Hey Taylor: So help me, I’ve tried to understand cryptocurrency and even invested in a few different coins, but I just can’t wrap my head around it and it all seems so volatile. Am I doing something wrong, or should I just stay away? - Martin
Hey Martin: Pretty sure you’re not doing anything wrong. I talk to other investors who absolutely LOVE crypto and they’re suffering through the same rises and falls as you are. That said, it’s important to understand what you’re investing in, and the unknown frontier of these coins makes that a little tricky. Here are two big sticking points for me when I’m discussing cryptocurrency with clients.
Popular doesn’t equal good. Except in the cases of Bitcoin and Ethereum, name recognition doesn’t have any staying power with these coins. Dogecoin had its moment in the sun while Elon Musk was tweeting about it, but it’s worth less than two dimes at the moment and no one wants to talk about whether or not they bought it during the craze. If the only reason you know about a particular crypto brand is people are talking about it, but you don’t know why they’re talking about it, I think that’s not something you need to buy. It’s easy to get sucked into the giant price swings and the stories of people making millions overnight, but that’s not investing—that’s gambling.
Web 3.0. All of this raises the big question: what is cryptocurrency good for? You’ll hear a lot of different answers to this, and it’s too early to know which school of thought is most correct. Something I heard recently actually brought me a little clarity, when a friend said we need to stop thinking about crypto as the future of money and instead as Web 3.0. The allure of cryptocurrency is the decentralization; a form of finance that steps outside our current institutions. That’s the same philosophy behind the Web 3.0 or Web3 movement—where the way we use the internet becomes less reliant on Google, Amazon, and Facebook. The same blockchain technology that undergirds Bitcoin and most of the other coins will serve as the foundation for this new, more independent web. There are still infinite question marks about how this will unfold, but it seems a little more tangible than digital currencies that swoop in and replace the fiat money we use now. As you look at different coins, learn about their ecosystem and what that iteration of crypto is doing that might set it apart from the rest.
If you choose to invest your money in stocks and bonds and real estate because those things make more sense to you, then do so! A good rule of thumb is to invest in things you like and understand. If you don’t want to miss the crypto train, keep reading about it and look into Web 3.0 development. Thanks for the question!
Disclosure: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.
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