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How to Dip a Toe Into Bitcoin

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As cryptocurrencies appear in portfolios managed by institutional investors, more and more individuals and their financial advisors are putting themselves in place.

The answer, advisors say, depends on factors including the investor’s tolerance for risk, financial ability to absorb losses, and knowledge of the digital assets industry. Among those who use it for some clients, most recommend sticking to a small allocation, on the order of 1% to 2%.

In a recent survey of more than 500 financial advisors conducted by organizations such as the Financial Planning Association, nearly half of advisors said customers asked them about investing in cryptocurrencies, up from 17% in 2020. About 14% said they did use or recommend them. compared to less than 1% last year.

Bitcoin “is only 10 years old,” said Ric Edelman, founder of the consulting firm Edelman Financial Engines LLC and investor in digital startups. “The focus was on mining and trading with it. But now people are starting to take it to the next level to incorporate it as part of a larger portfolio. “

To get it right, it takes more than a high risk tolerance.

Simon Tryzna, a financial advisor based in San Francisco, says investors should have an “investment thesis” as to why cryptocurrency should be part of their financial plan. For example, he said that many of his tech-savvy customers believe that blockchain, the recording technology behind Bitcoin, can make the economy more efficient.

It’s also important to examine the growing line of products that enable everyday investors to add virtual currency to their nest egg.

Because cryptocurrency is very volatile, it may be necessary to add even a small amount to a portfolio, revise your asset allocation to reduce the risk of other risky assets, including stocks, said Dan Egan, vice president of Behavioral Finance and Investing at Betterment, an online consulting company.

What follows are more steps that you need to take before buying cryptocurrency.

Should i invest in crypto?

Cryptocurrency has the potential for significant gains. Last year, Bitcoin’s price rose from just over $ 9,000 to nearly $ 32,000 after hitting a high of more than $ 64,000 in April.

But Roger Aliaga-Diaz, head of portfolio construction at Vanguard Group, says, “It is a volatile investment that is prone to speculation and does not belong in a prudent, balanced investment portfolio.”

Cryptocurrencies are “largely unregulated and associated with significant risks,” wrote Mr. Aliaga-Diaz in a recent article.

Since hitting a record high in April, Bitcoin has lost roughly half of its value as China tightened its crackdown on virtual currencies.

Yale University economist Aleh Tsyvinski, co-author of a 2018 study that concluded that institutional investors should invest about 1% to 5% of their portfolios in digital currencies, said that individual investors familiar with alternative Investments like gold and private equity that are familiar should consider adding cryptocurrencies, too.

“If you have 5% of alternatives, why not use 10% of that for crypto?” He said.

Because virtual currencies behave “completely differently” from stocks, bonds, and other traditional investments, they can increase returns by rising when other assets fall. “It’s a pretty good investment for diversification.”

An argument Mr. Aliaga-Diaz won’t buy. He warns against reducing the allocation to stocks and bonds to make room for something that lacks “intrinsic economic value” and “does not generate cash flows such as interest payments or dividends that can explain their prices.”

“The prices of cryptocurrencies depend mainly on speculation about their introduction and use.”

John Piershale, a consultant in Crystal Lake, Ill., Said while he is advising the vast majority of his clients against crypto, he has invested an allocation of up to 2% in an exchange-traded fund that buys stocks of companies that participate in the blockchain- Technology involved for some customers who can withstand “large fluctuations in value”.

China’s recent warning about cryptocurrencies has left the market in a tailspin. WSJ’s Aaron Back explains why recent changes in the value of Bitcoin, Dogecoin, Ether and other cryptocurrencies may point to barriers to mainstream adoption. Photo: Dado Ruvic / Reuters

How much should i invest?

Anyone who feels they can handle the risks of cryptocurrency should start small and buy a fixed amount at regular intervals until the desired allocation is achieved, a strategy that reduces the chances of buying at a market high.

Mr Egan said anything over 1% of a portfolio is “an aggressive allocation” as cryptocurrency only accounts for 0.5% of the value of global stocks and bonds.

“If you get very knowledgeable and get very involved, you can go beyond 1%,” said Mr. Edelman. “But for most investors building a diversified portfolio, 1% is enough.”

What should I buy to expose cryptocurrencies?

To buy or sell cryptocurrency, you can open an account with a cryptocurrency exchange such as Coinbase Global Inc.

or a trading platform that offers this, such as Robinhood Markets Inc.

On Coinbase, an investor looking to buy $ 100 worth of Bitcoin would pay around $ 3.49 in fees, and possibly more with some payment methods like debit cards. Robinhood does not collect any commissions, but forwards customer orders to trading companies who pay for them. A practice that critics say can prevent customers from getting the best prices.

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Many large brokerage firms, including Fidelity Investments and Charles Schwab Corp., do not allow customers to buy or sell cryptocurrencies. However, your clients can buy shares in trusts that invest in digital assets from companies like Grayscale Investments LLC. Grayscale Bitcoin Trust charges a 2% annual fee and can trade at a premium or discount to the value of the bitcoins it holds.

Some advisors recommend buying stocks in companies like Coinbase or ETFs that invest in digital asset companies.

Should I diversify between cryptocurrencies?

Some cryptocurrency fans prefer Bitcoin. Others cite the dot-com shakeout when recommending a range.

With cryptocurrency scams being rampant, do your research and only invest an amount of token in unfamiliar names, Mr. Egan said.

Does Bitcoin belong in my IRA?

Some customers who trade frequently want cryptocurrencies in retirement accounts because they can reinvest the profits tax-free.

But since companies like Schwab and Fidelity don’t allow IRA owners to buy virtual currency, such investors will have to resort to niche IRA providers who specialize in alternative investments. Be aware of the fees these IRA custodians charge.

Stick with companies that are regulated by federal or state bank authorities, said Edelman.

For an asset with the potential for big gains, “the best place to hold is in a Roth IRA,” said IRA specialist Ed Slott. Investors pay after-tax money into these accounts, but profits are tax-free. Money can also be withdrawn tax-free, provided a Roth owner is 59½ years or older and the account has been in existence for at least five years.

For some investors, it may make sense to keep cryptocurrencies in a taxable account, Mr Slott said. If you hold the investment for more than a year, you pay the long-term capital gains tax rate of up to 23.8% on a profitable sale and can offset profits against capital losses. In contrast, with a traditional IRA, you pay income tax of up to 37% on your withdrawals.

How often should I rebalance?

While many advisors recommend taking a buy-and-hold approach to a diversified portfolio and aligning it with the desired portfolio allocation on an annual basis, it is a good idea to monitor volatile holdings such as digital currencies more frequently.

Mr Tryzna said that a client who bought Bitcoin and Ether a few years ago upgraded those holdings from 5% of their portfolio to 50% before reducing the position to 20%.

Mr. Egan recommends using a consistent approach to realignment, such as monthly or when your allocation deviates from your target by a percentage point.

If you’re holding cryptocurrency in a taxable account, it may make sense to let the portfolio drift a little longer before rebalancing unless you can offset taxable gains against losses, Mr Egan said. He said Betterment is trying to avoid sales that trigger short-term capital gains of up to 40.8% on assets held for a year or less.

—Alexander Osipovich contributed to this article.

Write to Anne Tergesen at anne.tergesen@wsj.com

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Cryptocurrency

US Senator Calls On SEC Chairman To Provide Regulatory Clarity On Cryptocurrencies – Regulation Bitcoin News

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A US senator has asked the chairman of the US Securities and Exchange Commission (SEC), Gary Gensler, to provide clear guidance on cryptocurrency regulation. The Senator stated that in many enforcement actions, “the SEC has failed to identify the securities involved or the reasons for their status as securities, which would have provided much-needed public regulatory clarity.”

US Senator wants the SEC to provide clear guidelines on crypto regulation

Senator Pat Toomey, ranked member of the U.S. Senate Committee on Banking, Housing, and Urban Development, wrote a letter to SEC Chairman Gary Gensler on Friday regarding the regulation of cryptocurrencies.

His letter followed Gensler’s testimony before the Senate Banking Committee last week. Toomey began:

I’m writing to address the concerns I raised at the hearing about the need for regulatory clarity around emerging technologies such as cryptocurrencies, including stablecoins.

“In order for investors to benefit from a fair and competitive market, regulators must proactively provide rules on how to get to industry,” the Senator said that the SEC “has instead adopted a strategy of regulation through enforcement in this area.” To date, the commission has launched more than 75 enforcement actions against the crypto industry, fines and penalties totaling more than $ 2.5 billion against crypto companies and individuals.

At the Senate hearing, Gensler extolled “the SEC’s success in pursuing crypto-related enforcement measures.” Toomey noted, however, that “in many of these enforcement actions, the SEC failed to identify the securities involved or the reasons for their status as securities, which would have provided much-needed public regulatory clarity.”

SEC Commissioner Hester Peirce is also concerned about the SEC’s approach to crypto regulation. She criticized her own agency in August for taking an enforcement-oriented approach to crypto regulation.

The Senator from Pennsylvania noted that the SEC’s approach was tied to Gensler’s belief that “the likelihood is pretty slim” that a given cryptocurrency platform has no securities. For example, Gensler told Senator Elizabeth Warren at the hearing that the Nasdaq-listed crypto exchange Coinbase (Nasdaq: COIN) could have dozens of tokens, which could be securities.

Recently, Coinbase was forced to abandon its plan to launch a loan product after the SEC threatened legal action and the company alleged it had received no explanation from the regulator. In the meantime, the security guard is in an ongoing proceeding with Ripple Labs and its executives as to whether XRP is a security.

Senator Toomey emphasized:

The SEC has a responsibility to do more than just provide probabilistic estimates.

The Senator concluded his letter with a list of questions for Gensler to answer for additional guidance on crypto regulation.

What do you think of Senator Toomey asking SEC Chairman Gensler to provide clear guidance on crypto regulation? Let us know in the comment section below.

Photo credit: Shutterstock, Pixabay, Wiki Commons

Disclaimer of Liability: This article is for informational purposes only. It is not a direct offer or solicitation to make an offer to buy or sell, or a recommendation or endorsement of any product, service, or company. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author are directly or indirectly responsible for any damage or loss caused or allegedly caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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Cryptocurrency

Crypto plunge a wake-up call — and tax opportunity — for investors

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A detail of the statue of Satoshi Nakamoto, a presumed pseudonym of the inventor of Bitcoin, in Budapest, Hungary.

Janos Sorrow | Getty Images News | Getty Images

The price of popular cryptocurrencies like Bitcoin and Ethereum fell on Friday after Chinese officials stepped up crackdown and essentially ruled crypto illegal.

Government intervention, while substantial, does not necessarily mean that financial advisers believe investors should run into the mountains. But it’s another reminder that crypto holdings are subject to wild fluctuations in price, they said.

“I wouldn’t call this the end of the world,” said Leon LaBrecque, accountant and certified financial planner with Sequoia Financial Group, based in Akron, Ohio. “It’s just a wake-up call.”

“This should be in recognition of the fact that it is a volatile asset and that all the ups and downs are a match,” he said.

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This volatility opens up opportunities for tax planning that may only be a few months away, advisors said, depending on the Democrats’ final compromise on federal tax law.

Bitcoin prices had fallen 6% to around $ 42,000 at 3 p.m. ET Friday afternoon. Ether, the second largest digital currency, fell more than 8% to around $ 2,890.

The People’s Bank of China terrified investors after declaring all crypto-related activity illegal. These activities include, for example, trading services and foreign exchanges. This is the latest move in the country’s wider crackdown on digital currencies.

The ban on Bitcoin and other cryptocurrencies can be of concern for current and prospective investors as the government limits buyers for a significant segment of the world’s population, advisors said. And other governments are likely to have additional regulations as well, they said.

But these can’t make much of a difference in terms of long-term prices. A daily slump in crypto costs, which may feel significant at this point, is likely just part of a longer-term price correction towards an average price, advisors said.

“Will government regulation make cryptocurrencies volatile? Yes,” said Wayne Wilbanks, managing principal and chief investment officer at Wilbanks Smith & Thomas Asset Management in Norfolk, Virginia. “Will it make crypto redundant? No.

“I don’t think China’s regulation, or even US regulations, will make that much of a difference in the long run,” he added.

Bitcoin, for example, is still up around 40% year-over-year despite the slump on Friday. (It’s far from its April high of around $ 63,000, however.)

To this day, volatility is a signature of cryptocurrencies. This year, for example, prices have fluctuated sharply after tweets from Tesla co-founder and crypto enthusiast Elon Musk.

Advisors usually recommend that investors allocate a small portion of their portfolio (anything that they would lose entirely) because of the risk involved.

Tax advantage

Investors can take advantage of recent volatility, according to Jeffrey Levine, CFP, Accountant and Chief Planning Officer at Buckingham Wealth Partners in Long Island, New York.

Equity, crypto and other investors can “reap” investment losses for a tax advantage. Basically, you can sell a lost investment (e.g. Bitcoin) and use the loss to destroy the gain on a winning investment elsewhere in your portfolio.

This “tax loss harvesting” reduces (or eliminates) the capital gains tax owed on the estimated value of an investment sold.

However, unlike stock investors, crypto investors who are sold out can quickly buy back into the same or similar digital currency. As a result, if the volatile asset price recovers shortly thereafter, they can receive the above tax benefit as well as a portfolio benefit.

House Democrats proposed closing this crypto loophole after this year to reform tax law.

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Cryptocurrency

A financial TikTok influencer with almost 500,000 followers says bitcoin is going to ‘get slayed’ – and shares how cryptos and stablecoins make up his trading strategy | Currency News | Financial and Business News

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Mason Versluis

  • 21-year-old Mason Versluis has almost 500,000 followers on TikTok, where he gives tips on crypto and markets.
  • He recently spoke to Insider about how he chooses which coin to invest in and why.
  • Versluis said he would like to see bitcoin “slayed” as other coins have far more real-world use cases.
  • Sign up for our daily newsletter here, 10 things before the opening bell.

Bitcoin is the largest cryptocurrency by market value and is dwarfing its competitors for the time being. But the rise of crypto rivals with far more real world uses means it will be dethroned sooner rather than later, according to financial TikTok influencer Mason Versluis.

The 21-year-old Versluis also bears the username Crypto Mason and has almost 500,000 followers on his TikTok account, which he uses to shoot short videos to educate his viewers about crypto and the markets.

Versluis, who has been trading crypto since he was 15, recently spoke to Insider about his prospects for the market.

“The psychological thing that Bitcoin is always number one and king can be gone. By ‘kill Bitcoin’ I mean that I want something to happen and then we’ll see what happens afterwards, ”said Versluis.

Bitcoin has a market capitalization of just under $ 800 billion, according to CoinMarketCap, of the roughly $ 1.9 trillion that the entire crypto market is worth.

In the last 12 months it has gained almost 350% in price, but Versluis believes there is more value elsewhere.

“My dad told me about XRP when I was 17 and I’ve been back ever since,” he said.

“I’m one of those people who think XRP is a ‘better bitcoin’. And it actually solves the payment problem better than Bitcoin ever can or will, ”he added. Ripple Lab’s XRP token is used in fast payment systems – an area where Bitcoin can’t really compete given the comparatively slow network speed. One of the bigger crypto coins, XRP has kept pace with Bitcoin over the past year, rising 320%.

Ether, the native token of the Ethereum network, is the second largest cryptocurrency and accounts for around 20% of the market. The blockchain’s ability to run decentralized financial applications, smart contacts, and other protocols has resulted in an onslaught of investor money in ether this year, up nearly 800% over that time.

“It must have use cases, that is: Does this token do nothing? Am I only buying this token because I think it will increase in value?” said Versluis.

“That’s what I personally invest in, just because of the potential – they actually do something. Ethereum has so many decentralized applications built on it, ”he added.

When it comes to taking a position in a coin, Versluis says he’s not a day trader.

“It’s a lot of stress, you have to sit at the computer and watch the markets,” he said.

“I’m going to see an opportunity, put in some money and basically ramp up this rocket until I think it’s time to sell it. I sell them off and put them in a stablecoin like USDT or USDC. And then I just make profits and reinvest part of it in my main portfolio. So it’s a slow process, “he said.

As a relatively young trader who says that part of his passion for crypto is the decentralized, free nature, the question arises what Versluis thinks about the regulation in this market. Unlike many crypto fans, he’s not against it. However, he believes that all rules have to adapt to the reality of the crypto market and that one size does not fit everyone.

“It’s a digital world. And we’re only getting more digital and virtual, ”he said.

“You can’t just take the old system and the laws and slap it on crypto. It doesn’t work.

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