Cryptocurrencies may seem mysterious, but they do have a pretty simple definition:
An encrypted data string that denotes a unit of currency. It is monitored and organized by a peer-to-peer network called a blockchain which also serves as a secure ledger of transactions.
Cryptocurrencies have only existed since 2009 when Bitcoin was founded. Since that time, many other cryptocurrencies have popped up. While considered to be silly at best and a scam at worst by many, cryptocurrencies are gaining mainstream acceptance.
Some 16% of Americans have invested in cryptocurrencies, not close to stock ownership numbers (which is 56%) but pretty impressive for an alternative asset that didn’t exist just two decades ago. While they have been some of crypto’s most prominent detractors, even institutional investors are onboard with $17 billion of institutional money flooding into crypto products and services in 2021.
Cryptocurrency can be an alternative asset to review when building your portfolio. Here are some items to consider when evaluating whether cryptocurrency might be an opportunity for you to consider.
Cryptocurrency investing can be highly lucrative. Bitcoin, the best-known crypto, had a year-to-date gain of 60% in 2021. Binance Coin, a relative newcomer, rose 1,275% year to date in 2021, trading for just $35.17 at one point and reaching $514 at another.¹
Mineable cryptocurrencies with a capped supply may be able to help against inflation. Inflation can occur when central banks and governments print more money, increasing the supply. Scarce things tend to appreciate in value.
Additionally, crypto markets operate 24/7, meaning you don’t have to miss out on making a time-sensitive move because the market is closed overnight for a weekend or holiday.
Crypto is highly volatile. Bitcoin hit a record high of $69,000 in November 2021 and about two months later was trading just above $35,000. The world of crypto is so new that governments aren’t sure how to regulate it. Regulation is coming, but we don’t know what it will look like, adding to the uncertain nature of crypto.
Crypto transactions are not reversible. If you send funds to the wrong wallet, the only way to get it back is if the owner of that wallet agrees to return it.
Platforms that buy and sell bitcoins can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked. As a result, consumers can—and have—lost money.
The world of cryptocurrency is not easy to understand and it has its own vocabulary, for instance, mining, hashing, blockchain, etc. The learning curve is a bit steep for those new to the world. Do you have to understand it to invest? Certainly not, but you should have at least a basic understanding of any investment you make.
You can invest in crypto through a cryptocurrency exchange like Coinbase. Brokers like Robinhood and SoFi also support crypto investing, but not all exchanges or brokers offer all forms, so be sure the outlet you choose supports the coin you want to buy. There are Bitcoin and crypto ETFs too.
If you aren’t quite ready to jump feet-first into crypto by buying coins, there is the option to invest in companies that invest in technologies and companies that develop products and services that use blockchain technology. They aren’t crypto, but crypto-adjacent. Blockchains can have many real-world applications, including:
Blockchains can provide an additional way to invest in this new field. Before making any investment decision, it’s important to do your research and consult with professionals on whether an investment has a place in your portfolio.