Cryptocurrency (or more casually referred to as “Crypto”) has transformed from a new idea to a serious topic of discussion in financial circles, boardrooms, and even among regulators. It’s gone far beyond bitcoin, and many investors are at least curious.
Whether you’re a hands-on investor or simply curious, understanding the trajectory of Crypto investing can help you assess if it’s even right for you.
The Basics of Cryptocurrency
The Crypto story began in 2009 with the launch of Bitcoin, a decentralized digital currency developed by the still mysterious Satoshi Nakamoto.
The purpose was revolutionary: to create a peer-to-peer financial system without reliance on banks or governments—revolutionary, but complicated.
Bitcoin introduced the world to blockchain technology: a decentralized, distributed ledger that records transactions across a network in a secure manner.
A few years later, Ethereum was introduced, expanding the use of blockchain by enabling smart contracts (programs that automatically execute actions when certain conditions are met.)
Unlike Bitcoin, which was primarily marketed as a digital currency (which is debatable), Ethereum allowed developers to build applications without the need for a central authority. It was from that point that the Crypto market exploded.
Thousands of tokens have since been developed, each with different applications ranging from finance to gaming to digital art—remember hearing about non-fungible tokens (NFTs) that Gary Vaynerchuk promoted?
With varying levels of legitimacy, most have proven to be short-term speculation plays, or just outright scams. The scams tend to be short and fast, creating a frenzy of investors expecting to hit huge gains quickly—but later realize the scales were not in their favor.
At the end of the day, it’s important to recognize that despite the currency label, much of crypto is not as liquid as other investments and when you pair that with the volatility, you see why many aren’t sold on it. In fact, it can be helpful to consider it closer to an investment in something like fine art.
The value may not be as stable and your ability to convert that value is dependent on the market of buyers at any given moment. Would you pin your retirement on the ability to sell a painting for a set price when you need it?
How Does Cryptocurrency Work?
At a high level, Crypto works by recording all transactions on a blockchain, which is maintained and validated by a network of computers. Depending on the blockchain, transactions are verified through mining (the solving of complex mathematical problems) or staking (where a user commits their coins to support network operations).
This infrastructure eliminates the need for traditional intermediaries (i.e., banks and financial institutions) and gives rise to a system that’s fast, transparent in the sense it’s collectively managed, but definitely controversial and deeply scrutinized.
How Do I Invest in Cryptocurrency?
For those looking to enter the Cryptocurrency investing world, the most common path is through online Crypto exchanges such as Coinbase, Kraken, or Binance, where Crypto assets can be purchased using traditional currencies.
Brokerage companies like Robinhood, Fidelity, and others have also entered the ecosystem, offering simplified options such as ETF’s for buying Crypto. Some of the available ETF options trying to gain popularity are IBIT (iShares Bitcoin Trust), FBTC (Fidelity’s Bitcoin fund), and BITB (Bitwise Bitcoin Fund).
Check out a podcast that covers some great details by our Chief Investment Officer Peter Lazaroff: Should You Invest in a Bitcoin ETF?
Alternatively, tech-savvy users can also obtain Crypto through mining or staking, though these methods require time, technical knowledge, and often expensive equipment.
How is Cryptocurrency Performing?
Over the last few years, Cryptocurrency has experienced dramatic peaks and valleys. From 2020 to 2021, prices surged, and public interest skyrocketed. Bitcoin reached over $60,000, Ethereum spiked, and new trends like decentralized finance (DeFi) and non-fungible tokens (NFTs) captured mainstream attention.
Social media was flooded with offers and testimonies featuring “get in now” opportunities. But we also saw major companies begin adding Crypto to their balance sheets, and the first U.S. Bitcoin futures ETFs were soon approved.
The Crypto momentum slowed a bit in 2022. With regulations starting to gain momentum, and the collapse of high-profile firms such as FTX (remember the fuzzy haired CEO, Sam Bankman-Fried who went to jail for 25 years?), Crypto popularity declined dramatically. Public trust diminished almost overnight for fear of being pulled into false-promising scams.
As Crypto investor confidence was shaken, we saw Bitcoin’s price plummet. Regulators, especially in the U.S., began tightening their Crypto oversight. But by late 2023 and into 2024, the market started to rebound.
Bitcoin ETFs received long-awaited approvals, drawing in traditional financial firms like BlackRock and Fidelity. Regulatory clarity in international markets improved, further legitimizing Crypto as an asset class. We go more in-depth with ETF’s here: Bitcoin ETF's Are Here: Should You Invest?
So, what does all this mean for investors today? The answer can feel foggy because of the highly publicized “success” stories, but at the end of the day, what remains true is the amount of volatility indicates crypto still meets the definition of a speculative asset, not an investment vehicle that’s been proven for decades.
Should I Invest in Cryptocurrency?
Potential Benefits
Let’s be real, there are some massive spikes in the Crypto space that make it appealing, but there’s no real strategy to be had. You’d be hoping it works out with the reality you could lose everything, or you inadvertently lock away value in an intangible asset.
Some say it deepens diversification, but would you pull money from your stock portfolio to invest in something unproven, illiquid, and highly volatile? It may not be the type of diversification you want and if you're investing for something as critical as retirement, your risk appetite might not align with the data.
Let’s give credit where due: the underlying technology continues to show promise in real-world applications. Institutional interest and clearer regulatory frameworks have helped bring legitimacy to the space, and possibly over time, it will be more commonplace and accepted for practical use. But (as we cover below) there are alternative ways to expose your investments to burgeoning technology without buying Crypto.
Potential Risks
In short, Crypto remains highly volatile. Bitcoin and other coins have experienced massive drawdowns, sometimes exceeding 80%. Can you stomach that?
Additionally, the regulatory environment in the U.S. remains unsettled, and many tokens still lack proven use cases or sustainability.
So, is it a good investment? Most steer clear for a reason. Crypto should still be considered like any other incredibly high-risk investment, and you need to be extremely cautious.
If the high risk and volatility doesn’t bother you and you’ve already made intelligent investments in more traditional assets, something like a Crypto ETF could be a more palatable option to experiment with.
These funds are typically managed by larger firms, and they may offer a more regulated and familiar entry point, but you can mentally consider it like a hobby investment, not a place to focus your retirement savings. The risk and volatility are still there.
Outside of the typical Crypto ETFs, there are blockchain-themed ETFs that invest in companies building, or leveraging, blockchain technology. These offer exposure to the innovation without the direct volatility of the underlying coins.
You can also find ETFs that invest in Crypto-adjacent firms (such as Coinbase and Nvidia) or software companies tied to digital asset infrastructure – so again, not tied to the actual Crypto volatility as much, but still investing in the technological innovation.
And if the Crypto world wasn’t confusing enough already, there are even Futures-based ETFs available, although they carry even further risks due to the nature of derivatives.
What's Next?
Cryptocurrency is no longer just a hyped-up headline as it was years ago. Ready or not, it’s an evolving part of the global financial landscape, but that doesn't mean it has a place in everyone's portfolio. Headlines and social media will continue to plant ideas in our heads that Crypto it is the next greatest thing to make you millions overnight, but don’t fall for the hype.
While it’s true that risk drives potential, by the industry standards used to grow sustainable wealth for decades, Crypto is an extreme gamble. There’s a lack of stability and historic proof it will benefit you, in the short or long-term. Even if you are willing to do the research, stay informed, and think long-term, investing in Crypto could still put an unfixable hole in your portfolio.
No matter what your personal taste for risk and technology may be, getting professional advice through a knowledgeable Wealth Management firm or Financial Advisor before diving into Crypto should be your very first move. Building your portfolio around a proven process and strong fundamentals is still a top choice for your financial success.
Not sure or not if you’re ready for a high-risk investment like Crypto? Take our Financial Analysis Quiz to find out more about the health of your overall financial plan.
