Cryptocurrency investing not for the faint of heart

By Andrew Zashin*

Once limited to techie news, cryptocurrency has now hit the finance pages and even mainstream media. Bitcoin, one of the predominant players, was trading at around $1,000 in January 2017. The subsequent months saw enormous jumps, with the value per Bitcoin nearing $20,000. With those sorts of gains, it is no wonder that many have wondered how they, too, could get in the game.

“Cryptocurrency” refers to a subset of digital or virtual currency (and its moniker refers to the cryptography used to create it and transact with it). Unlike traditional money it is not backed by any government. The holder does not have a coin or a bill.

Instead, it is an entirely digital asset. It is created, or “mined,” under controlled conditions, although admittedly the identity of the governing body is sometimes a bit nebulous. It is traded on specialized exchanges created for that purpose. Like other securities, cryptocurrency can be bought and sold. Like traditional government-backed currency, it can be used to purchase goods and services, assuming, of course, the seller accepts it as valid tender.

Bitcoin is not the only player in town, but it has been covered the most widely in the mainstream news given the huge swings in value. Nowadays, it is still up significantly from this time a year ago, but most recently it dropped down below the $10,000 mark as investors dumped it amid concerns about increased scrutiny and regulation. The volatility is enough to give anyone whiplash.

The chairman of the U.S. Securities and Exchange Commission in December released a statement on cryptocurrencies and initial coin offerings, pointing to specific concerns with this market. Warren Buffet has called it “a mirage” and has said the current frenzy surrounding it will “end bad.”

One of the primary risks with this type of investment is the sheer lack of governmental oversight and regulation. Of course, most types of investment come with some risk. But cryptocurrency markets cross national borders and trading may occur on a system anywhere in the world. Invested funds are very likely to leave the United States without your knowledge.

Regulatory agencies such as the SEC may not be able to offer any adequate remedy. The rules may be different wherever the funds end up; South Korea and China, for example, appear to be working toward regulation in their respective nations. Or the body that might otherwise regulate it – the SEC, for example – might not have jurisdiction at all. The definition of the “thing” being traded is in flux, with many arguing that cryptocurrencies are not securities, and that the trading of them is not within the SEC’s jurisdiction at all.

Surely, some have become significantly wealthier for having invested in cryptocurrency. However, it is definitely riskier than your average investment. In this area, the law is continuously evolving and trying to catch up. If you are thinking of jumping on the bandwagon, it has never been more important to do your research to decide for yourself if cryptocurrency is a reasonable investment.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:12-05:00January 18th, 2018|Bitcoin, Cryptocurrency, Investing|

Investing pitfalls to avoid – how to come out on top

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

So much investing advice is out there. Read 10 different articles and you will find 10 different opinions on how to achieve investing success. What’s a new investor to do? Whom do you look to? How do you know which advice to follow? How do you best invest your money to meet your goals? As you get started, here are some of the primary pitfalls to avoid:

• Don’t fail to identify your goals. The first step toward successful investing is to identify your goals. Maybe you want to save for retirement. Or maybe you want to save for your children’s higher education. Perhaps you want to save up for a new home, grow your wealth, or some combination of all of these. Whatever your reason or reasons for investing, the point is that you want to clearly identify them.

Your goals will drive your personal definition of a wise investment, and only once you have identified your investment goals can you select the best investment options to meet your needs. By failing to do this, you could inadvertently stifle you money’s growth by missing out on the tax advantages associated with tax-deferred accounts such as 529 (college savings) plans or certain IRAs, 401(k), 403(b), or other retirement accounts. Or you might opt for investments that are too risky to satisfactorily protect and grow your money, or too risk-adverse to stand a chance of bringing the returns you are searching for.

So first, figure out what you want to accomplish through investing, and then research your options to determine the best way to achieve those goals.

• Don’t look for “get rich quick” schemes. Unless you are a very experienced investor (if you are, you are probably not reading this article) you are not going to make millions of dollars from your investment overnight. Do not try it and do not expect it. This is a recipe for failure. If someone is promising you these sorts of returns, run the other way as quickly as you can. This person is almost certainly scamming you. Instead, understand that wealth grows over time, exponentially, and the longer you can give your money to grow the better your results.

• Don’t put all your eggs in one basket. Diversify your investment portfolio. That is not to say that you need several different accounts (although you may, if each account is serving a different purpose.) However, within your account you will want to make sure you have a diverse portfolio of investments. A good, diversified portfolio will not include one or two stocks. Most likely it will not even contain only stocks. Instead, it will more likely include a good balance of investments such as stocks, bonds, index funds and mutual funds. The logic behind diversification is that even if one investment tanks, the others will perform better and prevent catastrophic losses.

Investing is, of course, not an exact science. You will not find a step-by-step how-to that will guarantee results. Financial advisers, stockbrokers and portfolio managers build entire careers out of choosing good, solid performing investments and even they get it wrong. But, with these basic tips and a lot of research, you can soon learn to make sound investments that will grow your wealth over time and help you meet your financial goals.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:14-05:00May 14th, 2015|Investing, Retirement Planning|

Bitcoins: sound investment or foolish enterprise?

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

In December 2013, a California Lamborghini dealership made national news when it sold a Tesla Model S to a Florida buyer. The car’s value of about $103,000, while certainly unaffordable to the average car buyer, is not what made headlines though. What garnered such attention was the method of payment. The final price tag was, in fact, 91.4 Bitcoins.

Bitcoins have only begun to capture the attention of tech-savvy investors. After all, at the beginning of 2013 Bitcoins were valued in the low-double digits. But by November 2013, they were trading for as much as $1,242 per coin, an almost inconceivable level of growth.

Is it any wonder that many are willing to take a risk on what could be the most lucrative investment in their portfolios? You’re probably reading this and wondering, “How do I get in on this?”

Before you run out – or log in, as the case may be – it couldn’t be more important to do your homework, though. After all, Bitcoin values are extremely volatile and as of this writing are trading at only about $460 per coin. For so risky an investment, it certainly pays to have an understanding of the Bitcoin market so that you can make sound decisions.

First, though, what is a Bitcoin?

A Bitcoin is a specific type of virtual currency. It is not the only such virtual currency, though it is probably the most widely known. The European Central Bank has defined a virtual currency as “a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community.”

The U.S. Department of Treasury has defined it more stringently as “a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency.” Bitcoins, in particular, are obtained by mining them (essentially by getting them in exchange for offering up the use of your computing power for purposes of processing other Bitcoin transactions), or by trading other more customary types of currency, services or goods for them. Then, you can spend them on other goods and services.

While that may sound OK, the concerns with Bitcoins are many. First, well-established currencies like dollars, shekels and euros are backed by something. That “something” may be gold, or silver, or at least the full faith and credit of the issuing authority.

Bitcoins are not backed by anything. They are not issued by any government authority, they are not legal tender and they are subject to virtually no regulation. While they are ostensibly self-regulated by their creator to the extent that only a certain number will exist, the number in circulation at any given time is not controlled in the same way as a traditional currency. Thus, there is little protection against market bubbles (and the burst that inevitably follows.) And, while the bank account that contains money is insured by the Federal Deposit Insurance Corp., a Bitcoin account is not protected.

Since Bitcoins exist online, they are can be hacked. In fact, a major Bitcoin exchange shut down after purportedly losing $350 million in Bitcoins. Theft and fraud are big concerns. And, since they may be used anonymously, many lawmakers are concerned that they are too easy to use for anonymous illegal transactions through dubious websites such as the Silk Road.

As is often the case with new technology, governments are seeking to keep up with appropriate laws. Some nations have already begun regulating Bitcoin use within their borders, although enforcement of such laws may be challenging. Most recently, the Internal Revenue Service has determined that Bitcoins constitute “property,” more like a stock share, rather than “currency,” meaning they will most generally be taxed on the gains realized on them.

What happens, though, if you want to use them for their practical application, as currency? They may be used on a number of websites and even in some other brick and mortar locations. But, their value fluctuates widely making it somewhat difficult to determine the appropriate Bitcoin purchase price.

Are they more trouble than they are worth as currency? Are they too volatile to be a reasonable investment? Many believe so. Many others believe in them. Ultimately those are going to be personal decisions. However, if you are considering obtaining, using, or keeping Bitcoins for any purpose it is important to understand what, exactly, is being purchased – a challenge in and of itself given the very small number of individuals who actually understand the algorithms that drive them – so that you make the decision to invest in this most unusual enterprise with your eyes wide open.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:15-05:00May 16th, 2014|Bitcoin, Investing|
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