Is an All-Crypto Lifestyle Possible?
By Megan DeMatteo
What to consider when making the big switch from fiat to crypto?
So you’ve made your first bitcoin purchase, you’ve learned how to buy goods and services with cryptocurrency, you finally have a MetaMask wallet – and now you want to know if an all-crypto lifestyle is possible.
Like Alice in Wonderland, prepare to go down the rabbit hole. But first, let’s take the trip intellectually, looking before we leap and considering exactly how a person would have to switch their bank accounts to live a 100% cryptocurrency lifestyle.
Determining your investment thesis
The first step to every financial decision is recognizing the reasoning, or thesis, behind it.
An all-crypto future seems natural, or even inevitable, for members of Gen Z or younger consumers.
“I grew up through digital communication like emails, text messages, FaceTime, Skype calls,” Randi Hipper, an 18-year-old influencer known as Miss Teen Crypto, told CoinDesk in late 2021.
“Now we’re here with Instagram, Snapchat, Facebook, you know, like everything,” she said. “So with the whole concept of communicating over the internet, why wouldn’t we transact over the internet and use the money of the internet?”
For others, the decision to go all-in with crypto is about inflation: “Bitcoin’s purchasing power increases every day,” said Brian Harrington, product marketing manager at Choice App, a platform that provides self-directed individual retirement accounts (IRAs) for bitcoin investors. “The U.S. dollar is losing to goods and services. It was down 7% in December,” he said, referencing data from the U.S. Bureau of Labor Statistics, which cites a 7.5% increase in the price index for all categories from December 2020 to December 2021.
To start, decide if you want to go all-in on bitcoin or use a variety of altcoins. Bitcoin, like a vast majority of the other 17,000+ cryptocurrencies currently available in the market, is a highly volatile asset. And while many assets often move in the same direction, there are outliers that tend to rise and fall independently – particularly those strongly linked to decentralized applications and decentralized finance (DeFi) protocols. Diversifying across a mixture of coins is usually advisable.
Then, like choosing the right credit card, you should think about whether you want to use a crypto rewards card or prepaid crypto debit cards to make your everyday purchases – and the tax implications for each.
Factors like your age, circumstance and financial obligations may determine whether it’s worth the hassle to set up bill payments – including rent, car payments, health insurance and more – using a crypto credit or debit card.
Younger consumers like Hipper, who lives with her father in New York City, might see the value in learning about these new payment methods from the start, as opposed to those who are already in the full swing of adulthood and have active mortgages and car payments being automatically debited from their checking accounts each month. It’s arguably easier to start from scratch than to transition over to crypto bill by bill.
“I don’t own a car yet. I don’t pay taxes yet,” Hipper said in December – but the teen influencer, who began buying crypto and launched her Twitter account in April 2020 when bitcoin was at $7,700, plans to structure her future purchases and lifestyle costs around her crypto bullishness.
Harrington, on the other hand, waited to transition until it was convenient: “I’m comfortable having a foot in both worlds,” he said. After finalizing a mortgage last year, Harrington decided to make 2022 the year for switching his family’s finances over to a bitcoin-only approach.
Everyday purchases and bills
More than one-third of small businesses now accept cryptocurrency as a form of payment in the U.S., but that doesn’t mean buying coffee, groceries and gasoline with bitcoin is totally straightforward.
A small handful of bills – think utilities, mortgages and other payments to traditional financial institutions – require communication through the Automated Clearing House (ACH) network. Others accept credit card and/or debit payments, for which you can use a crypto rewards card (though normal processing fees may apply).
“Anywhere that takes bitcoin … I’ll pay in bitcoin,” Harrington said. “But for the majority of places that don’t, then I use a credit card and pay off the credit card from my bitcoin checking account. There are now multiple bitcoin apps that have connections to the ACH network.”
Should you convert your savings into crypto?
Crypto as an asset class is notoriously volatile, but thanks to its long-term uptrend, an increasing number of crypto believers feel it’s OK or even preferable to put their savings into bitcoin, according to Harrington.
“Bitcoin Twitter” – aka the online community who shares information about their transition from fiat currency to crypto – first came to the consensus that it made sense to keep one’s checking account in U.S. dollars, since budgeting is tough when a currency’s price fluctuates so wildly from day to day.
But now that inflation is on the rise, more and more people say it’s preferable to put both your checking and savings in bitcoin. The long-term projections rival any interest you might get on a high-yield savings account at a traditional bank, Harrington argues.
“The increased amount of having bitcoin as your total base of money even overcomes capital gains taxes. You end the year wealthier than if you only had bitcoin as your savings and U.S. dollars as your checking,” Harrington said.
But most financial planners would never advise this strategy in case of a crypto market crash or, at the very least, massive crypto hacks: “Don’t pay attention to everything that is in the news that is so sensational,” said Washington, D.C.-based certified financial planner, Marguerita Cheng. “If you start to follow that you’re going to get caught up in fads, not trends.”
While bitcoin and the future of crypto aren’t, according to Cheng, a fad, the market is still relatively new and we have limited data to make calculated projections.
“There’s a difference between investing, saving and speculation,” Cheng said. “We need to learn how to save so that we can invest, and we need to invest to build wealth. Cryptocurrency is very volatile.”
Nonetheless, you can still put a portion of your money that you’re willing to risk in exchange for potentially high returns in a crypto savings account. After all, the road to a 100% crypto lifestyle is paved with baby steps, especially while we wait to see how things unfold.
For traditional savings accounts, FDIC insurance covers certain losses due to the bank’s collapse, but Federal Deposit Insurance Corp. (FDIC) insurance doesn’t cover loss or theft. The bank’s insurance policy will cover thefts, while fraud is covered under federal law when the victim reports in a timely manner.
There are no fraud protections for crypto, and there’s no such thing as getting your money back on a blockchain. (Without a centralized institution, who would order the transfer?) However, an increasing number of crypto products now offer private theft insurance up to similar limits as FDIC insurance (around $250,000). As they say on Crypto Twitter, do your research and ask thorough questions before moving your money over.
Investing for your future using crypto
Apart from buying and selling crypto directly, new platforms are beginning to sprout up and give consumers familiar-looking options to add crypto to their retirement portfolios.
Choice App is one such example. The new investment platform operates under Kingdom Trust, which, according to its website, is an independent qualified custodian under the Investment Advisers Act of 1940. Through the platform’s self-directed IRA, investors can transfer or roll over old IRAs and 401(k)s and connect their bank account through financial data aggregator Plaid to make future transfers.
Blockmint also offers crypto retirement products, along with the U.S.-based crypto-asset adviser, Digital Asset Investment Management (DAIM). Look into these and other options to buy bitcoin and/or other digital assets through your brokerage and tax-advantaged retirement accounts – and always be sure to check fees for both transferring and managing funds.
Reduce your debt
If you’re in debt, you should decide on a payoff plan before you put your money in bitcoin. It’s not impossible to prioritize both at the same time, but you should at least have an idea of how fast any investments (crypto or otherwise) will compound returns compared to the interest fees accruing on your debt.
While bitcoin is speculated to have a favorable outlook long term, debt incurs interest steadily every month and fees that likely compound over time. Crypto investments are based on possibility, while your debt undoubtedly costs you every day. Financial planners suggest paying off high-interest debt such as credit cards and personal loans before allocating more of your monthly budget to a speculative asset.
Similarly, you might not want to transition to an all-crypto lifestyle today if you plan on taking out significant debt in the near future, such as a mortgage. While financial institutions are beginning to experiment with using digital assets as collateral, most lenders still require cash down payments for mortgages and evaluate your assets in fiat currency, whether you hold bitcoin or not.
Harrington bought two houses prior to switching over his money to bitcoin. To prepare, he stopped staking bitcoin and reduced his crypto allocations for a period of time leading up to his mortgage application. Doing this accomplishes two things: It frees up more fiat assets that could be useful to cover move-in and closing costs, and it demonstrates a more stable (i.e. predictable) financial situation compared to crypto assets, which go up and down with the market’s volatility.
“I got the deal done and then went back to what I was doing,” he said. “That’s why 2022 was the perfect year for me to start this new phase.”
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