Spectrum Spotlight continued...
Q: What is the difference between cryptocurrency, coins and tokens? A (Nate): Coins are any cryptocurrency with their own, standalone blockchain, whereas tokens are any cryptocurrency built on top of an existing blockchain. The purpose of a coin is purely financial, enabling users to perform secure money transfers. For example, Bitcoin is used only as a virtual currency and store of value. Think of transferring Bitcoin as being similar to transferring money to someone via wire transfer. Although it’s not quite the same thing, the end result is the same. Tokens, on the other hand, strictly represent an asset or utility within a platform. They are used specifically within the application for which they were created. Ethereum is a good example. It’s tokens are called Ether. Ethereum is the blockchain network where Ether is held and exchanged. You can use Ether (tokens) as currency in a financial transaction, as an investment or as a store of value. There are also non- fungible tokens (NFTs), a special kind of cryptocurrency in which each token is unique. Assets like Bitcoin have a set value, whereas NFTs have different values based on what they represent. NFTs are ideal for authenticating ownership of digital assets such as artwork, recordings, pets and other virtual collectibles. Q: What are the advantages and disadvantages of investing in cryptocurrency? A (Greg): As discussed previously, all investments carry risk, but cryptocurrency tends to have greater price volatility and risk of significant losses compared to publicly traded securities. There are also no federal regulations, and cryptocurrency doesn’t have a fundamental value the same way money or other types of securities do. Cybersecurity issues are associated with cryptocurrency and virtual wallets being hacked, and FDIC insurance does not cover cryptocurrency. However, there are a few upsides to investing in cryptocurrency. There is a potential for high returns, and some think cryptocurrency can be used as a diversification tool for portfolios. Thanks to blockchain technology, transactions are secure and confidential. There are no set market hours as with traditional trading—you can buy or sell cryptocurrency 24 hours a day, seven days a week.
Q: Are there risks in meme stock trading? A (Greg): Any type of investing involves risk, but meme stocks trade erratically. The reason meme stocks become so viral is because of opinions from influencers and individual buyers on social media and online forums such as Reddit. People start to buy meme stocks as they see other people buying them— also known as FOMO or the fear of missing out. The number of shares that are short compared to the number of people holding shares and willing to sell impacts the volatility. Most of the time, institutions and big spenders that purchase large amounts of these securities are the ones making a profit, not a person purchasing a few shares. A (Nate): We also suggest being very wary of getting investment advice from social media and forums like Reddit. You never know who is on the other side of the screen, their expertise, or where they are getting their information. Q: What is cryptocurrency? A (Greg): Cryptocurrency is a form of digital currency based on a blockchain. The easiest way to explain blockchain technology is to think of it as a database. It differs from a typical database in the way it stores information. Blockchains store data in blocks that are chained together. Blockchain is used in a decentralized way so that no single person or group has control over it; instead, all users cooperatively retain control. Cryptocurrency transactions are permanently recorded and available to the public. There are different types of cryptocurrency. Bitcoin and Ethereum are probably the most well- known names out there, but several other types of cryptocurrency exist. Different types of coins and tokens are used for different purposes. Each type of cryptocurrency has its own digital platform. Q: Where does cryptocurrency come from? A (Nate): There are “Miners,” who are people that gain cryptocurrencies by solving cryptographic equations using high-power computers. The process involves validating data blocks and adding transactions to a blockchain.
Q: Are meme stocks and cryptocurrency good investments? How do I know if these types of investments are suitable for my portfolio? A (Greg): Every investor has their own unique situation and risk tolerance. All investments carry some level of risk. Cryptocurrency is probably not the best investment if you have a low risk tolerance or if losing everything you invested in cryptocurrency would put you in a bad financial position. It’s important to know that cryptocurrency, meme stocks and other types of trending stocks can be very volatile, with the potential for severe price fluctuations. It’s best to discuss these types of trades with your financial advisor.
A (Nate): It’s also helpful to think of cryptocurrency and blockchain technology like the internet boom of the 90s. People knew it was coming but were unsure where it originated, where it was maintained, or how it would be useful in everyday life. Cryptocurrency may or may not be useful for your financial goals. Do you have additional questions about meme stocks or cryptocurrency? Contact us to speak with an advisor today. If you have questions on other wealth management topics, please submit them to kmaxwell@spectrum-mgmt.com .
PHILANTHROPY Upcoming Holiday Season / Shepherd’s Center of Hamilton County
through volunteer opportunities, and necessities for home-bound, isolated, and/or financially fragile seniors through their Community Caring program. To learn more about The Shepherd’s Center of Hamilton County, visit www.shepherdscenterofhamiltoncounty.org . We will purchase and assemble several care packages that include everyday household essentials, such as cleaning supplies, personal hygiene items and laundry supplies, for The Good Shepherd’s Center of Hamilton County Community Caring program. We feel very grateful to have the ability to help those in need, especially so close to home. To see our team in action and learn more about our philanthropy involvement, check out our social media pages and blog!
Each year, Spectrum Wealth Management donates to and participates in non-profit organizations to help communities in the greater Indianapolis area. We believe donating time and funds to fellow Hoosiers who are in need helps the team at Spectrum thrive. With the holiday season just around the corner, we have discussed ways our team can get involved to help vulnerable members of our community. Although the winter holidays are joyful occasions for most, they can be a challenging year for others. We know that financial security is an issue that many senior citizens face, especially those without families. That is why we have chosen to partner with The Shepherd’s Center of Hamilton County, an organization that assists older adults to continue living independently in their homes. They provide enrichment opportunities for senior citizens, companionship
12 PERSPECTIVE Fall 2021
PERSPECTIVE Fall 2021 13
Made with FlippingBook - professional solution for displaying marketing and sales documents online