Should I invest in Crypto?

Cryptocurrency, a digital or virtual form of currency, has become increasingly popular since the launch of Bitcoin in 2009. The world of cryptocurrency is full of success stories of investors making large sums of money from trading Bitcoin, Ethereum, and other digital currencies. However, with the possibility of high returns comes significant risks, and understanding the risks associated with investing in cryptocurrency is essential before committing your hard-earned money.

The volatile nature of cryptocurrency is well-known, and investing in this asset class carries a high level of risk. Investors need to understand that owning crypto involves taking on a great deal of risk in their portfolios. But for investors who understand how to manage risk, crypto could present great opportunities.

Many investors are interested in adding cryptocurrency to their portfolio, but they are uncertain if it's safe to invest in. Crypto has delivered tremendous profits for some investors, while others have lost significant sums. William Procasky, CFA, assistant professor of finance at Texas A&M University-Kingsville, says that new investors should stay away from crypto. But he also notes that more experienced investors, who understand how to cope with risk, could find a place for it in their portfolios.

“If you’re building a broad-based portfolio and want to add crypto to the 5% or 10% of your portfolio you’re setting aside for alternative assets, then you might be okay,” Procasky says.

Bitcoin and Ethereum are the two largest cryptocurrencies by market capitalization, and are more established than many other crypto options. This makes them a safer bet for most investors.

“If you go for options like Bitcoin and Ethereum, which are more mainstream, there’s a bit more safety around them,” says Lauren Niestradt, CFP/CFA, senior portfolio manager at Truepoint Wealth Counsel.

The Securities and Exchange Commission (SEC) has been skeptical of cryptocurrency. In an interview with Yahoo Finance, SEC chair Gary Gensler said that crypto companies need to “come into compliance” with existing laws. These remarks came on the heels of the FTX debacle at the end of 2022. Gensler’s hope is that, among other things, the SEC might offer consumers protection should crypto holding companies choose to become lending companies.

“There’s no reason to treat the crypto market differently just because different technology is used. We should be technology-neutral, Gensler said in an April 2022 speech.

This means not only new laws and regulations—which Congress is discussing—but existing regulations could affect how crypto exchanges and other companies do business.

There are several risks associated with investing in cryptocurrency: loss of capital, government regulations, fraud, and hacks. Mark Hastings, partner at Quillon Law, warns that investors must tread carefully in crypto’s unique financial environment or risk significant losses. This is a risk with any investment, but crypto’s elevated volatility makes it an even bigger risk factor. With Bitcoin down more than 60% over the past 12 months, these losses could easily add up to a significant part of the original investment.

According to Michael Collins, CFA, professor of financial planning at Endicott College, many governments have yet to fully regulate the use and trade of cryptocurrencies, which can make it difficult to know what to expect in terms of legal and financial risks. There are even some calling for cryptocurrencies to be illegal in the United States. This is probably an unlikely scenario, but since it has already happened in China, it’s certainly a possibility.

As with any unregulated industry, fraud abounds in the cryptosphere. Hastings says, “Cryptocurrency fraud soared in 2022, and the lack of regulatory oversight of the industry left many thousands of investors out of pocket.”

In conclusion, the use of technology has become a fundamental aspect of our daily lives, providing us with numerous benefits in terms of convenience, efficiency, and productivity. From communication to transportation, education, healthcare, and entertainment, technology has revolutionized virtually every industry and sector, and continues to advance at an unprecedented rate.

While there are certainly drawbacks and risks associated with technology, such as addiction, privacy concerns, and cyber threats, it's important to recognize that technology itself is not inherently good or bad. It's up to us as individuals and as a society to use it responsibly, ethically, and with the intention of improving our lives and the world around us.

As technology continues to evolve and shape the world we live in, it's essential that we stay informed and educated about its capabilities and limitations. By doing so, we can make informed decisions about how to incorporate technology into our lives, and ensure that we are using it in a way that aligns with our values and goals. Ultimately, technology has the potential to bring about positive change and transformation on a global scale, but it's up to us to harness its power in a way that benefits us all.

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