In September, Coinbase announced that its users will soon be able to set up direct deposit with any percentage of their paychecks and can choose for the money to be deposited as U.S. dollars or any of the more than 100 cryptocurrencies available at the exchange, with no fees.
The company said that the idea for the direct deposit came from users who said that making frequent transfers was inconvenient and time-consuming.
“With direct deposit, customers can more easily access our crypto-first financial services and be ready for any trade or purchase,” said Max Branzburg, vice president of product at Coinbase, in a Sept. 27 blog post.
Direct deposit will start to roll out at the end of the month and continue through the end of the year, according to the company.
Benefit of direct deposits
Essentially being paid in cryptocurrency — or receiving a portion of pay in the asset — makes sense for some people.
“We’re entering the phase of cryptocurrency where there’s a demand for people who want to be paid in digital assets,” said Douglas Boneparth, certified financial planner and president of Bone Fide Wealth in New York. “This will obviously allow people to put more of their money more easily into cryptocurrencies, and right or wrong is really determined by user and their preferences when it comes to money.”
The direct deposit feature will help some investors treat cryptocurrency like a 401(k) plan, something that they’re consistently putting money into for a long-term investment. It especially makes sense for those looking to dollar-cost average, an investing strategy that puts smaller chunks of money into an asset over a longer period of time instead of all at once.
On the flipside, it will also be helpful for people who actively transact in cryptocurrencies, as they won’t have to make the extra step of depositing their money into their Coinbase accounts to make purchases or pay bills with the coins.
Where to be cautious
Of course, converting your entire paycheck and being paid only in cryptocurrency could be risky, according to Boneparth.
“Obviously being paid in something that’s volatile … may be a dangerous thing,” he said.
For example, if you get paid $2,000 in bitcoin and then the cryptocurrency loses 20%, your paycheck is now worth $1,600.
In addition, if you’re new to investing in cryptocurrency, you should take the time to do research on the asset and decide if it makes sense for you before signing up for direct deposit, he said.
“This is super-exciting,” he said. “But despite all the excitement, you have to be vigilant and knowledgeable.”
How much of each paycheck should you deposit?
If you’re interested in signing up for the direct deposit feature when it’s available, there are a few things to consider before you decide what percentage of your paycheck you will send to crypto.
First, financial experts generally recommend that people have reached a few other financial milestones before putting money into volatile assets such as cryptocurrencies.
That includes things such as having solid retirement savings in either a 401(k) plan or individual retirement account. You should also have emergency savings on hand — experts recommend three to six months of expenses.
Then, financial experts generally advise investors interested in crypto to start with small amounts.
“Invest what you’re willing to lose — it’s almost like going to Vegas,” said Daniel Rodriguez, chief operating officer of Hill Wealth Strategies in Richmond, Virginia, adding that he’d recommend a small portion of one’s paycheck.
But people who believe in cryptocurrency and have a higher risk tolerance may want to put in larger portions.
For some, that might be 5% to 10% of their investible assets, according to Boneparth. Others may want to invest even more, depending on their convictions and overall financial situation.
“It’s not whether they’re taking the higher percentage; it’s do they understand the risk associated with that and can they tolerate what will happen if it’s volatile on the downside?” he said.