RL050 - Retirement Lifestyle: Crypto Wall Street: Bitcoin, Blockchain, and Crypto
On this episode of the Retirement Lifestyle Show, Roshan Loungani, Erik Olson, and Adrian Nicholson talk about Blockchain, Cryptocurrencies, and how to incorporate them into your portfolio. They also dissect how heavily shorted retail stocks have been taking the market by storm lately, with individual investors clashing with big institutional investors.
Roshan can be reached at roshan.loungani@aretewealth.com or at 202-536-4468.
Erik can be reached at erik.olson@aretewealth.com or 815-940-4652.
Adrian can be reached at adrian.nicholson@aretewealth.com or at 703-915-8905.
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[04:09] GameStop Stocks
[13:33] What are Cryptocurrencies
[19:19] Defining Blockchain Technology
[32:58] Uses of Cryptocurrencies
[46:45] Investment Thesis Behind Cryptocurrencies
GameStop Stocks
The past week or so has seen GameStop stocks trend worldwide after users from a Reddit financial group went after their stocks in a move seen as the average investor going after the big institutional investors. What happened was that hedge funds had initially sold the stocks at a higher price with the view of later buying the stocks at a much lower price. The strategy is called shorting stocks and is usually very popular among hedge funds. With stock prices on the rise, after Reddit users bought millions of shares, hedge funds were forced to buy back the stocks at a higher price, thereby going on a loss. These Reddit users' actions emphasized the need for investors to also look at external factors surrounding stocks other than the internal factors that dictate price movements.
What Are Cryptocurrencies?
Cryptocurrencies are basically digital assets that were created on the internet. They are not tangible but are used to facilitate transactions, with their main selling point being that they are free from government intervention. At first, critics questioned the stability and longevity of cryptocurrencies. However, the past few years have witnessed more and more people incorporating these digital assets into their portfolios. As of January 2021, there were more than 6700 cryptocurrencies, each uniquely designed, with Bitcoin boasting the largest market share at about 65%.
Blockchain Technology
Blockchains are what cryptocurrencies are built upon. Blockchains are simply blocks of information that are linked together with one action affecting all the other transactions. This makes it a little hard to manipulate since to change one block, you'll need to change every block on the chain. Moreover, if a person successfully manipulates information on a particular block, all the other blocks on the chain are immediately notified of the intended changes. These blocks of information contain two critical pieces of information, amount and balance. Miners validate every transaction using super-powered computers that solve complex problems whenever a block is added to the chain.
Uses Of Cryptocurrencies
As earlier mentioned, cryptocurrencies are based on a highly decentralized model free from interference and manipulation. Thus, cryptocurrencies are cheaper and faster than traditional money transfer options. In early 2021, a financial institution transferred $99 million worth of litecoin to another party. Interestingly the transfer only took two and a half minutes. What's even more ridiculous is the cost of the entire transaction, which was only 40 cents. Compared to other money transfer options, cryptocurrencies are the way to go. People can now pay college fees, donate to charities, pay for vacations, and with PayPal recently adding Bitcoin as a payment option, it won't be long before we see other money transfer services adopt cryptocurrencies.
Investment Thesis Behind Cryptocurrencies
Although the idea behind blockchains was initially published in 1991, it was only after the Financial Crisis of 2008 that cryptocurrencies came into being. People began to question the stability of major currencies such as the Dollar or the Japanese Yen after Central Banks pumped in vast amounts of money into economies in efforts to boost the economy. That need for a currency that was free from government intervention gave birth to cryptocurrencies. They might currently not be stable enough, but there is no doubt that as more and more people adopt cryptocurrencies, there is value to be gained in the long run. With this in mind, it would be best if you invested a portion of your portfolio in cryptocurrencies.
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