Let me begin with a disclaimer: I am not an expert in digital currency. Like most of you, I am still learning and growing in my knowledge. I am very clear that this form of currency is here to stay and will play a major role in finances moving forward. The most famous of digital currency is Bitcoin. But what is Bitcoin and how does it work? Here are two points about this digital currency for your consideration.
Transactional Use
At the moment, Bitcoin is not widely accepted and cannot be used for every form of conducting business. To the extent you can purchase an item using Bitcoin, the process can be convoluted to say the least. Let’s assume you wanted to purchase a computer by MasterCard using Bitcoins. The Bitcoins would have to be converted into digital assets, and then those digital assets would be exchanged for dollars at one of Master Cards crypto currency platforms before the purchase is converted to a MasterCard network. And this is just the process to purchase an item using Bitcoin. Not the simplest of transactions at the moment is it?
If that’s not enough to get your head spinning, you should also note that the Internal Revenue Service (IRS) views digital currency (Bitcoin) as property and therefore it is subject to capital gains. What that simply means is that in order to purchase a new pair of Air Jordan’s, you will have to report the Bitcoin at cost basis (how much you paid for it) and long term (kept for more than one year) or short term (held for less than one year) gains or profits will have to be reported. This make things a bit complicated from a tax perspective at the moment. But the transactional future is bright since in February Tesla announced that it purchased $1.5 Billion worth of Bitcoins driving up the value. Additionally, Tesla announced that they would now accept Bitcoins as payment for their products. More to come about that in the future!
Volatility
Bitcoin has been around an estimated twelve years and involves transactions encrypted by computer codes known as block chain technology which eliminates the need for a central bank or middle man. However, the price is driven by the fact that there is a finite supply available. Between December 2017 and December 2018, Bitcoin fell 83 percent. Contrastingly, during the pandemic sell off in 2020 Bitcoin fell by 49 percent. Furthermore, for two weeks in January 2021 Bitcoin value fell 25 percent. In other words, Bitcoin is speculative and driven mainly by demand, you should know that you can lose your entire principal invested. Which is not to say you should not join the fun, it is simply a matter of how much risk can you absorb? How much can you stand to lose?
Let me be transparent! Like most of you I was curious and have joined the Bitcoin investment movement. I must admit, the investment has been successful thus far in that it has grown to three times the amount of the principal amount invested. But I’m very diligent about not losing my initial investment – no matter what! In the meantime, you can say I’m playing with house money! My own opinion is that some portion of an investment portfolio should constitute cryptocurrency. Take a look. It’s going somewhere!
“What’s Up!”
I have decided to add a new section to Money Monday’s called “what’s up!” Basically, it is something very important I think you should know that may or may not be unrelated to the main article. Today’s “what’s up!” is if you have large or small credit card balance(s) and want to transfer it to another card there are two bank cards that provide greater or lower interest rates than credit card rewards. Chase Bank has a Chase Slate Visa card which will provide you zero introductory rate on balance transfers for the next fifteen months along with no fees for transfers made within sixty days of opening the account.
Another one is, U.S. Bank Visa Platinum card (www.usbank.com) which has a zero introductory interest rate for both transfers and purchases made for the next 20 months after opening the account. However, there is a transfer fee which is the greater of $5.00 or 3 percent of the amount being transferred. These cards can allow you to transfer debt, and pay it off within the next 15-20 months without additional interest. Go ahead and chop off the head of that snake called compound interest while paying off your debt. That’s what’s up!
