Cryptocurrency is making strides as a legitimized form of investment and payment as more retailers accept it and federal officials look to regulate it. It's a hot topic of discussion but the world of digital currency is still not widely understood.
It's become so mainstream that President Joe Biden recently signed an executive order calling for oversight of its risks and benefits.
But what exactly is cryptocurrency, and how do you use it? How do you avoid losing out on your investments? But first, how do you even get started?
Cryptocurrency
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Getting started
Financial advisor John McKean, of Comprehensive Advisor in Carlsbad, said: "the consumer would start with opening up an account at Crypto.com, (a cryptocurrency exchange) and they would fund that utilizing everyday dollars. Typically, you would use a electronic transactions to buy or purchase goods and in this case, you might use Apple Pay or one of the other apps that they use to be able to use these types of transactions."
McKean said investors would then put money into an account and "use that money...to purchase things such as Bitcoin and Ethereum and Dogecoin and all these different various cryptocurrencies. The thing that we have to understand is that it's unregulated, though, and so there's no FDIC (Federal Deposit Insurance Corporation)."
FDIC insures deposits. It examines and supervises financial institutions for safety, soundness and consumer protection.
What you can do with cryptocurrency
The list of what you can do with cryptocurrency like Bitcoin or Ethereum is growing.
San Diego State University (SDSU) recently accepted a huge bitcoin donation valued at $25,000 at the time. It now encourages crypto donations.
Investors can also buy cars like a Tesla, whose owner, Elon Musk, a big proponent of Bitcoin.
Even everyday goods and services like coffee and pizza purchases, tickets for entertainment and home improvement are among the more common things a person can get with crypto. The list of what can be purchased with Bitcoin or Ethereum is growing.
McKean said Home Depot accepts cryptocurrency as a form of payment, adding that "in this case, you would use the app to transact just like you would use Apple Pay or Google Pay or any other type of app."
The business can cash out the payment or they can invest in that crypto asset and watch it grow or lose in value.
Beware the risks
As with any investment, purchasing cryptocurrencies come with a risk. One of the first things to consider is that crypto is not insured by FDIC. Additionally, its value can fluctuate wildly.
"On average, you can see big swings on a daily basis," said McKean. "You could expect to see crypto go up by two times or three times what you would normally see the market go up by."
McKean cautioned, "it’s definitely not for the faint of heart."
"In fact, my recommendation to my clients is we don’t want to have anything over 4-5% of any one particular asset class inside their portfolio," he said. "So. we try to keep them diversified spread about spread out upon many asset classes."
McKean said he expects crypto to grow in popularity, especially as governments start adopting it as an alternative form of currency.
Colorado Gov. Jared Polis tweeted that his state will become the first state to accept cryptocurrency for payment of state tax and fees.
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