Don’t be in a rush to jump into the crypto game without doing your research though. If you are a client that has begun holding cryptocurrency, be sure you are informed about the consequences, both positive and negative, of cryptos as a portfolio option. Figure out how speculative you wish to be first, and then work with a financial professional to find what the right allocation for your diversified portfolio might be!
Bitcoin and Ethereum, are established alternatives to traditional currency, and both are the most recognized names in cryptocurrency, but there are more than 1,600 types currently being traded. If you are serious about crypto, it is imperative to first understand it and its risks, and then decide how much you wish to own. How much risk can you tolerate? Are you using it as a “hedge?” Crypto-markets will eventually mature and become less volatile over the years, but right now there is still a lot of risk in holding Bitcoin or Ethereum, and there are still wild swings in value. Jump into cryptos with a long term mentality.
If you own a business that accepts payment in cryptocurrency, you should be fully aware of the risk you are taking in doing so. Consider mitigating that risk through the use of a merchant account or payment gateway that allows companies to accept payment in Bitcoin, Ethereum, or any number of cryptocurrencies and immediately convert them into dollars. Coinbase is the most popular, and can be extremely useful for companies that want to offer their customers crypto-options without having to hold on to volatile assets.
Individual and business clients may want to hold onto some cryptocurrency because of its potential upside, but if you have an excess amount of cash tied up in crypto and the market nosedives, your livelihood is at risk. You may want to read my earlier article here: Does Bitcoin Belong in a Well Rounded Investment Portfolio?
Another thing to consider is how secure your crypto assets are, or are not. After all time highs last December, many Bitcoin owners who purchased the currency years ago and had forgotten about it, promptly remembered it, but had lost the passwords to where they were storing their private keys and thus lost their windfall. Let this be a lesson – cryptocurrencies function like cash and your password like a wallet. Lose your password and you can effectively kiss your Bitcoin bye-bye. Use strong password practices and protect your password. We also recommend taking other security measures like encryption and backups to further protect your account.
There are many misconceptions surrounding cryptocurrency. Understanding how people are using crypto, and the many risks it poses, is essential. Cryptocurrency is currently taxed as property, and taxpayers are required to report any transactions involving virtual currency as U.S. dollars on their tax returns. To do so, its fair market value is determined as of its transaction date. Questions about cryptocurrency will now be asked on the new 2020 Form 1040.
Cryptocurrency exchanges may provide investors with a Form 1099-K detailing capital gains and losses, but there is no guarantee that they’ll get one. That means it’s up to bitcoin owners to track their basis – their original investment in the virtual currency — and their transactions for accurate tax reporting. Tech companies have sprung up which offer solutions to accurately report cryptocurrency investments like Cointracking, Cointracker, Koinly and Accointing.
CONTACT US: TFG Financial Advisors can provide knowledge and understanding to individual investors interested in adding cryptos to their portfolios, and to companies that are curious about accepting alternative currencies, but have been too nervous to jump on the bandwagon just yet. Let us be a trusted resource on a topic that will only become more relevant as time goes on. Feel free to contact me, Cory Lyon, Financial Advisor, directly at 561-209-1120, with any questions regarding crypto-currencies or other financial investment strategies. At TFG, we believe in customized investment portfolio design and personalized asset management. I act as a fiduciary for my clients.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
