I decided to write an article about Bitcoin, Gold, and Forex because I am constantly getting questions from friends and family about them. Gaining knowledge about these “trending topics” will help my readers avoid running into trouble. I believe that when done correctly, these strategies can yield great results.
At first glance, Bitcoin and Forex might seem like completely different subjects. But conceptually they are extremely similar. The principle behind both is the exchange of one currency for an alternative currency. For example, exchanging dollars for Euros in the case of Forex. Or exchanging dollars for Bitcoin in the case of Cryptocurrency trading. The “method” that people use to make money with either is exactly the same.
I also receive many questions about investing in Gold. Gold is currently increasing in value very quickly, and could be an interesting investment.
If you are only interested in one of the three topics, simply jump to that specific section below.
What exactly is Bitcoin, and how can you invest in Cryptocurrencies?
In simple terms, cryptocurrencies such as Bitcoin, Litecoin, Ethereum are “digital” or “virtual” currencies. These currencies provide an alternative to traditional physical government-issued currency. Crypto “coins” are NOT physical coins, think of them as “digital tokens”.
These “digital tokens” can be utilized to perform online purchases. They can also be used as an investment vehicle (they can hold value as an independent “asset class”).
Transactions involving cryptocurrencies are tallied in what is called a “blockchain”. Think of blockchain as a constantly growing database. Each specific transaction is verified, and subsequently logged in that database. For example, person A sent bitcoin to person B. That transaction information is logged in the next “block” of the “chain” of transactions. The transaction information is then sent throughout all the corresponding nodes within the network for verification purposes.
Because of that “transaction verification”, it is currently believed that cryptocurrencies are impossible to counterfeit. Bitcoins can’t “magically” appear on someone’s account unless someone sent them. If there is no record of the transaction, then those Bitcoins can’t be valid.
Finally, cryptocurrencies are decentralized. This meaning they don’t “belong” to any specific government.
Why some people USE Cryptocurrencies:
- Bitcoin can be seen as an alternative currency when you’re online shopping. Cryptocurrencies are currently accepted by many stores/vendors, and that number is only growing. You can use Bitcoin to make purchases globally. Bitcoin is generally regarded as extremely fast, safe, and convenient.
- You can also use Bitcoin to send funds to a relative or business partner quickly. Wire Transfers take time and are expensive. Additionally, wire transfers are particularly burdensome when there are different currencies involved. At the time of this writing, wire transfer fees from “big banks” cost approximately 35 dollars. By comparison Bitcoin’s transfer fee is around 3.5 dollars, ten times less!
Why some people INVEST in Cryptocurrencies:
1.) Cryptocurrencies can be used as a way to diversify your assets.
Spreading your risk throughout a variety of assets is generally considered the safe thing to do. Especially if the assets are “uncorrelated”. Cryptocurrencies are generally uncorrelated from most other asset classes.
Diversifying is beneficial because it is never a good idea to put all your eggs in one basket. Cryptocurrencies are also extremely volatile, so big price chances could generate lucrative gains (or losses).
Bitcoin’s valuation has had a dramatic increase over the years. The steep “ups and downs” have resembled a roller coaster ride.
In 2010 for example, Bitcoin traded throughout that year at a valuation of 1 Bitcoin for 10 cents of a dollar. From there, it had a meteoric rise. In December 2017, the value of 1 Bitcoin was approximately 20,000 dollars!
In 2020, Bitcoin’s price has decreased from 2017 highs, but continues with its typical volatile nature. This year it has oscillated between $5,000 to $13,000. So big gains are still possible. When I wrote this article, 1 Bitcoin was worth approximately $10,000.
However, always keep in mind that Bitcoin’s potential high reward is also directly linked to high risk!
Cryptocurrencies tend to be much more speculative and volatile than other asset classes. Bitcoin is not for the faint of heart. Only individuals with a high-risk tolerance should even consider it.
Perhaps they could start with a small position, and proceed from there at their own risk. Individuals that want to invest in Cryptocurrencies should treat them as a “secondary investment” or “wild card strategy”, where they could potentially win big…or lose big.
The “primary investment” strategy should revolve around “The Big Three” investment vehicles:
2.) Money Printing & Hyper-Inflation concerns:
Currently, the world is experiencing a situation that might create an interesting opportunity for Crypto-investors. An unprecedented money printing effort from the United States Federal Reserve is underway. The goal of this effort is to stimulate the economy and mitigate the impact of the Coronavirus. Critics call this money printing strategy “Quantitative Easing Infinity”. A very similar effort from the European Central Bank is also underway.
This has led many people to speculate that inflation is going to affect traditional Fiat currencies like the Dollar and Euro. In simple terms, FIAT currency is money whose value is not linked to a physical commodity. For example, in the early 20th century, American dollars were backed by Gold, but not anymore. A potential strategy to hedge against inflation could be allocating some funds into Cryptocurrency.
Bitcoin and other coins are currently considered by some as a “safe haven” commodity. A mechanism of protection against hyperinflation (like Gold or Silver have in the past). This is because there is a finite amount of Gold and Silver on this planet. Theoretically, there is a finite amount of Bitcoin as well.
Cryptocurrencies can’t be printed out of thin air, like FIAT currencies currently are. The maximum number of Bitcoin that will ever be “emitted” is 21 Million. The rules for emitting Bitcoin are very clearly defined and not changeable. (Bitcoin is actually “mined”, not “emitted”).
Because of the inflation risk, holding cash represents a big opportunity cost. Some have even gone as far as saying “cash is trash” and should be invested into assets fast. One of the individuals currently stating “cash is trash” is legendary Hedge Fund manager Ray Dalio.
My ACTIONABLE Tips for Bitcoin:
If you want to venture into the cryptocurrency world, you should take a look at Coinbase!
At the present moment, Coinbase is the leading Cryptocurrency broker. Millions of people around the globe buy, sell, and trade cryptocurrencies using Coinbase. The broker is widely regarded as safe and trustworthy.
Coinbase is a “one-stop-shop”. With their platform you can easily:
- Transfer dollars to Bitcoins.
- Hold Bitcoins for as long as you want in your “digital wallet”.
- Whenever you desire, you can transfer your Bitcoins back to Dollars.
Their fees are among the lowest in the industry. The platform’s interface is extremely user friendly. Aside from Bitcoin, Coinbase also supports dozens of other Cryptocurrencies such as Litecoin and Ethereum.
Click HERE to visit Coinbase!
Why do people invest in Gold, and how can you invest in Gold today?
Throughout centuries, Gold was utilized as the principal currency worldwide. If there has ever been a “universal currency” it was certainly Gold.
Right now, gold isn’t really used as a currency to execute trades (direct purchases). For example, buying an iPhone with gold coins. Nonetheless, it can certainly be used as an investment “asset class” to store value. Additionally, gold can be exchanged back for dollars (with relative ease). Those dollars can then be used to buy an iPhone. Nowadays, Gold is considered more of a “Commodity” than an actual “Currency”.
Many individuals like to use Gold as an investment vehicle. Gold typically outperforms other asset classes in periods of great instability. Such as World Wars, Depressions, or Recessions. Gold prices also climb when there are periods of massive fear. For example, fear of another housing market collapse, banking collapse, stock market collapse, fears of the European Union dissolving. Some large gold “investors” are foreign governments that want to give stability to their currency.
Let’s look at some interesting periods were gold has appreciated massively:
- The price of one troy ounce of gold has climbed from $1,200 in September 2018, to $1,985 in August 2020. Meaning that in less than 2 years gold appreciated 65.4%.
- The price of one Troy Ounce of Gold climbed from $240 in November 1970 to $2,150 in February 1980. So over that decade gold appreciated 796%.
Currently, a lot of people believe Gold could be a great investment vehicle for the next couple of years. Their premise is that the dollar might depreciate as a consequence of the “money printing” efforts the Federal Reserve is undertaking (to mitigate Coronavirus economic damage). For more details, please read “Money Printing & Hyper-Inflation concerns” in the Bitcoin section above, since the same “scarcity” concepts apply to Gold.
My Actionable Tips for Investing in Gold:
If you would like to diversify your investments, buying some uncorrelated asset classes like Gold could be a great alternative.
The easiest way to invest in gold is to buy a gold-oriented ETF (Exchange Traded Fund). You can do this easily through your online broker, the same way you buy stocks. Check out my article on the best discount brokers for 2020.
My current favorites are Webull and M1 Finance. Click HERE to sign up to Webull and get a FREE stock! All you have to do is make a $100 deposit into your account within 30 days.
One of the most popular Gold ETFs is “SPDR Gold Shares – GLD”. It has over 57 billion dollars worth of assets under management and has delivered a return of 35% over the last 12 months.
What exactly is Forex Trading?
Forex refers to the “Foreign Exchange Market”. The people engaged within this marketplace exchange national currencies. Currency prices are constantly changing relative to one another. The goal behind Forex Trading is to make money from currency exchanges.
The general steps look something like this:
- Trade currency A for currency B.
- Wait for Currency B to “strength” relative to currency A.
- Trade Currency B back into A.
Meaning, the acquired currency has experienced an “appreciation” relative to the original currency. Thanks to this strengthening, the acquired currency can then be exchanged for more of the original currency.
Why do people “trade” Forex, and how do they make money:
Let’s do a simple example with real numbers for illustration purposes. Let’s assume we originally exchange 100 Dollars for 90 Euros.
Then, let’s suppose that after 3 months, the euro has strengthened relative to the dollar. Therefore, our recently acquired 90 euros are now equal to 110 dollars. So, we decide it is beneficial to exchange back those 90 Euros for Dollars. Therefore, we finally end up with 110 dollars, not the 100 dollars we started with.
For us, the aforementioned trades represented a profit of 10 dollars.
In a way, the underlying goal of trading Forex is very similar to the goal behind trading stocks. In any type of trading you’re always trying to “buy low, and sell higher” than your purchase price
The Risks Of Forex Trading:
- The most evident risk involving Forex Trading is that a currency can strengthen relative to another currency, but it can also weaken. In our example, the Euro could have “depreciated” vs. the US Dollar. If that occurred, instead of exchanging our 90 Euros for 110 Dollars (gaining 10 Dollars). We could have ended up exchanging our 90 euros for let’s say only 95 Dollars. Ending with 5 dollars less than the 100 Dollars we originally had.
- Currencies are extremely complex. Their price fluctuations are governed by a significant number of variables including: macro-economic factors, trade between countries, interest rates within those countries, geopolitical risks, tourism, inflation, international wars, etc.
Thus, it is extremely hard to predict fundamentally where are currency prices going. Most Forex Traders rely on charts, and patterns to try to predict where prices are going. They usually look at graphs, and try to identify a “support point” to buy (entry a specific position). Or identify a “resistance point” to sell and (abandon that position). To do this correctly, you need a good amount of knowledge and training. Forex can be very profitable, but you need to know what you’re doing!
My ACTIONABLE Tips for Forex Trading:
Before investing money, people should invest time to acquire knowledge and skills on the particular craft they are going to execute. They should invest time to learn how to do it successfully, develop a strategy, and stick to that plan. A man with no plan has planned to fail.
Before you waste your money on an Instagram Forex scammer with a debatable track record. Or worse, lose a ton of money actually trading Forex without any knowledge, you should gain some insight. Just like Warren Buffet said: First you “learn” and then you “earn”.
To gain adequate knowledge related to Forex trading, I suggest you take a look at Forex Mentor Pro!
Forex Mentor Pro started back in 2008 and has 5 Star ratings on independent review sites. They offer affordable training content, that teaches traders of any skill level strategies for Forex trading. To successfully profit in the Forex realm you need a solid foundation, Forex Mentor Pro can help you cover your bases. You certainly don’t want to improvise when it comes to Forex, since you could make a lot of money or lose a lot of money.
Click HERE to visit the Forex Mentor Pro website! It is certainly in your best interest if you want to give Forex a try.
NOTE: This article is not financial advice, it simply provides general information about “alternative currencies” for educational purposes! Always consult with a licensed financial advisor that is fully aware of your specific situation before making any investment decisions. For more information regarding investment risks, please read the disclaimer in the footer section below.