Investing in cryptocurrencies is the latest trend in ESG investing money. While this type of investment is volatile, it can provide a hedge against inflation. And even though it is taxed, it can be a smart way to build a nest egg for your kids. So what should you consider when making your crypto investment? Here are some of the things to consider. And of course, make sure you know exactly what you’re doing!
Investing in cryptocurrencies is a form of ESG investing
While it’s possible to incorporate both ESG and crypto into your portfolio, this kind of investment might not be the best idea for everyone. Cryptocurrencies do not have an intrinsic value, and most players in the industry have avoided them. But once included in an ESG portfolio, these assets will be scrutinized for their environmental impacts. After all, Bitcoin mining uses more energy than the country of Argentina.
In the past several years, the cryptocurrency industry has grown dramatically. The infamous Bitcoin has become a household term, and an increasing number of companies are entering the space. The price of one bitcoin has fluctuated from $1,000 in early 2017 to $66,000 by October 2021. During this period, Bitcoin prices experienced intense volatility and periodic drawdowns of over 50%. But while the cryptocurrency industry continues to grow and becomes more accessible to investors, it remains a high-risk investment.
It is a hedge against inflation
If you are looking for a safe way to invest your money, you might want to consider a crypto investment. While the price of Bitcoin might be a bit higher than that of real estate, it still provides a stable income through dividends. In addition, real estate acts as an inflation hedge since the demand for homes always increases. Moreover, as the price of real estate increases, it will also generate higher rental income, a great protection during inflationary times.
The limited supply of cryptocurrencies prevents the circulation of new coins, which in turn prevents inflation. A country’s currency can increase its supply by buying government bonds and spending, which reduces spending power. Inflation can then rise. Bitcoin has a lower supply than gold, which helps it act as an inflation hedge. Therefore, the price of crypto is low compared to gold. This is because the demand for bitcoin and gold is much higher than the supply of these two assets.
It is volatile
As with any new asset class, cryptocurrency can be a volatile investment. Historical price charts show that bitcoin rose more than 2,000% in 2017 but quickly dropped after its high point. The same thing will happen for other cryptoassets. It will take time for these digital assets to become widely accepted and their price to start to stabilize. This volatility is likely to continue until the crypto market has reached its full maturity. Therefore, the risk of losing money is high, but the reward is also high.
While gold and bonds are relatively stable investments, cryptocurrencies are not. While bitcoin is not digital gold, it does have the potential to make people billions of dollars. Despite their high volatility, cryptocurrency may not yet become the mainstream currency, but it is a great investment vehicle for swing traders. Swing traders trade assets for longer periods than a day and seek opportunities to score a home run. Volatility is a natural part of the cryptocurrency ecosystem, and many people have found success by trading on it.
It is taxable
If you’re looking to buy or sell cryptocurrency, you’ve probably wondered whether or not it’s taxable. While most users of traditional fiat currencies have no tax consequences related to cost basis or value at time of payment, cryptocurrency users face capital gains, losses, and sales taxes. This is because, in many cases, crypto-related purchases are not taxable. For example, if you bought Bitcoin and sold it for $100, you’d have $90 worth of realized long-term capital gains.
The tax rates will vary depending on when you buy and sell crypto. You can offset some of the cost of your investment by deducting capital losses, which can be as high as $3,000 per year. However, losses that you take during the first year of your investment are not carried forward to subsequent years. Therefore, it’s important to understand that this taxation will affect your financial situation in the long term. To make it easier to understand, here’s what you need to know about capital gains tax.