Why does cryptocurrency matter? It matters because cryptocurrency is a sovereign currency beyond the reach of governments. When governments issue more currency to cover the gap between tax income and spending, it deflates the value of the currency. When currencies lose their value, it takes more of it to have the same buying power in the global marketplace.
For example, U.S. food prices are up 10.6% this year with an overall inflation rate of 6.38% as the U.S. government collected $4.05 trillion in taxes and spent $6.82 trillion. Holding a currency outside the ravages of inflation would seem like a good idea.
At the heart of cryptocurrency is Bitcoin. Bitcoin rides on a distributed digital ledger page (blockchain) of Bitcoin transactions. Bitcoin has a planned annual inflation rate of 2% that will decline over time as the full 21 million coins are digitally mined in a process using high-speed computers consuming massive amounts of electricity to solve increasingly difficult mathematical problems. Successful miners are rewarded in Bitcoin. There is currently 18.22 million Bitcoin in circulation at a value of $47,339.65 per coin.
In my quest to learn more about crypto, I did what any boomer generation person would do when faced with a technological challenge; I enlisted the help of my millennial friends who spotted the beginning of the crypto-trend in 2017 or earlier. At their suggestion, I set up an account in Coinbase, put in U.S. dollars, and purchased Bitcoin and a few other cryptocurrencies. So far, I have learned that digital currencies are highly volatile with wide fluctuations in value throughout the day.
The “tuition” at the school of cryptocurrency investing has been a harsh one for me during my two-month venture with my crypto-portfolio down 21.2% and, at the same time, my stock picks are up 34.8% for the year. Although, both stock and crypto have seen a lot of red (decline in value) during the last month as Omicron appeared to be injecting fear, uncertainty, and doubt regarding the future economic outlook.
If you have any cryptocurrency experience you would like to share, please drop me a note!