What is cryptocurrency?
Cryptocurrency (crypto) is a digital asset encrypted to verify transactions on a blockchain. Cryptocurrency is the flavour of the month due to a demand in investors seeking higher returns in a low-interest environment. Encrypted digital currency is a relatively new asset class in comparison to shares or property. The decentralised digital currency offers investors an opportunity to invest in a new up-and-coming asset class within a highly volatile market.
This decentralised exchange operates through distributed ledger technology such as blockchain to provide a financial transaction database. The database enables investors to acquire ownership of coins stored on the blockchain computer database. The encrypted data regulates the market by controlling the creation of additional digital coins. You can even start to trade cryptocurrency coins with other coins and pay your bill in crypto using the Cointree crypto exchange.
Investing in Cryptocurrency with Coinbase
A popular cryptocurrency platform is Coinbase. This allows users to easily buy and sell cryptocurrency directly from their computer or smartphone. Coinbase allows you to start earning cryptocurrency in one of two different ways. Firstly, your first investment of over $100 can earn you a bonus of $10 just for signing up and investing with Coinbase. Secondly, you can use the “Earn and Learn” feature on the side menu of the Coinbase Dashboard page. This will allow you to watch short module videos between 1- 3 minutes and you can earn up to $3 per video not a bad way to start earning some free cryptocurrency. To get started by creating an account with CoinBase sign up via the CoinBase signup page.
For some investors such as those in the US, options to invest in cryptocurrency may be restricted. This is because platforms such as Binance do not allow cryptocurrency investing in certain states. For an alternative platform that can also earn you a $25 bonus on sign up try crypto.com. For disclosure, as this is a referral link, I would receive a small commission on the referral.
Should you invest in cryptocurrency?
In this blog, I will answer three questions that may be on an investors mind when deciding whether to invest in cryptocurrency.
- What draw investors into such a volatile market space, is the crypto market returns worth the risk?
- Should investors consider this asset class as a long-term passive investment option?
- What are the tax implications of investing in crypto?
Cryptocurrency Digital Wallets
Cryptocurrency can be invested through a digital wallet such as Coinspot. Some wallets offer limited cryptocurrency options. Swyftx offers a different trading experience as it can draw upon other brokers such as Binance to solve liquidity problems. The spreads are therefore kept much lower than if the trades were executed only on their platform. The ability to accept payments from many sources is a large bonus with payment methods including bank transfers, Osko, POLI payments, pay ID, and even credit cards. The trading fees for Swyftx are 0.6% which is higher when compared to Coinspot 0.1% with trading fees but overall low transaction fees. Other providers such as Binance are also prominent in this space. For disclosure, if you sign up via one of the affiliate links provided I receive a small referral commission.
Does Crypto live up to the hype?
There is a lot of speculative information that gets posted on the internet particularly in the Cryptocurrency space. Similar to the stock market, the price and volatility can be strongly impacted by external market forces. Billionaire Elon Musk recently acquired 1.5 billion in Bitcoin for his company Tesla. This immediately caused a surge in the demand for that cryptocurrency sending the price almost 20% higher. This raises the question, does cryptocurrency such as Bitcoin live up to the hype, or is it more of a gamble and seesaw investment? I feel I am writing about another bubble as I watch the price of Dogecoin rise each day. Like Gamestop, Corp time will tell if this investment is a long-term investment or just another speculative buy with investors wanting to pump and dump the stock.
To better under cryptocurrency I have summarised the pros and cons for investing in Bitcoin and altcoins compared to other investments in the share market:
Pro’s
- Potential for big upside gains where crypto such as Bitcoin has a finite supply
- Bitcoin can reliably control unit production
- Low transaction fees for online payments
- Accessible via a mobile app
- Non-political mechanism to transfer value
Con’s
- High risk due to its volatility and price fluctuations
- Speculative trading based on investors opinion
- Some crypto wallets cannot loan funds to customers and earn interest
Some of the points against crypto could also be made about the greater share market. The reason being there are many day traders that make a living predicting if the price will rise or fall. It could be argued that similar to shares investing in crypto there are always risks involved. For a different perspective on the new electronic peer-to-peer cash system, The Bitcoin Standard takes a look back at the rise of Bitcoin.
Capital Gains Tax Implications
A big question on the lips of investors as soon as they see crypto is the tax implications, namely what are the Capital Gains Tax implications on the sale of your crypto investment. The Australian Taxation office states that” A capital gains tax (CGT) event occurs when you dispose of your Cryptocurrency”.
There are further scenarios to consider when you disposal cryptocurrency as this includes:
- Selling or gifting of crypto
- Trading cryptocurrency from to another
- Converting fiat currency (i.e Australian dollars)
- Use crypto to obtain goods or services.
For more information on specific tax implications it’s best you speak with your accountant to provide you with the right advice. Alternatively, do your own research and get comfortable with the tax legislation on cryptocurrency. The decision on which investment you choose should be done after careful market research. Doing your due diligence will ultimately lead you to the best investment decision for cryptocurrency or the next big investment opportunity that you discover.
