’t too late to get in on the action and potentially make impressive, consistent returns from Bitcoin.
However, Bitcoin is a very volatile and risky instrument to trade. Baby Boomers definitely shouldn’t invest the entirety or the bulk of their savings in Bitcoin (or any cryptocurrency for that matter!)
Instead, consider investing in Bitcoin to help push up your investment portfolio’s total returns while also helping you achieve some level of diversification from the traditional financial markets, which is very important for all ages and all bankrolls.
Warning: Due to Bitcoin’s highly volatile nature, you should never invest more than you can afford to lose. You should always do your due diligence before depositing money into a trading account or a crypto wallet (more on this later on.)
The Pros of Investing in Bitcoin
As mentioned, there are several benefits of investing in Bitcoin. Some of these pros are also true of all other cryptocurrencies, while some are exclusive to Bitcoin in particular.
Bitcoin Has Good Liquidity
Bitcoin used to be a very illiquid asset — and although it still can’t come close to major currencies such as the US Dollar (USD) and Euro (EUR) in terms of daily traded volume, it is quite a liquid market to trade nowadays.
Meaning, at any given moment, there are plenty of buy orders and sell orders in the market, which in turn means it is usually pretty easier for traders to buy or sell Bitcoin without having to pay a premium price (or sell considerably below market value.)
Bitcoin Has The Potential to Bring Unusual Returns For Active Traders
All cryptocurrencies offer fantastic potential returns because they are usually highly volatile, which means their prices tend to shoot up and down on a daily or weekly basis, presenting investors and traders with lots of lucrative opportunities to make money from these sharp price movements.
Successful Bitcoin traders have generated returns over the past decade or so, which are simply not possible in most cases when trading other assets, as they are nowhere near as volatile as Bitcoin.
This volatility is excellent if you’re looking to trade Bitcoin — that is, regularly buy and sell this cryptocurrency in the market — instead of simply buying and holding it (the latter would be a case of a simple investment).
Bitcoin is a Good Diversifying Investment
Most digital currencies are generally only loosely correlated to the value of other financial assets, such as blue-chip stocks, traditional currencies, and bonds. If you have an existing investment portfolio — either directly or via a pension fund of some sort, or a 401(K) — adding a crypto investment can be a good way to hedge your bets a bit more and diversify your portfolio.
Diversification is something that fund managers and individual investors of all ages should always seek to achieve. It helps reduce the risk of a single economic or political shock hurting all of your investments equally. So, it is a great way to make your investment portfolio more robust and help you even out your financial returns over time.
Keep in mind that certain cryptocurrencies correlate pretty strongly with some assets in the more traditional financial markets. So you should always think about your broader investment portfolio when deciding in which cryptocurrency to invest.
The Cons of Investing in Bitcoin
As with all things, investing in Bitcoin is not without its drawbacks and challenges…
High Volatility and Risk
While Bitcoin’s high volatility means you can make huge returns on successful trades, it equally means that you are at risk of losing a lot of money if you are on the wrong end of the price movement.
This volatility makes trading Bitcoin and most other digital currencies a very risky endeavor. Boomers and other investors must be aware of the high level of risk involved before they begin.
Ultimately, the most important thing to remember is you should only ever trade with money that you can afford to lose and still make ends meet. You should never borrow money to trade cryptocurrencies (or any other type of asset.)
Some governments are opposed to cryptocurrencies. They consider them a threat to the power of central banks’ monetary policy, and the fact criminals can use them makes it harder for law enforcement to track them down.
Due to these concerns, it is possible that we could see more governments clamp down on Bitcoin in the future. This is likely to hurt its value quite significantly and consequently cause a headache for people who have invested in Bitcoin.
Risk of Hacking and Theft
While the digital wallets in which Bitcoins are held are very secure, there have been cases of hackers penetrating these wallets and emptying their contents. Because government-backed financial compensation plans don’t protect cryptocurrencies, it is impossible to apply for compensation and get any of your money back in most cases.
However, crypto wallets are becoming more and more secure, and the odds of you being affected by such a cyber attack are pretty remote so long as you are careful and don’t give out your login credentials.
How Can I Trade Bitcoin?
You can trade Bitcoin by using a dedicated crypto trading platform or by using a more generalist online brokerage. The latter will allow you to trade a range of financial assets in addition to cryptocurrencies, such as stocks, bonds, and fiat currency.
Regardless of which type of platform you opt for, the signup process will be almost identical.
First, you will need to apply for an account by inputting some basic details, such as your name, email address, and phone number.
Then, you will need to verify your identity and provide a proof of address. There is some variation from broker to broker regarding which documents you can use to do this, so you should check with each before proceeding.
Lastly, you simply need to deposit some money into your trading account (the minimum accepted deposit is dependent on the broker, but it’s usually around $100).
Then, you’re all set to start trading, though it’s advisable to learn about technical analysis and possibly invest in a trading signals software which can help you make profitable trades.
If you want simply to invest in Bitcoin by buying it and holding it, you just need to open an account with a company that allows you to create a digital crypto wallet, such as Coinbase. The process will be very similar to the above, though you aren’t required to verify your identity and address in some cases.
What About Other Cryptocurrencies?
Bitcoin is the most popular digital currency at the moment, but there are plenty of others to choose from — some of which could prove to be even more lucrative than Bitcoin!
If you fancy trading or investing in other cryptocurrencies, you can use either a dedicated crypto trading platform or a more traditional online broker.
However, keep in mind that only dedicated crypto brokerages will allow you to access and trade some of the more obscure and less liquid cryptocurrencies.
Beware of Crypto Scams
Cryptocurrencies are a great innovation with several distinct advantages over fiat money and loads of unlocked potential. But, their anonymity and seemingly complex nature have led many scammers to use them to steal money from unsuspecting victims, especially people investing in the crypto world for the first time.
Such scams include crypto Ponzi schemes. Typically related to an Initial Coin Offering (ICO), in which scammers encourage people to invest and then pay out unsustainably high returns using new money rather than by actually generating returns from their “investment strategy.”
As with all Ponzi schemes, they eventually crash. Either when the scammers have made enough money and decide to escape, or when the money being taken out of the scheme by investors exceeds new money flowing into it.
Other crypto scams include deals that involve you merely sending money to someone’s crypto wallet with the promise of them sending more back. For example, you send over 1 Bitcoin in exchange for 2 Bitcoins. As you have probably guessed, the scammer takes your money and ends all correspondence with you once they have stolen your funds.
Crypto scams come in many forms, and the best way to protect yourself against unscrupulous scammers is always to carry out your due diligence and never invest in something which sounds too good to be true.
Some trading platforms have also been found to be scamming users in the past. The most effective way to protect yourself and your hard-earned savings against this is only ever to use a trusted trading platform or online brokerage which has been tested and vouched for by a third party.
This story was originally published at BoomerBuyerGuides.com.