Five things to know before investing in Bitcoins and cryptocurrencies
The unregulated world of bitcoin and other cryptocurrencies offers the potential for big profits, but it also comes with its own set of uncertainties. Before investing, be aware that it can be complex to buy cryptocurrency. This requires the creation of a digital wallet, which many financial institutions do not allow (don’t worry, KOHO does not). You will also have to pay foreign currency transaction fees to buy cryptocurrency. Cryptocurrency is not regulated or insured and its value fluctuates a lot. Invest only if you are prepared to take some financial risk.
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Cryptocurrency is all the rage these days, but is it really worth it? Many Canadians start investing in cryptocurrencies like Bitcoin because they seem to offer unlimited opportunities to make a big profit without having to put in too much effort. However, cryptocurrency has a reputation for being unpredictable because it is unregulated. It is therefore normal that you wonder if it is right for you. So here are five things to know before investing in cryptocurrency as well as important information on how your KOHO account can help you get the most out of your foray into the world of digital currency.
1. Cryptocurrency can be hard to buy Cryptocurrency is a decentralized digital currency.
This means that it is neither produced nor controlled by any central government or banking sector. So you can’t walk to the nearest ATM, insert your bank card and get physical bitcoins to buy a coffee like you would with good old Canadian dollars. To buy cryptocurrency, you need to create an online digital wallet. This wallet is basically an online platform that lets you store bitcoins (or other digital currencies) so you can buy and sell them using dollars or any other physical currency. To buy, sell and trade cryptocurrency, you first need to get a digital wallet and then go to a cryptocurrency exchange.
2. Purchasing cryptocurrency may incur foreign currency transaction fees
Since cryptocurrency is not associated with any government or financial institution, you can buy it on exchanges around the world. This flexibility is a great advantage, as it allows you to trade on any exchange, without having to limit yourself to Canada.
Unfortunately, if you choose to use cryptocurrency exchanges based outside of Canada, you will almost certainly have to pay foreign currency transaction fees. The standard 2-3% fee that most credit card companies charge may seem low, but that means if you buy $1,000 worth of bitcoin, you’ll have to pay a $30 fee.
3. Cryptocurrency is not regulated or insured
For many new cryptocurrency investors, it can be worrying to know that digital currencies like Bitcoin are not associated with a government or central bank. In fact, unlike savings accounts and other bank accounts in Canada, digital wallets are not insured by the Canada Deposit Insurance Corporation.
If you invest money in cryptocurrency, you do so at your own risk.
Does this mean you should avoid cryptocurrency at all costs?
Not necessarily, especially if you’re willing to take some financial risk. Be careful though and avoid putting all your eggs in one basket.
A great way to do this is to diversify your assets by also investing your hard-earned money in a tax-free savings account or registered retirement savings plan.
4. Cryptocurrency must be converted into monetary currency
Since cryptocurrency is held in digital wallets, you can’t just buy bitcoins and then go spend them at the mall.
You need to convert your digital currency to a form accepted by the majority of businesses and stores, as only a few places accept cryptocurrency.
Most exchanges where you can buy cryptocurrencies also allow you to convert them to Canadian dollars, US dollars or other common currencies. You can deposit this money directly into a PayPal or bank account, but adding it to your KOHO Prepaid Mastercard is also a great option.
When you load your KOHO Card with cryptocurrency, you can use it to make regular purchases, just like you would with your paycheck.
KOHO registration link
5. The value of cryptocurrency fluctuates (a lot)
When Bitcoin entered our collective vocabulary in early 2009, it wasn’t worth much. In fact, during the first years of existence of this digital currency, each bitcoin was worth around $160 after the initial spike in value.
According to CoinDesk, Bitcoin has seen tremendous growth since its launch. It hit an all-time high worth over $25,000 at the end of 2017, before dropping to just $4,400 a year later.
This means that cryptocurrency is a high-risk investment, especially when compared to much more stable and reliable assets held in Canadian dollars or any other major currency.
The fact that the value of cryptocurrency fluctuates so much also indicates that it is not necessarily the ideal currency in which to invest life savings. If you want to get into Bitcoin without risking your financial assets too much, set aside a small amount of money that you are willing to part with, such as your coffee money for the week.
Cryptocurrency made simple
Cryptocurrency is an exciting technology that has many potential advantages over traditional currencies. However, this is an investment that involves risks and uncertainties, so carefully assess your options and your risk tolerance before taking the plunge!