Why You Need Incorporate Cryptocurrency Into Your Financial Strategy

Why You Need Incorporate Cryptocurrency Into Your Financial Strategy

Cryptocurrency is becoming an increasingly used form of currency in today’s economy. You may have already incorporated or are considering incorporating cryptocurrency into your financial strategy to build for your future. Cryptocurrency still raises a lot of questions and the huge payoffs come with inherent risks. The purpose of this article is to provide you with information that can help you better understand cryptocurrency and how to properly manage your current or future cryptocurrency endeavors.

Know The Cryptocurrencies You Are Using or Planning to Use

Although there are few well-known cryptocurrencies (Bitcoin, Ethereum), you may be surprised to know there are over 1,600 different cryptocurrencies being traded. Some cryptocurrencies are used as an alternative to traditional forms of currency while others are used for fundraising in initial coin offerings (ICOs). Knowing the types and amounts of cryptocurrencies you hold or are considering holding will help you understand your level of interest and understanding of the different forms of crypto. This information is paramount for future planning decisions.

Know Your Risk Tolerance

Crypto markets are currently extremely volatile. Some forecasters expect the crypto markets to mature and decrease in volatility, but currently there are huge risks in holding even well-known cryptocurrency. Considering the volatility of cryptocurrency is especially important if you are considering taking payments for your company in the form of cryptocurrencies.

There are ways to mitigate the risk of accepting cryptocurrency as a form of payment. One of these ways is to use a merchant account or payment gateway. These accounts allow merchants to receive payment in the form of cryptocurrency, but then convert it into dollars immediately.

If you do want to hold on to cryptocurrency due to its potential upside, remember to consider how much is too much. Speaking with your advisor can help you establish caps on this type of investment to prevent devastating losses due to a lack of diversification.

Secure Your Cryptocurrency Responsibly 

Many buyers of Bitcoin were thrilled when the cryptocurrency was at an all-time high last December. However, many of them were confronted with a brutal reality. Although they had bought Bitcoin and could recognize exceptional gains by selling some or all of them, they could not access them. They had forgotten passwords to their private keys and were unable to take advantage of the fortuitous turn.

If you own or are considering owning cryptocurrency, remember to practice strong password usage and to never forget your password. Using encryptions and backing up your accounts can also increase your account’s protection and should be considered. Also, consider how established the cryptocurrency you are considering is. The more established the cryptocurrency, the less likely it is to being overrun.

Be Smart About Smart Contracts

Smart contracts based on blockchain technology take digital currencies and automatically transfer them based on the terms and conditions of said contract. This contract also allows for full visibility among parties. Smart contracts minimize reliance on third parties and should decrease transaction costs. They can also save time and money by eliminating wait time between party actions. You need to become a smart contract expert and know their benefits as well as their limitations. Smart contracts do not include a dispute resolution mechanism and you may need to seek professional advice to review the contract to ensure everyone is protected under the terms of the agreement.

What About Nodes?

Any electronic device that is connected to the internet with an IP is called a node. They contain and maintain a copy of a blockchain. Each cryptocurrency maintains records through its own set of nodes in the form of computers, phones, or other smart devices. The security of a blockchain is determined by the number of nodes it has. You should know how mature the blockchain is and the number of nodes related to any type of cryptocurrency you are researching. The more nodes the blockchain system has, the more secure it will be against vulnerabilities.

Hot and Cold Wallets  

Wallets store your cryptocurrency key addresses and there are two types of wallets. Hot wallets are connected to the internet and cold wallets are offline and are stored on paper wood or metal. Each have their pros and cons. Since hot wallets are plugged into the internet, they have the potential to be hacked. Cold wallets cannot be hacked. Cold wallets do however, have the potential to be lost. Some cryptocurrency owners store their least valuable crypto in cold wallets with a password and hot wallets with pin protection or uses a passphrase.

Summary

While there are many more questions you may have regarding cryptocurrency in your future, starting with these points will have you well informed and, in many cases, well ahead of other cryptocurrency investors. Many additional questions regarding specific cryptocurrencies should be addressed with professional advisors that can help match your level of risk tolerance with appropriate cryptocurrencies.

 

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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