In recent days, the Securities and Exchange Commission (SEC) has intensified its scrutiny of cryptocurrency exchanges suspected of evading regulatory requirements. This increased pressure has resulted in the SEC targeting prominent industry players. On Monday, the world’s largest cryptocurrency exchange, Binance, faced legal action from the SEC, followed by another lawsuit filed against Coinbase.
The SEC’s focus on the crypto market has been amplified since the notable collapse of FTX, which led to charges of securities fraud and money laundering against its founder, Sam Bankman-Fried. Cryptocurrencies, much like politics, tend to elicit polarizing opinions. However, it is important to raise awareness about the underlying technology of blockchain, the rate of adoption, and the associated risks.
Crypto Adoption
In recent years, the adoption of cryptocurrencies, particularly Bitcoin, has experienced remarkable growth. Many enthusiasts and advocates of Bitcoin liken its expansion to the rise of the internet, drawing parallels between the rates of adoption for these transformative technologies.
It is crucial to monitor this development due to its foundation in an economic principle concerning supply and demand. Bitcoin operates on a limited supply of coins, which implies that if you have confidence in Bitcoin’s underlying principles, the rate of adoption becomes a significant factor in driving its price.
Blockchain Technology
Whether you are cryptocurrency bull or not, the concept of Blockchain technology is more widely accepted as a practical application that will be used more frequently. Blockchain technology is a decentralized and distributed digital ledger that records transactions across multiple computers or nodes. It was introduced as the underlying technology for the cryptocurrency Bitcoin in 2008 by an anonymous person or group known as Satoshi Nakamoto. However, blockchain has since found applications beyond cryptocurrencies.
At its core, a blockchain is a chain of blocks, where each block contains a list of transactions. These blocks are linked together using cryptographic hashes, forming an immutable and transparent record of all the transactions. While a deep dive into the blockchain could go for pages, we do recommend investors to read more about this and the applications that could be helpful for future innovations. Below are links to a couple of deeper dives into the topic.
What is Blockchain? (Source: McKinsey)
What is Blockchain technology? (Source: IBM)
Considerations and Areas to Avoid
With the growing popularity of cryptocurrencies, it is essential to understand how to purchase them safely. Below are a few key recommendations to follow if you are going to consider these investments
- Choose a Reliable Exchange
Selecting a reputable cryptocurrency exchange is vital for a safe purchasing experience. Look for exchanges with strong security measures, regulatory compliance, and a proven track record. Read reviews and consider factors such as user interface, liquidity, customer support, and supported cryptocurrencies.
- Secure Wallets
To safeguard your cryptocurrencies, consider using a secure wallet. Wallets come in different forms, such as hardware wallets, software wallets, or paper wallets. Hardware wallets, like Ledger and Trezor, offer enhanced security by keeping your private keys offline.
- Be Wary of Phishing Attempts
Phishing is a common tactic used by scammers to trick individuals into revealing sensitive information. Be cautious of unsolicited emails, messages, or social media posts asking for your private keys, login credentials, or personal information. Always verify the authenticity of the communication and avoid clicking on suspicious links.
- Avoid Unregulated and Suspicious Projects
Be cautious when investing in new or unregulated cryptocurrencies or Initial Coin Offerings (ICOs). Conduct thorough due diligence on the project’s team, technology, and whitepaper. Beware of projects that lack transparency, have unrealistic claims, or promise excessive returns.
While some investors embrace the crypto with open arms and others view this as an area to completely avoid, we do encourage everyone to understand the technology, watch the rate of adoption and to proceed with excess caution when participating in this market.
Presented by the Financial Planning Committee of Lake Street, an SEC Registered Investment Adviser
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.
