Should I invest in cryptocurrency?

Cryptocurrencies fall in the speculative category of investments. With these types of investments, you could either lose all of your money or become rich rather quickly.

Because of its inherent volatility, funds invested in cryptocurrencies should be those that you would be willing to lose because you don’t depend on them to pay your bills or fund your retirement.

Consider the case of Sean Russell. Russell is a British man who invested around $120,000 into Bitcoin in 2017. Within a month, his investment grew to more than $500,000. Then in 2018, his investment plummeted back to earth, losing 96 percent of his initial investment.

Then there’s the case of Cooper Turley, a 25-year-old man who earned about 90 percent of his wealth in the last two years thanks to investing in bitcoin and ether.

While those stories make for great headlines, when it comes to your investments, you should weigh both the possibilities of risk and reward when you invest. If you don’t have expendable money, then you should probably steer clear of it. 

You may be investing in cryptocurrency already

Thankfully, buying cryptocurrency isn’t a binary choice. Christine Papelian, a financial advisor at Smarter Financial Solutions in Phoenix, Ariz., said that many people don’t realize they already have exposure to cryptocurrencies.

“So for example, if you’re invested in the S&P 500, you have companies like Tesla and Square, and even Coinbase, that already have either their own investments in a cryptocurrency or blockchain technology,” she said.

Another way to get exposure to crypto is by investing directly in companies like Etsy and Paypal that let users trade cryptocurrency on their platforms. But even blue-chip companies like Google, Microsoft, and Amazon use blockchain in various aspects of their business.

It’s also possible to invest in funds that hold Bitcoin and other cryptocurrencies, according to Doug Boneparth, CFP and president of Bone Fide Wealth in New York. Right now, there are a few players that are creating bitcoin trusts, he said, pointing to companies such as Grayscale and Osprey that help retail investors navigate cryptocurrency.

“Buying it in a fund wrapper is probably more familiar to the retail investor than anything else,” he said. In addition, working with a fund means that you deal with the company that manages the fund for any account questions or information you need, such as setting a password, tracking gains and losses or gathering documents for filing your taxes.

Of course, those services do come with a cost – different funds will have different fees associated with them, which people should research before putting money into them, Bonaparte said.

Another way that investors can get exposure to cryptocurrency is by investing in publicly traded companies that have technology related to trading coins or use blockchain, the technology that bitcoin is built on.  

For instance, Robinhood Markets lets users trade digital currencies via its Robinhood Crypto unit. This past summer, Robinhood reported that cryptocurrency transactions accounted for more than half of its sales in the quarter.

Microstrategy currently holds more than 105,000 bitcoins (about $3 billion) and plans to add more going forward.

Experts also called out companies such as Coinbase and Paypal that allow users to trade cryptocurrency on their platforms. In addition, companies such as Riot Blockchain mine bitcoin and Galaxy Digital invests in cryptocurrency. And, big technology names such as Microsoft, IBM, Google, SAP, and Amazon all use blockchain in different parts of their business.

For instance, in February, Tesla bought $1.5 billion in Bitcoin and said it planned to accept it as payment, but then quickly reversed that decision

So the answer to the question raised at the outset—should I invest in cryptocurrency?—might be met by another question: Are you sure you haven’t already? 

If not, consider diving in, as your appetite for risk dictates.

How do cryptocurrencies compare to stocks and bonds?

Take note: Compared to stocks and bonds, cryptocurrencies are a riskier bet. That’s because for a currency to become valuable, it needs to become an accepted form of payment. There’s no assurance that that will happen with Bitcoin or any other form of cryptocurrency and no historical precedent to point to.

In contrast, it’s rare for a stock or bond to lose all of its value, but there are lots of would-be cryptocurrencies—including OneCoin, BoringCoin and NanoHealthCare token—that have fallen by the wayside.

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