The latest investment fad has arrived: cryptocurrencies. Younger, inexperienced buyers excitedly trade “cryptos” on their phones and brag about it to friends. One claims to be getting rich buying Bitcoin (the original cryptocurrency). FOMO kicks in (fear of missing out) and entices others to buy. Unfortunately, it’s rare that any fully understand what they’re doing or cryptocurrency risk.
As legendary investor Warren Buffett said, “I can say almost with certainty (it) will come to a bad ending.”
Cryptocurrency’s wide appeal is easy to understand. It’s basically digital cash that can be transferred immediately and anonymously between parties. Bitcoin trades using technology called “blockchain,” a digital ledger that is purported to be unhackable. This unique currency also isn’t bogged down by intermediaries, such as governments, banks or international currency exchanges.
Potential appeal aside, crypto trading should not be considered as investing, but rather speculation. Only those with giant appetites for risk should consider it. Stories of wild price swings abound. When the economy appeared to be collapsing due to the Coronavirus, Bitcoin fell about 65 percent – three times as much as stocks – by March 2020.
“Bitcoin is not real money now, and… without huge reforms it will never qualify as real money,” said Larry Kudlow, a noted economist formerly of CNBC and the Trump administration.
One should only risk money in cryptocurrency markets that he or she can afford to lose entirely. How many people really have “money to burn?”
In addition, the tax implications of cryptocurrency are extremely complex and shouldn’t be taken lightly.
Real, long-term investing is the time-proven path we take at Perspective. We work with our clients to first develop a written plan, a road map. From there, we build and maintain broadly-diversified portfolios in established markets backed by many decades of risk-and-return data. The result is a less volatile and more predictable portfolio.