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Intro to Crypto

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
February 15, 2022 5:10 pm

Intro to Crypto

MoneyWise / Rob West and Steve Moore

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February 15, 2022 5:10 pm

Almost everyone has heard of Bitcoin and cryptocurrency in general, but many folks are still unsure about what it is and how it works. On today's MoneyWise Live, host Rob West will welcome investing expert Mark Biller to give us an intro to crypto. Then, they’ll take your calls on various investing and financial topics. 

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It's no wonder that so many people are confused about crypto currency.

The word crypto itself means secret or Rob West to questions we often get or what is crypto currency. Should I invest in law Mark Miller joins us today that answer the first one the second one well you'll have to decide if it's all your calls at 800-525-7000 800-525-7000. This is moneywise live biblical wisdom for your financial decision by our guest, Mark Miller, executive editor of sound mind investing in. There's no one better to shed some light on this mysterious thing called crypto currency market. Your were glad you're with us today. Thanks, Rob. Always a pleasure to be back with Bob looking forward to this topic. I know a lot of our listeners have questions about. At the end. I know you're going to give us a bit of a primer on it today. Almost everyone has heard of bitcoin and crypto currency in general. We even got commercials with Tom Brady and Matt Damon pitching it to us, but if I had to guess, I'd say they don't really understand it and I'm excited you're going to unpack some of these key concepts where you want to start while Robert is a big subject, but I think the best place to start is probably to set this up this whole broad topic of crypto currency as a new form of computing technology and that may be a different way than some your listeners have have thought about this before but I think it will help us to understand really what's going on here. So to set some contacts. Let's think about how we got personal computers in the 1980s.

Then we kind of evolved to the Internet in the 1990s, mobile computing by our phones and other devices. Since then, and crypto is potentially at least the next evolution in this computing sequence so the primary focus of crypto, at least at this point is creating a new digital financial system now bigger, broader than just trying to come up with a new form of money, but since everyone is already familiar with money. That's probably a good place for us to dig in doubts and the keys. This new kind of money is that it's decentralized that is not controlled by government says with other currencies right yeah that's exactly right Robin and this is where bitcoin comes into the store and kinda kicks off this whole crypto era you will so in 2008. This anonymous white paper was released that outlined a new digital currency called bitcoin that his vision was for a peer to peer currency like you like you mention that was outside the control of any government now.

Surprisingly, this whole white paid this whole white paper is only nine pages long so you can download it off the Internet read the whole thing and it's captured the attention the imagination of millions of people in the dozen years since then have besides being decentralized and outside of any government control.

Bitcoin checks a lot of the boxes of functional money so things like durability, portability, scarcity divisibility, those sorts of functions and importantly, and this is in direct contrast with most fiat currencies like the dollar, the euro yen we see today the impact of the inflationary monetary policies that drive those currencies. While bitcoin was designed right out of the box from the very beginning to be sound money so there's a fixed cap on the total number of bitcoin's that can ever be produced. And so it was, it was designed as a contrast to our inflationary currencies government currencies so when you think about it that way, bitcoin has a lot of the same sound money appeals that have attracted people to gold over the years and that's actually how it's often described as digital gold yeah really interesting and will be talking a lot more about not only what is bitcoin and the other crypto currencies, but should we invested in a lot of folks have been marveling at what's happened to it. As of late, to the extent it was asked really intended to be a store of value wealth we've seen incredible volatility as these highflying stocks going down crypto has literally been plummeting at least it was in the early years of talk about how you think about it from an investment standpoint and continue to unpack this a bit further questions or your questions today for Mark Miller little later in the program market is the executive every sound mind investing just more to come moneywise live God's word intersecting with your financial decisions and choices.

Unpublished host joining in the segment Mark Goodfriend, editor of sound mind investing in he shedding some light today on crypto currency. What is crypto and should you invest in it and loved to turn the corner.

Mark I appreciate your background explanation on what it is let's talk about the investment side there's been a lot of attention given crypto's as an investment. Yeah, for sure, and certainly been my hot return place over the last decade, at least talk about bitcoin but as you mention that comes with a lot of volatility.

Give us a bit of a unpacking of what's happened just in the last several months. Yeah so you could go back. I suppose if we go back to the beginning of 2021 or go back to the decline in 2020 when the stock market fell in the covert crisis began. So at that point, bitcoin and the other crypto's fell dramatically along with most other investments as everyone wondered whether we are facing the end of the financial world as we knew it in the regular world as we know it, but then crypto rallied strongly in 2020 and 21 last year in 2021.

No summertime swoon. So bitcoin and the rest of crypto sold off by more than 50% bounced all the way back to set new highs late in the year.

Set a new all-time high around $70,000 per bitcoin just under that in November and then proceeded to roll over and have a second 50% decline so I know when I'm saying these numbers Rob it's it's maybe hard for listeners to really put this in context, but 50% declines, you can go back over the last 50 years in the stock market and there have been three of those.

We had one in the early 70s in 2000 and 2008 and what I just rattled off about the last 18 months is we've had two of those in the last year and 1/2 and crypto. So the type of volatility that were talking about. To put it in context for listeners. You need to be thinking about the volatility of tech stocks and then multiplying that by about four times so at this point in the crypto lifecycle you're talking about the extreme edge of the risk reward spectrum as your thinking about investment asset classes.

That's really important understand is that volatility marks fly in the face of the design to be sound money in it certainly does.

At this point, but I think what the crypto proponents would say to that is simply that this is so new this technology in this whole asset classes so new that it probably isn't fair to judge it based on where it stands today 12 years that there is an expectation that as more institutional money comes into the space which certainly has been happening over the last year. Most of the major banks and investment players have been in some fashion have been embraced. I wouldn't say embracing the space by getting involved to some degree in the space putting some capital to work in the space that some of that volatility should come in over time. I think that's probably reasonable by as an individual trying to think about is this something I should do now. We clearly aren't there yet. As far as that volatility being in a kind and driven out of the space it's still a very volatile space of very high risk reward. No question about it. Split was helpful rights we've covered what crypto currencies are you touched on them as an investment. Let's explore how they work.

I know the article that really is backing all of this that you're talking about today that you wrote. Well, for folks confided sound mind it goes into a fair amount of detail on how those crypto's work. Give us a high level explanation yeah you're right Rob, you can get pretty technical all but the first thing to understand is that crypto currencies run on something called a block chain now block chain is just a record of transactions that updated and maintained by Ed decentralized network of computers. So think of this in contrast to like what your banks maintains your bank is a centralized institution that maintains a ledger of transactions and so block chain is a decentralized version of that that that takes this out of the control of the big institution and puts it in the hands of group of individuals of networked computers that can accomplish a lot of those same goals. Now someone listening that may be thinking well how would I ever want that but if you think about it. Were seeing kinda all around us today. The breakdown of trust in centralized institution so distrust of the Fed and what they're doing with our money distrust of the global health institutions and what they're telling us you know about different health things and then of course you got specific examples popping up all the time of these big tech companies, you know, deep platforming people trying to censor different opinions they don't agree with all these sorts of things so you can understand why there's a big appeal of being able to accomplish a lot of the same tasks or goals in a decentralized way that doesn't require trust and a centralized institution.

So the bottom line here Rob is most crypto projects are taking something that were already familiar with something like currency or saving lending these different financial functions that normally require us to interact with the big institution and crypto is trying to redesign that particular function using computer code in a way that enables groups of people to accomplish it in a trust list, decentralized way yeah really helpful and interesting well to pause for a brief break we come back. Mark Miller will be with us to talk about the risks of crypto currency again a bit more on investing in your question 800-525-7000 questions on crypto's bitcoin will be right back on moneywise lives.

Please join us today for moneywise live close to me today. Mark Miller is editor of sound mind investing. This is the program were God's word intersect financial life choices. Decisions you make every day we recognize you cannot serve two masters.

Matthew 624 says you can't serve both God and money. And in my experience, if something's going to compete with God for first position in our lives.

It's most often going to be money in the things that money can buy. So how do we see money is a tool recognize our rightful place as steward God is the owner and follow his heart so we can ultimately give generously will that's we want to do each afternoon.

On this program today were talking crypto's we get a lot of questions about crypto currency. What is it, should I invest in it.

How should I think about it as a form of currency in the future. Is it something as a believer I should stay away from.

Well, our good friend Mark Miller from sound mind investing took a deep dive into this. You can check out the article. It is extensive cold intro to crypto you'll find again intro to crypto sound mind marks here for another segment or two will answer your questions on crypto currency will also take your questions on anything investing related. We got a few lines open 800-525-7000 Mark. Let's head to the phones, Frankfort, Illinois hi Mary, thanks for going out to help you my call. Wondering how Mark felt about crypto being accepted your church like Dan today, you could get what interesting marker seeing more more the major retailers beginning to think about and even accept crypto's but what about the church and I think that eventually Mary were probably going to get there. I haven't actually heard of any churches that are doing that.

There may be some out there that are really technology savvy and kind of ahead of the curve.

But you know I think the key Mary really is that crypto's hope. Their goal is that anything you'd be able to do with the regular dollars regular currency that you'll eventually be able to do that with crypto as well and so as more people have crypto use crypto and are you wanting to give in that way I would imagine churches will eventually add that capability much the same way. Some churches will allow members to give shares of appreciated stocks or other financial securities.

So there are some extra steps that go into that that have to be done by the church so I wouldn't expect that to be real broadly adopted real soon, but I tell you this crypto space keeps evolving very very quickly so it probably won't be long before at least some people are doing that in marketing so like you have a fundamental problem with folks using crypto as a currency as long as they're not investing is a right yeah I think that that's true. I mean really again.

Ultimately, the goal for crypto is to kind of be used interchangeably as as you would currency in any other context. So I think that down the line. That certainly likely to be an option. And again, for certain folks that are into that. The crypto scene in and have these currencies already than the flexibility to be able to use them in that way.

Certainly would be attractive to your calls and questions today for Mark Miller 800-525-7000 Mary thank you for your call to Warsaw, Indiana hi William, thank you for calling today. How can help you. Okay thank Karen I am from Mars yet so break it up just a little bit wanted to try to maybe move to the right or left Betsy we get a stronger signal and go right ahead. I William from Warsaw, Indiana, Besser. I am pulling over now.

I'm sorry with David Mark Miller is with us today Mark, I'm sorry I Mark you know from word of decentralization and then an inflation been so my first question is, my understanding is bitcoin is the only one that doesn't have a corporation or something as well.

Appear and I did know is there another one worked out hundred percent. Appear and, if not of the ones that are controlled by groups, are any of them having software and pledges to not inflate away their crypto currency so it loses value like my US dollars. Mark is not yeah so you're not a real important point William and that is that there thousands of these different crypto currencies and this is actually one of the criticisms of the whole spaces there so many that it's impossible for anybody who isn't dedicating every waking moment took following the space to keep track of them all. So what ends up happening is the largest projects tend to gather most of the attention but there is there's a lot of variety between these so you can't assume you know when you hear me talk about bitcoin. For example, you can't turn to another project and assume that the same things are true, as you are pointing out here William a lot of these currencies do not have the same kind of sound money principles built into them that limit the issuance of the number of tokens, the number of coins of that particular instrument and that's a criticism. A lot of times that people who are fans of bitcoin will criticize the other projects because of their lack of those types of controls.

The other thing that happened some within the space we seen this with the second most popular crypto which is a cerium is we've actually seen them change the some of the rules Put it that way. Without getting into the detail they changed some of the rules about how their their crypto currency operates. Now the fact that they've changed them to make it more like bitcoin to make it more of a deflationary currency rather than an inflationary currency bitcoin folks say well that's all well and good but the very fact that you could change the rules is a problem so there's there's a lot to unpack their William but it is fair to say that bitcoin kinda has its own niche within the marketplace as kind of that sound money representative and while there are others that tried to emulate that there are a lot of other projects, a lot of other crypto's that really that is not a focus and you know to be fair, a lot of other crypto's are not really trying to be an alternative currency. A lot of the other crypto's are more probably better thought of as many tech companies are many technology projects that are trying to solve a certain function that something different than being an alternative currency, they may be a lending platform or us saving and borrowing platform so there's a lot of variety within the space.

I hope that was helpful. William very good marketing those comments, William. We appreciate your call today marks can stay with us one more segments of you have a question they would love to hear from you anything on investing more specifically crypto currencies which we been talking about today 800-525-7000 11 call is 800-525-7000. By the way, if you want to read the article that Mark is written on this topic to topic its extensive been really helpful. You'll find sound mind it's called was lives.

The picture to moneywise live wisdom for your financial decision West Coast joining me today. Mark Miller Goodfriend, executive editor of sound where you'll find the article were talking about today. Intro to crypto Markley SQ we talked a bit in earlier segment about investing in crypto you said boy it's good to be highly speculative volatility off the charts.

Any other risks we need to be aware of. Yeah, I think there are. I think they really are three big risks that stand out. We talked about the volatility. That's the first one.

The second is were at this early stage where like I mentioned a minute ago there thousands of these different crypto's and I think that were going to see a winnowing process over the next several years, where most of those and up probably ending up worthless with a handful of survivors and a lot that fall by the wayside, like we had with it the whole Internet filled out 20 years ago so there's a lot of risk in trying to pick particular winners as opposed to kind of thinking of the whole space advancing over the next several years as a as a group and then the last risk that I think is really a big one. Rob is I think we've reached the point in crypto's development where governments are beginning to pay attention for for most of crypto's life. It's kind of flown under the government radar and the fact that this competing currency was just kind building a following, and becoming popular, and often a corner of the Internet was kind of ignored and gotten to the point now where the governments are no longer ignoring it, and I I have thought all along that the biggest risk to crypto is governments saying we get too much value out of controlling our currencies to allow this competitor to chip away at any of those advantages that we get from that and so I think were at the regulation stage where not necessarily saying that governments are going to ban it.

Although some have done that but I think that governments may start to make it more difficult, more regulation and more control over the on and off ramps to get in and out of crypto so I think were going to have a few years here were a lot of this is being sorted out and that is definitely a risk to the crypto space, but I think the big idea here Mark is that we just don't need as we think about our portfolios and what were trying to accomplish with their long-term investing right. Yeah, that really is the bottom line Rob a man in the same way that most investors don't need other speculative investments crypto falls under that same bucket so if you don't understand this. You're not intrigued and interested in learning about it don't feel like you're missing out here enough crypto really does hold all the promise that the optimists think it does work and I have chances over the next several years to participate in this with the last risk as this industry matures now on the flipside of that. If you are somebody who's intrigued by this and I wouldn't I wouldn't wave my arms and say absolutely not what I would tell somebody like that is rather than putting their focus on getting a lot of money into this space right now. Put the focus on really learning and understanding this space before you put a lot of money at risk. Go slow, keep the sizing small because like we set a couple times crypto really is speculation more than an investment at this stage in its development. She really need to treat it just like you would any other really risky piece within a portfolio, yeah very good spot a few more questions on this topic. Let's quickly go to the phones Franks in Tampa holding think patiently for anger and thank you so much a part yeah right. Well, I really get information. So the question on the Christian financial show. I don't know you cannot get anywhere with the girl of there's a lot of Christians that feel on easy about things that are happening in our world today. We think a lot about court, living in biblical times, and certainly the world global economic seems to be very volatile as well. You have any thoughts in terms of what kind of old crypto may play in the future in terms of certain currencies are government have to do a reset with their currency because they printed too much money yeah yeah that's a really good question Frank. It's really about as broad and limitless as the person's imagination. You can go on a lot of different directions with that saw this offer couple of quick thoughts and I think that you're right there a lot of things that are concerning to Christians that we see in the environment around us related to the money related to government encroachment and control of of populations is receiving around the world and I think that that crypto may play a couple different roles so, on the positive side, the idea of a decentralized monetary system awaits you be able to do financial transactions that may be, is outside of the heavy hand of government is obviously very attractive, as is often the case when there's a really good idea that's outside of government, government will often come in and try to replicate and kinda make it their own and were seeing that as well with government issued digital currencies and those are a totally different animal. Those have a lot of potential to make Christians queasy because they open the door to government surveillance and knowing every movement of those currencies through the financial system so you know there's there's kind of positive in these private crypto's the potential that they have to steer us around some of the inflationary policies.

Some of the government control and oversight that that is uncomfortable to Christians. There's also a potential threat as governments themselves introduce their own versions of these digital currencies so I don't want to take that too far in either direction, but Frank, I think there's there's both sides of the coin here. As you look at it both the positive potential side as well as the potential negative side line to your point Mark. The Federal Reserve is actually is a paper out right now that their inviting comments on related to a digital dollar black backed by the US government right yeah that's exactly right. And not surprisingly, here, China has taken the lead they already have their central bank digital currency. I believe it's in circulation already. If not, it's real close and it's easy for us to look at that want to go wow that looks like a really scary idea.

But, of course, other governments can follow that same path so a lot to think about their question. Quick question for you ramp up to the bitcoin initially get value supply and demand more people wanted it limited supply. More demand the price goes up. This is been really helpful. We appreciate you stopping by today. Thanks so much.

You can find this article of sound mind sound mind it's called intro to crypto will be right back. Stick around 621 says treasure is, there your heart will be also. This is moneywise live. We recognize that our heart follows our money. Therefore the way we allocate God's resources tells a story about where we placed our trust. What we value. What's most important to us. The question we all have to ask is, is the way I'm handling God's money and accurate reflection of what's most important to me. Truly, if not, what changes do I need to make the good news is God's word offers counsel on how we can apply his wisdom to our financial decisions today on this program. Each day will help you do that, we got slides open our final segment today will be taking your calls on anything financial 800-525-7000 is never the call with a few lines opened. Let's head to Austin Texas. Betty, thank you for calling holding today. How can I help you yet hi gorilla had okay and see what my direction. I think I'm used to.

I am retired I have to like 18 of which they think and teach each every so often I have a market that 24,004.662%. I have a car that I purchased it by 10,003.615. I'm coming out now to homeowners insurance which skyrocket 5000. I'm just wondering if I should go ahead and take 18 out in pain. The car off to homeowners insurance, and a couple little things that I have been I would not have a car, which is $474 okay let me ask you this ability with your income that you have, which I assume is Social Security and in the do you have some pension or retirement plan as well to retirement accounts are so with your retirement income plus Social Security. Do you have the ability to cover your expenses and continue to keep the mortgage and the car payment current comes the point where sometime it whatever comes in 3 to 4000 have to pull it out yeah okay but if you were to really dial into your spending plan and develop a budget based on those known income sources.

Those guaranteed stable income sources that you have of Social Security into pension checks that you were able to cover your expenses. Every month, including those things you don't get a bill for an you live within your means is that right, no, no, no, no saving no origin on that email, and do you have an emergency fund that set aside now only thousand dollars okay. Would you be able to make any kinds of changes. If you are really kind of dial into your spending plan to look for opportunities to cut back if you ever gone through and I realize you know you're on a limited income, but if you taken a hard look at how you might cut back some of your expenses well.

What I didn't want I have donations that I give out like $450 and I cut down for a few months and came back and I feel I didn't know I need to give it well which sure I would concur with that.

Well you certainly you could pull the money out of the retirement account and there is a portion that you're going to have to take out each year. That is a required minimum distribution out of this account, but I think this is expensive money in the sense that you have to pay taxes on it as it comes out his income and so if you could cover your expenses you out of your current cash flow and leave that retirement account in place as something perhaps you know that you could fall back on if you have an unexpected expense. Later I'd I'd prefer you do that, I think the key is to get a hard look at that spending plan to see what expenses you could eliminate not starting with the giving. But looking at other places and then once that card debt is paid off, and you'll get it paid off.

Eventually I keep making that payment to yourself. At that point to try to build up first. Your emergency fund and then beyond that, you know, a short-term savings account for car replacement things like that that will come down the road, but I try to do that at a current cash flow. Just try to keep your budget as lean as possible. Let's try to keep this retirement account in place if we can so that you've got something to fall back on if you need to down the road. I think that would be my first choice. If you do still had a real conviction that either. I just can't make this work financially and or you just want to be out of debt with respect to the car than I would say probably start their eliminate that car payment which is a pretty hefty expense over $400 a month you know that would allow you to keep still about $8000 and that retirement account in the least that one would come off the table. The key, though, would be to make sure that that $450 or so a month goes back into your savings account to start to build up your emergency fund is I'd like for you to set a goal of six months expenses in that emergency fund. The other thing will be to make sure that you pull out enough so that you can cover the taxes because you don't want to be surprised with that tax bill so I would either say let's go back to the budget cut expenses where possible and try to stay the course or at the very least let's pay off the car loan but I probably not pull 100% out because if you can't pay off the mortgage in full doesn't really do you much benefit because your payment is not going to change Betty. I hope that helps you. We appreciate your call today to Rome, Georgia hey Douglas, thank you for calling I can help you yet.

Thank you. Robert got enough cash to buy a car outright quality high end use car. The question I have a higher price war from the dealership. Tell him I want the best cash offer by going with that guy go and pay no all finance go ahead and initiate the financing so I can get maybe negotiate a cheaper price and then once my very first payment on the car loan. Just pay the whole loan off yeah you know my experience is that that doesn't work necessarily a minute what I would try to do is first really do your due diligence Doug Douglas on the make and model that you're looking for. Whether it's new or used find you know the car that you want after you've done all the research on the reliability and you really landed on the car that you want then I would just scour literally the country and in the last car I bought. I flew three states away.

Spent the night in a hotel, but the car the next morning drive drove it all the way home just because I was able to save several thousand dollars at a dealership adjusted, high-volume, and I had exactly what I was looking for, but it takes time.

You can take months to actually find the car you looking for but I would get somebody who's looking to just move their cars and you know probably the end of the month is going to be the time you want to do it where they're trying to hit a certain threshold to be able to get a dealer rebate based on a volume from the inner from the manufacturer and you I would negotiate their very best cash price because even though they do have some incentives and make some money on that financing you there's going to typically be some extra fees in there and I think you should be able to negotiate a cash price that would be even better, as long as you're willing to wait it out and find the dealership that will do it doesn't make sense and thank you. Okay.

We appreciate your call today. Douglas God bless you sir were to finish today.

Miami, Florida hi Angela, how can I help you. Despite insight right now it whether or not I want to put up money at my investment to pay my house off, which is $80,000 and so I wanted to. The money that I painted the mortgage company, I want to give that money to my church and to charity, but be fatal to your house up a special text rate takes right up charity also can be a tax write off.

So I wanted to know if that was a good ideal yell. I love the fact that you would be debt free. Angela sometime never someone that says you should keep a mortgage for any reason, including taxes, reality is 80% of folks don't itemize any longer because of the standard deduction being doubled. So you're probably not even getting any benefit.

But even if you are it's not just the financial side there's the nonfinancial side as well. Owning your home being unencumbered the peace of mind that comes from that into your point taking some money off the table in terms of your monthly expense and then your ability to give. So I think the first question though is just where would these funds come from.

Is this in a retirement account or what I would call a taxable account okay I do have a taxable booklet charge for Charles Schwab. This is in addition to your retirement savings right okay. It is this money currently invested or resident cash is currently in okay and do you know what kind of capital gains you would generate by selling I don't know that okay alright so I would take a look at just the tax implications before you do anything she may want to check with a CPA.

If you use one.

If not, maybe this is the year to do that. But in terms of, you know, the trade-off between you know keeping a mortgage for any number of financial reasons versus selling in versus paying it off. If you have the money. You're not going to deplete all of your reserves. If you still got an emergency fund of 3 to 6 months expenses you still have your retirement account intact but you have the ability to be able to wipe out that mortgage free up some cash flow that you and I can use to increase lifestyle but used to continue to save or give. I would say that's a no-brainer. That's a you go for that. Especially if you have real conviction around it. So I think that's a great idea, but I deftly want you to investigate the tax implications in the performance of that account before you make a decision not saying that you prevent you but you just want to understand that Angela, thank you for the call to love upsets you to do it for us today moneywise live is a partnership between radio and moneywise media was a thank you to my team today. Thank you to Amy Rios of producer Dan Anderson, engineer. Thank you, Mr. Robert Sutherland providing research and thank you for you tomorrow for the Wednesday edition of moneywise

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