Since I was in the 7th grade I’ve been dreaming of passive income.Back then I didn’t know about the many investment vehicles available.However I did know every time I went to the bank, the teller would write in my bankbook the few dollars of interest I’d earned since my last visit.I thought it was the coolest thing and my dream of earning passive income was to have $1,000,000 in the bank earning 6% interest.I liked that :) I realize now that 6% from savings accounts is unrealistic, but hey I was in the 7th grade :) Fast forward to today, I’m excited about Magnr!They pay interest on a currency with no inflation, they have slick software, and great reporting!Magnr is breaking down barriers to the world of banking.We are making it simple, affordable and accessible to anyone, anywhere.With Bitcoin Investments we can help people achieve their financial freedom and build thriving communities.Tweet this After getting my own bank account in 2000 I’ve seen interest rates on savings deposits drop and drop - and when I didn’t think they could drop any further they have been near 0% for the past 5 years or so.

Factoring inflation in and I’ve felt pressure for a long time to have my money in higher-risk higher-reward investments.Investments that seem passive often have work attached.Renting houses, selecting stocks, investing in businesses, etc. One of the nice features about savings accounts is their simplicity.bitcoin ltc priceYou put money in and you make a return on that money, even if you are relaxing.pool worker bitcoinWhen I decided to passively invest bitcoin to earn bitcoin, Magnr Savings Accounts were the type of service I had in mind.ecb on bitcoinFor investors looking for a passive non-volatile, relatively low-risk bitcoin investment option, Magnr is ideal.ethereal legion game

Magnr is 100% passive and I trust the team running Magnr.If they were an insured institution I would probably have 100 BTC (their limit) on deposit with them.Magnr works like a bank savings account.Investors deposit bitcoin and earn interest monthly.Interest is paid on the first of the month and bitcoins can be withdrawn at any time.bitcoin car magnetI trust the Magnr team.bitcoin loan instantThey have been operating since 2013, formerly as btc.sx.buy litecoin coinbaseTheir investors at Coinsilium are great guys who I met in Singapore in 2014.litecoin mining easyI’ve also hung out with George Samman, one of the btc.sx founders.bitcoin hdd space

Magnr is secured with BitGo Multi-Sig technology and they manually review all withdrawal attempts.They have full reserve, perform transaction audits.Since opening in 2013, Magnr has never lost a single satoshi of any customer funds.Gox collapse Magnr voluntarily assumed the losses and refunded customer deposits.Magnr takes their fiduciary responsibility to their customers seriously.The Magnr team did a great job on their software.I have 0 complaints in that department.The site is fast, supports two-factor authentication, and has an easy to use captcha.Magnr also has clear reporting making it easy for me to see how my investment is performing.Reporting sounds like basic functionality.I’ve learned I get cranky when investment products have confusing reports.##How Can Magnr Pay Interest?Magnr borrows bitcoin from lenders so they can lend it to short sellers.When investors borrow this is called margin trading.Magnr currently offers 2% as a fixed rate of interest (2.35%) until June of 2016 when the rate will begin floating.

The rate calculation when it floats will be: the fees Magnr gets from lending the bitcoin - their profit margin = the rate they pay savings account customers.Some bitcoin investors claim lending is a bad idea because lending to short sellers depresses the price of bitcoin.Margin trading has even caused flash crashes in the past.I believe in free markets and think lending is OK.Everything sounds great right?This is the service I imagined when I started investing right?Sit on a beach somewhere and let the coins roll in right?There is one area of concern and it is a big one - Magnr isn’t insured.Every company in the bitcoin space is under attack by hackers, thieves, and fraudsters.Some companies like Mt.Gox and Cryptsy have been wiped out by hackers.Other companies like BitPay and Coinbase have survived thefts.They do this through a combination of secure engineering, keeping customers unaffected by losses, and being insured.Insurance is the key missing ingredient from Magnr.With our bitcoins insured we could sleep easy while having large amounts of bitcoin on deposit.

Unfortunately there are no offerings currently available allowing bitcoin investors to earn interest while having our funds insured.This means if we want to earn interest we have to take on added risks.At 2% it will take 34 years to double my investment.So I ask myself - do I think it is more likely I’ll double my investment or the investment will go to 0 in 34 years?Based on bitcoin companies history of difficulty in holding other people’s bitcoin I think it is more likely I’ll lose my investment due to theft / hack / fraud / etc. This means I’ll put a small amount of bitcoin into Magnr.To put more in I would need to see a higher return to offset the absence of insurance.I think it is important to support early companies in the space.That shows demand for the service, helps me learn, and helps other people learn from my experiences.If you’ve been watching bitcoin prices lately, you already know they’ve made a record-setting run.As of this writing, a single bitcoin is valued at almost $1,300, more than an ounce of gold.

To put things in perspective, bitcoin values were in the $300 — $400 range for much of 2015.Those who invested in bitcoins years ago are likely rejoicing.But, should you join them?Continue reading to learn more about bitcoin, how the currency works, and why this investment might be one to skip despite its high returns.Generally speaking, bitcoin is a crypto-currency used by online firms and big businesses worldwide.One of the biggest advantages of bitcoins is that the currency can cross borders easily — facilitating international trade.For the purposes of investing, bitcoins are similar to any other currency (or commodity) investment.This means, when it comes to your investment return, bitcoins face the same uphill battle as investing in: In other words, at any given time, bitcoins are worth whatever the market says they’re worth.While this isn’t a problem in itself, investing in bitcoins does pose some specific challenges.As sexy as investing in bitcoins sounds — and despite the recent run-up in price — there are at least two fundamental problems with investing in bitcoins right now: When you invest in bitcoins (or gold, or oil, or other commodities, or any other currency, or fine art), you are betting the farm on price appreciation alone.

Or rather, you’re betting that the price of bitcoins will go up compared with the U.S.What this means is, bitcoins are different from more conventional investments like stocks, bonds and real estate.That’s because conventional investments offer the chance to generate cash.As an example, stocks are a slice of business ownership.Businesses exist to earn a profit.As an owner of that business, you are entitled to a slice of that profit.That profit can either be re-invested into the business (to increase the value of the business) or paid to investors as dividends.Either way, a stock generates cash — ultimately enriching those who own shares.The same is true for bonds.Bonds spit out cash (usually twice a year).With a bond, you (usually) get back your original investment, plus interest.The same applies to real estate.Rental property can appreciate (or depreciate) in price.But, either way, rental property exists with the goal of generating cash for the investors — cash above and beyond the costs to maintain the property.

Unfortunately, that’s not the case for bitcoins, gold, “Forex,” commodities or fine art.These sorts of investments do not generate cash.Instead, investors can only hope they rise in value with the price of inflation.Comparing the performance of stocks, bonds and commodities vs.Despite their volatility, commodities do not outpace inflation.And that’s before fees!Unfortunately, you are likely looking at a negative real return after expenses with an investment like bitcoins.Because it costs money to get into bitcoins.You must “buy” them, and you won’t be able to buy bitcoins at their value.You’ll have to pay a little extra; otherwise, the person selling you the bitcoins (or gold, etc.)has no incentive to do so.Not only must your investment appreciate at the rate of inflation, but it must also go above and beyond inflation to make up for the transaction costs.Trust me when I say this is rarely the case.Most commodities increase at the rate of inflation.Further, currency doesn’t increase in value at all — because that’s exactly what inflation is — a decrease in the value of currency!

On average, economies grow.A growing economy can raise the demand for goods and services.This can cause prices for said goods and services to increase.Moreover, entities issuing currency usually "print" more currency.This devalues that currency, requiring more of the same currency to be required for the same good or service.These two factors – a growing economy and the printing of more money – can cause inflation.Therefore, an investment in currency, by its nature, should not be able to grow with inflation.So, not only does your investment in currency lose money because of inflation, but your investment also loses from the bid/ask spread – the price of buying into a different currency.Commodities' returns just about equal inflation over the year, but that's before fees.In short, bitcoins and similar investments are at a big disadvantage when it comes to generating an investment return.Bitcoins don’t generate cash like stocks, bonds and rental real estate do — and they have the added challenge of never even being able to keep up with inflation!

Mean reversion is a fancy way of saying: What goes up, must come down — and vice versa.All investments are subject to mean reversion, and bitcoins are no exception.Mean reversion itself isn’t a bad thing, but it’s still worth noting when it comes to investing in bitcoins, specifically.As mentioned and shown in the graph above, commodities provide an investment return at just about the rate of inflation — before fees.Moreover, commodities depend upon price appreciation alone to provide an investment return.This is because commodities do not generate cash.So, if you are going to get an investment return from bitcoins, you don’t want to be buying at a market top.However, recent run-ups in price suggest that it’s possible we are at the top of the bitcoin market — or, at least on the way.“With investments like bitcoin, you really have to get the timing right.“Commodities can see even larger swings in value than stocks — making successful investing in bitcoin almost impossible.” Try thinking of investing in bitcoins as you would buying a lottery ticket.

It only costs a dollar, but you could win big.However, as historically shown with commodities, the odds are good that you’re going to lose money compared with a low-cost, diversified investment.Most of the time, you’ll be a lot better off if you choose a long-term investment strategy that isn’t quite so volatile.You should also diversify as much as you can; this way, you won’t lose your shirt if one particular investment falls apart.If you choose to throw your money into bitcoins in spite of this advice, just know you’re doing so at your peril.The best thing you can do is limit your investment to an amount you can afford to lose, then brace yourself for a long and bumpy ride.Taylor Schulte, CFP® is founder and CEO of Define Financial, a San Diego-based fee-only financial planning firm.Schulte is passionate about helping clients accumulate wealth and plan for retirement.Schulte was recently honored with the 2015 Five Star Wealth Manager Award and the 2015 Metro Mover award for outstanding contributions to his profession.