Should you be investing in cryptocurrencies?

Over the past number of years cryptocurrencies have surged into the limelight, being viewed by many as the wave of the future, a must-have for any investor.  They have continued to gain legitimacy with recent support from the upcoming American administration, and seem set to become even higher profile once Donald Trump becomes US President. But while there are plenty of cryptocurrency evangelists, detractors are widespread as well, with many others failing to see any intrinsic value in the asset class. As this whole sector is far from being my area of expertise, I interviewed Avrohom Meir Gluck, who provides education about bitcoin, alt coins and general risk management in the sector. His answers are for educational purposes only, and should not considered investment advice.

At Labinsky Financial, we’re here to discuss your investment strategies and help you make informed decisions. Beyond asset management, we provide investment consultations and access to alternative investment opportunities, ensuring a well-rounded approach to growing and protecting your wealth.

"Baruch succeeded in growing our investment under restricted liquidity requirements and was effective in advising us when we were ready to conclude our purchase in Givat Zeev Hachadasha. He is the consummate American professional helping to navigate the enigmatic Israeli business environment which is unlike anything we were familiar with."
Avrohom Meir Gluck
President, ERM31000, Training and Consulting

BL: What exactly is the difference and connection between blockchain and cryptocurrency?

AMG: Blockchain is the technology which most cryptocurrencies use. Each inventor “creates” a blockchain software algorithm suited to the cryptocurrency or application they wish to create.

The bitcoin blockchain was created in January 2009 and has proven to be the most adopted and durable for use as a fungible store of value and a medium of exchange, i.e., a currency.

BL: Why is Bitcoin the most popular cryptocurrency?  Are all the variations equally stable?

Bitcoin is the most popular cryptocurrency because over time it has developed the most secure blockchain and because algorithmically, it has a fixed maximum number of “coins” which can ever come into existence; 21,000,000 bitcoins each of which are divisible into 100,000,000 sats.

It is widely estimated that 3 to 6 million bitcoins have already been lost by their owners and to the world. These losses often occur due to forgotten private keys, lost hardware wallets, or other access issues. Given bitcoin’s current value, the lost amount translates to billions of dollars that are unlikely to be recovered.

None of the other cryptocurrencies are as stable as bitcoin. Only experienced traders should consider purchasing these alt coins for the purpose of day-trading speculation, while investors should stay far away from them. (Ethereum has other considerations which make it worthy for investment, but that’s beyond the scope of this article.)

BL: Cryptocurrency used to be associated with the dark web and the underworld. When did it become acceptable to the general population, or is it still not?

AMG: Bitcoin, like cash, provides equal opportunities for the underworld and shysters. Bitcoin became acceptable to both the general investment world and private investors, especially in the USA, after the SEC permitted bitcoin ETFs in 2023.

BL: Why would someone invest in crypto and what are the risks involved in investing in crypto currencies?  Are the risks different for Bitcoin versus the others?

AMG: Long-term investors (holders for 4+ years) should consider investing in bitcoin, because long-term bitcoin holding is a risk-off investment. Short-term investors should not invest in bitcoin because its extreme volatility may cause them to buy high and sell low and is very much risk-on. (See Exploring Bitcoin as a unique diversifier | BlackRock for a different perspective on risk.)

While bitcoin does have risks, (see article cited above,) they are very different than the majority of crypto currencies, or altcoins, which must overcome third-party risk, scams, “rug pulls”, catastrophic failure of the team who develop the software for that alt-coin, and other risks that are similar to those in common with investing in a conventional startup tech company.

BL: There are stories all the time about people losing money through crypto scams.  How prevalent are they and how can one avoid them?

AMG: Scams in the crypto arena are very common and are simply old-fashioned scammers who modernized their narratives to be applied to this modern application.

There is nothing unique about bitcoin or altcoins when it comes to being scammed. You avoid these by educating yourself, just as you must do to prevent being scammed by a phishing email or by your brother-in-law, Joey.

BL: What do I need to understand about blockchain technology before investing?

AMG: If you are only investing in bitcoin and not alt coins, you don’t need to know very much about the technology. Bitcoin ETFs are publicly traded and available much the same as standard bond and stocks ETFs.

If you have already been exposed to enough learning to recognize the value of holding actual bitcoin rather than a paper representation of bitcoin, i.e. an ETF, you must take the time to understand a bit about blockchain, a lot about wallets, and enough to not be scammed by those seeking to trick you into exposing your private keys to your cold wallets which protect your bitcoin.

Practical considerations:

BL: Can I only transact with others who own that currency?

AMG: Absolutely.

BL: Is there minimum I need to invest to ‘buy into it’?

AMG: Even $1 to $50 dollars is enough to get started, depending on the source you wish to purchase from.

BL: How can I track the value of my cryptocurrency?

AMG: Just Google it.

BL: Are there preferred strategies for the average person to enter the market?

AMG: Yes, dollar-cost averaging, just like an investment in any fund or equity which fluctuates in price.

BL: Can my wallet be hacked?

AMG: Yes, unless you educate yourselves enough about what you are doing.

BL: What percentage of an investor’s portfolio should be allocated to cryptocurrency (if at all)?

AMG: This is financial advice which is beyond the scope of this interview.

BL: Can I invest in crypto without owning a crypto wallet?

AMG: Yes, you can rely on third-party exchanges that you trust, to hold your bitcoin. The most well-known are Coinbase and Binance.

BL: Thanks for your insights!

I feel very strongly that people should only invest in areas that they understand. Whereas I hope that the above questions and answers give you some additional information about this very complicated subject and encourage you to seek more knowledge, in no way should this article be taken as advice to invest in cryptocurrencies or blockchain technology.

With continued prayers for the safe return of all of our hostages, the safety of our soldiers in all their missions, and the security of our nation.