Cryptocurrency Investing

 

Cryptocurrency Investing

There are a few things to know about investing in cryptocurrency.  Investing in Initial Coin Offerings are popular.  There are guidelines being laid for ICO investing.  You need to be a accredited investor to invest in an ICO.  You need to understand about types of investors for cryptocurrency.

What are three types of investors?

There are three types of investors: non accredited, sophisticated or accredited.  The average person is a non accredited investor and is not allowed to invest in certain investments.  The non accredited investor will invest in an individual or a family member. 

They are usually people that have an income that is average around $50,000 yearly and they saved up money over the years.  The SEC has guidelines forbidding these people outright from certain investments by Rule 506 (c).  The sophisticated investor can be allowed into certain investments not open to the public by Rule 506 (b). 

This is the only exception to the rule.  What makes someone a sophisticated investor?  The sophisticated investor has a superior knowledge concerning financial and business matters. 

The sophisticated investor may own a business or is a C.E.O.  The SEC will want questions answered on why you are qualified for a accredited investment.  What is an accredited investor? 

The accredited investor must make $200,000 a year for the last two years and a couple must make $300,000 for two years.  They can be accredited with a net worth of 1 million dollars excluding primary residence.  Once again the SEC will want evidence of qualification.  You need to understand investments to limit risk your risk.

Is investing risky?

The answer to this question is that the investor is risky.  An investment is risky, because the investor does not know about the investment.  Therefore, they lose money by not understanding how that investment works with all of its risk and safeguard measures to limit risk. 

You must know about the investment.  Never invest in anything that you do not understand.  You must consult licensed professionals.  You should never receive investment advice from anyone that is trying to sell you something. 

You can lose all of your money with an investment.  You should not invest any money that you cannot afford to lose.  You should not mortgage your home or use your rent to make money.  I limit my risk in real estate by knowing the market and about renovations.

Here is an example of knowing about an investment:

I invest in things that I know like real estate.  I have experience remodeling houses and know how to estimate cost to remodel.  I have made money on flipping five houses, because I understand real estate.  I understand the tax structures are different for real estate investing if you:

  • Buy, live and flip to live in method for two years there is no taxes in the sale
  • Buy and flip, then you are subject to capital gains
  • Rent out real estate, then you get subsides, depreciation, write offs and appreciation

The point is that you need to know about where you are putting your money.  You want to invest in cryptocurrency, then you need to know about money. 

What is fiat currency? 

Money is paper that costs about 12 cents to make a paper bill, but has value based on the confidence that we put in that paper bill.  Fiat currency is paper currency that has nothing backing it to hold its value, so it fluctuates in value.  Our Dollar is the reserve currency, because all of the countries in the World exchange their currencies to Dollars for oil. 

There is nominal value of a Dollar and purchasing power of it.  A Dollar is a Dollar, but that Dollar could buy 10 candy bars in 1970.  The same Dollar cannot buy one candy bar today.  It is still a Dollar in nominal value, but it lost it purchasing power over forty years. 

This is what inflation does to a fiat currency is rob it of it purchasing power.  The Dollar has 3 cents left of its purchasing power since it was taken off the gold standard.  What can you do to protect yourself from inflation and a falling fiat currency?  This is a store of value.  

What is store of value against inflation?

Silver and gold is a store of value.  There is silver in pre 1964 dimes.  You can take the silver value in one dime today and buy a candy bar with it.  Silver maintained its value, but that Dollar cannot get you one candy bar. 

Another thing is that people think silver and gold is an investment.  Silver and gold is a store of value that is insurance against inflation of a fiat currency.  The store of value is about accumulation long term and to buy more when the price goes down.  If you buy silver and gold to make money, then you do not understand the point of the store of value against hyperinflation. 

You should stay away from silver and gold, because you do not understand it.  One pro tip for silver and gold.  Always keep a ledger of how much that you pay for each coin to know which ones you can sell when the price is low and what you can sell when prices are expensive. 

This way you do not lose money, but once again silver and gold is insurance against inflation not an investment.  The way that it is insurance is that the commodity rises in value as the fiat currency loses its value.

The real estate, silver and gold comments are not to be taken for investment advice.  I am using them for information purposes only.  Consult a licensed professional that is not trying to sell you an investment before you invest and research yourself to understand the investment. 

Remember that you can lose all of your money.  Do not invest if you cannot handle losing money.  Three ways that people make money that can be used in cryptocurrency.

What are the three types of income?

There are three types of income:

Earned Income

Earned income is trading your time for an hourly wage.  This is the highest taxed income.  You work two of the five days each week to pay taxes.

Passive Income or Residual Income

Passive income is receiving cash flow for something that does not involve your real time presence to get money.  A book is an example of a one time work that continues to pay authors with each sale without their real time presence.  Residual income is similar to passive income.  This is taxed at capital gains rate usually or corporate tax.

Portfolio Income

This can be payment for dividends from a stock.  You pay capital gains on this income.  These are some example to understand money.

Most people do not understand money.  They do not know how to budget.  They do not understand that saving your money or compound interesting your money is not investing.  Long term compound interest does not outpace inflation contrary to what money gurus teach in their books that are on the television.

What do I mean? The average house is $200,000 right now.  The average person gets a tax deferred investment into the market up to $6,000 a year.  Over 40 years the market account receives $240,000 and the interest in best case will be 1 Million Dollars in 40 years. 

The same $200,000 dollar house will be worth 1 million dollars.  The money in your account grows in nominal value, but in purchasing power you can only buy the same house that your money can buy today.  Inflation stole your purchasing power over 40 years. 

The price of the house did not rise in value.  The purchasing power of your dollars lost value.  It takes more of them to buy that same house 40 years later. 

This is the point of gold being a hedge against inflation.  The amount of purchasing power lost in the dollar is the amount of value that gold rises in value over 40 years.  Once again, people do not understand money. 

Remember that when you do not know where to put your money that people that want to sell you an investment will tell you where to put your money.  They will receive a nice fee for it as well.  Did you know that you can set up an index fund without fees? 

Money market mangers will not tell you this, because they will not receive their one percent commission.  Their fee can be cost you as much as $500,000 a year over the 40 years of your account with maximum investment.  You have to pay that tax deferred money back when you turn 70.  This is the EBITNA Law.  Every 4 years there is a market crash, recession or correction.  Good luck savers.

Remember this is not to be taken as investment advice but is for informational purposes only.  Consult a professional that is not trying to sell you an investment.

How can you make money with cryptocurrency?

Leave a Reply

Your email address will not be published. Required fields are marked *