Chris' Corner #2 - What Even is Crypto?
All of you have probably heard about cryptocurrency by now, and it probably has left you with more questions than answers. If you are like me, you have probably heard someone rambling about the "blockchain" or "decentralized currency" without giving you any actual information on what it all means. These crypto experts give me the same vibe as a world leader simply saying, "It's the economy," and not going deeper than that when trying to explain some adverse event. Like in the economic crisis of 2008, I may have only been 16, but the number of times I heard "it's the economy" without anything concrete behind it is staggering. To be totally honest with you, it wasn't until the movie The Big Short that the 2008 crisis made sense to me. I mean, B-school has developed that understanding even further. Still, we cannot simply rely on Adam McKay - the director of The Big Short - to teach us about every economic development! So hopefully, after reading this, you will understand cryptocurrency a little better and not have to wait for Adam McKay to direct a movie about it.
There are a few questions that I aim to answer here:
What even is cryptocurrency?
Is crypto a good investment?
How do you trade crypto?
Simply put, cryptocurrency is precisely that, a currency. Like spending a Euro in Germany or the US dollar in America, or a Canadian dollar in Canada, you can exchange crypto for goods and services. Every day more and more organizations accept crypto as a form of payment. I am not promoting these retailers, but I wanted to show you how spending cryptocurrency may look in Canada.
Here you can see Newegg, an electronics store offering the ability to make a purchase using cryptocurrency. Perhaps one of the more novel places to spend cryptocurrency is Silver Gold Bull Canada. Money may not follow the gold standard, but Silver Gold Bull Canada allows you to spend cryptocurrency on different precious metals!
Now is crypto a good investment? Well, in short - not really. Crypto is much more of a speculative asset. What I mean by this is don't put important money into crypto; instead, use your "fun money" for it. Personally, I use my cashback rewards to invest in crypto. It is always lovely when $100 in groceries translates to a few extra bucks in my crypto account. Cryptocurrency as an investment is closer to a lottery ticket than an actual investment. Below we look at two individuals that invested $1000 DogeCoin at different times and held for six months, the lucky duck and the unlucky pelican.
DOGECOIN - Lucky duck
DogeCoin - unlucky pelican
Sometimes it is easy to convince yourself trends will continue forever, sadly that is not the case. Shiba Inu is a cryptocurrency that shot up 45,000,000% last year. You would think this would mean everyone involved is rolling in the dough! According to The Motley Fool, only 39% of Shiba Inu holders are making money, and 57% are actually losing money! Even Bitcoin - one of the more stable cryptocurrencies - Money.com showed that on February 8th about 55% of Bitcoin investors were losing money on the investment.
While it is important to understand that cryptocurrency is more of a lottery than an investment, that does not mean you should avoid it. If you usually spend $20 a month on the Lotto 6/49 or something maybe switch that spending to become an auto-deposit into a crypto account. The simplest way to invest in crypto is through an exchange. We are not sponsored by any of these exchanges, I am just sharing what I personally use and what I have heard from others in conversation or on Reddit. I personally use Wealthsimple, I really like Wealthsimple for its ease of use and ability to set up a direct deposit from my bank account every payday. I also use Wealthsimple cash which allows me to automatically transfer my cash rewards directly into my crypto account. A few other places where you can trade cryptocurrencies include Shakepay, Newton, and Crypto. What I like most about Shakepay and Newton is that they are Canadian companies! Everybody has their own features they like so have a look at a number of different exchanges and find the one that works for you.
While cryptocurrencies may not be a good investment, they can be a fun financial instrument similar to a lottery. I would not suggest anyone put any important money into cryptocurrency. Cryptocurrency is a place you put the money you saved drinking coffee at home or the money you saved not participating in a 6/49 type lottery or a place to put cashback rewards. The news may sometimes make it seem like everybody is out there making money hand over fist and that is simply not true. Just because Gary Dahl made a few million selling a Pet Rock, doesn’t mean everybody is going to make a million dollars selling a rock.
