Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Bitcoin for beginners: Here's what to know before you invest in crypto

Bitcoin for beginners: Here's what to know before you invest in crypto

Let's be honest, the advice to "invest in what you know" is hard to heed when you're trying to build a diverse portfolio.

So even if you're someone who can't define blockchain to save your life, you still may be wondering if you should have at least a little exposure to crypto in your portfolio.

After all, institutional investors and big banks have started taking it seriously. And it's hard to miss news of the meteoric rise in prices for bitcoin and other digital currencies over the past several years.

Had you bought bitcoin in early April 2017, for example, you could have seen a 3,700% return in just four years.

But there also have been plenty of price plunges along the way. If you'd bought in mid-April of this year, you would have lost more than half your investment in just four months.

So if you're tempted to invest, here's what to consider before taking the leap.

It is a highly speculative investment


Generally speaking, there is no intrinsic value underlying most cryptocurrencies.

Unlike a stock, for instance, they don't track the growth potential of a real-world company selling real-world products and services. Nor do they track the value of a natural resource the way a traditional commodity does.

(One exception are so-called stablecoins such as tether, USD Coin and binance USD. These are cryptocurrencies pegged to the value of the US dollar, euro and other forms of fiat money, which make them less volatile than non-pegged cryptocurrencies.)

Also, none are accepted as legal tender anywhere, except in El Salvador, which in early September adopted bitcoin as a national currency alongside the US dollar.

So by investing in a digital currency today, "your sole source of a return is betting that someone else will be willing to pay more for [it] in the future than you did," said Minnesota-based certified financial planner Matt Elliott.

That might be a fair bet given growing mainstream interest in crypto, especially with some of the bigger currencies like bitcoin, which has a market cap worth nearly half the total crypto universe, according to Charles Schwab.

But it's just as fair a bet to assume that many crypto currencies will flame out, much the way so many companies did in the dot-com era, noted New York-based chartered financial analyst Ryan Sterling.

"On the upside, we could see a 10x return in the next five years. That said, we would not be surprised if they were worthless in five years," he said.

Don't bet what you can't afford to lose


While he's not a huge fan of crypto, Sterling sees it as something that, in very small doses, might help clients get more diversification, since it performs so differently from stocks and bonds.

Sterling advises interested clients to invest no more than 2% of their liquid portfolios in digital currencies. In other words, they should only invest a small percentage of the money they have above and beyond their home equity and their retirement and education savings.

"By investing 2% they feel like they're participating, but not so much that it creates problems," Sterling said.

Elliott suggests having no more than 5% of your overall portfolio dedicated to speculative investments of all kinds, including crypto, but only if you have little to no debt and are willing to accept the risk of losing what you put in.

Arizona-based certified financial planner Christine Papelian thinks direct exposure to crypto is too volatile for her clients, who are primarily investing for retirement

But she said she reminds clients that they may already have some indirect exposure to crypto assets through investments in tech companies that invest in blockchain technology, which makes it possible for the crypto trading universe to function. Or investors may have exposure through actively traded mutual funds and exchange-traded funds, which themselves may have crypto or crypto-related companies, like Coinbase, in their portfolios, Papelian said.

There are very few protections


Another factor to consider: Direct ownership and transactions with crypto assets are mostly unregulated and offer very little consumer protection.

"We just don't have enough investor protection in crypto finance, issuance, trading or lending. ...[I]t's more like the Wild West...This asset class is rife with fraud, scams and abuse in certain applications," SEC Chairman Gary Gensler noted in written Congressional testimony.

The rules for how to report and pay tax on crypto assets are also in the very early stages. But the regulations that currently exist get particularly cumbersome if you ever decide to buy something with the crypto you own.

Rules and regulations are likely to increase in the foreseeable future. And that could affect prices positively or negatively.

Easier ways to get exposure


Unless you're comfortable with buying a cryptocurrency directly and storing it in a secure digital wallet, there are easier ways to get access.

Sterling typically invests his clients' money in bitcoin and Ethereum trusts run by Grayscale, currently the world's largest digital currency asset manager.

If you're not working with a financial adviser, you also can get indirect exposure by buying shares in Grayscale funds and other third-party investment crypto products in the over-the-counter secondary market through some large retail trading platforms, such as Schwab.com and Fidelity.com.

The company's most popular fund -- the Grayscale Bitcoin Trust (GBTC) -- will likely become an ETF, if and when the SEC approves bitcoin ETFs in the United States. But in the meantime, it will adhere to the same SEC reporting and disclosure requirements that ETFs operate under today, said Grayscale CEO Michael Sonnenshein.

In either case, mind the fees, which are far higher than index fund fees.

Should the SEC eventually approve bitcoin ETFs, expect to see big players offering them, like Fidelity, which has already filed an application to launch one.

Talk with your spouse before taking the leap


If you're married, don't let crypto come between you.

"The most challenging client conversations I've had involving cryptocurrency investment are with spouses, usually with one or two children, and no tech background," said New Orleans-based certified financial planner Mike Turi.

Even when such couples are unified in having a high risk tolerance, one spouse may prefer to risk money on a more tangible speculative investment, such as a small-cap biotech company or a friend's startup, he explained.

His best advice? "Planning always prevails. Start with a client's plan and end with how cryptocurrency investing affects their current track. In my experience, this is the best way for spouses to make an informed, joint decision. A lot more powerful than beginning with the question - 'Is bitcoin a good investment?'"

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Hungarian Prime Minister Viktor Orbán stated that Hungary will not adopt the euro because the European Union is falling apart.
Mayor in western Germany in intensive care after stabbing
Australian government pays Deloitte nearly half a million dollars for a report built on fabricated quotes, fake citations, and AI-generated nonsense.
BYD’s UK Sales Soar Nearly Nine-Fold, Making Britain Its Biggest Market Outside China
Latvia to Bar Tourist and Occasional Buses to Russia and Belarus Until 2026
Wave of Complaints Against Apple Over iPhone 17 Pro’s Scratch Sensitivity
Munich Airport Reopens After Second Drone Shutdown
Pro Europe and Anti-War Babiš Poised to Return to Power After Czech Parliamentary Vote
Sean ‘Diddy’ Combs Sentenced to Fifty Months in Prison Following Prostitution Conviction
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
The Personality Rights Challenge in India’s AI Era
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Study Finds No Safe Level of Alcohol for Dementia Risk
Trump Says Ukraine Can Fully Restore Borders with NATO Backing
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Germany Weighs Excluding France from Key European Fighter Jet Programme
Cyberattack Disrupts Check-in and Boarding Systems at Major European Airports
Björn Borg Breaks Silence: Memoir Reveals Addiction, Shame and Cancer Battle
When Extremism Hijacks Idealism: How the Baader-Meinhof Gang Emerged and Fell
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
Trump Orders $100,000 Fee on H-1B Visas and Launches ‘Gold Card’ Immigration Pathway
France’s Looming Budget Crisis and Political Fracture Raise Fears of Becoming Europe’s “Sick Man”
Three Russian MiG-31 Jets Breach Estonian Airspace in ‘Unprecedentedly Brazen’ NATO Incident
European manufacturers against ban on polluting cars: "The industry may collapse"
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
Christian Brueckner Released from German Prison after Serving Unrelated Sentence
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
The conservative right spreads westward: a huge achievement for 'Alternative for Germany' in local elections
Pope Leo Warns of Societal Crisis Over Mega-CEO Pay, Citing Tesla’s Proposed Trillion-Dollar Package
Poland Green-Lights NATO Deployment in Response to Major Russian Drone Incursion
U.S. and China Agree on Framework to Shift TikTok to American Ownership
Le Pen Tightens the Pressure on Macron as France Edges Toward Political Breakdown
Czech Republic signs €1.34 billion contract for Leopard 2A8 main battle tanks with delivery from 2028
Penske Media Sues Google Over “AI Overviews,” Claiming It Uses Journalism Without Consent and Destroys Traffic
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
One in Three Europeans Now Uses TikTok, According to the Chinese Tech Giant
Could AI Nursing Robots Help Healthcare Staffing Shortages?
NATO Deploys ‘Eastern Sentry’ After Russian Drones Violate Polish Airspace
The New Life of Novak Djokovic
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
×