In March 2018, our team published a blog post titled “Bitcoin Blues”. In the article, we answered common client crypto-related questions such as “What is Bitcoin?” and “Should I invest in cryptocurrencies?”.
Since then, many cryptocurrencies have emerged as prominent figures on the scene. Currencies such as Ethereum, Cardano, and the notorious meme currency “Dogecoin” have all had their moments of glory and shine. Along with the development of new currencies, the overall market capitalization of the crypto-market has increased from $626B on January 2nd, 2018 to approximately $1.79T on May 19th, 2021.1
While much has changed since we released “Bitcoin Blues”, much remains the same. Our team still does not actively recommend that our clients purchase cryptocurrencies due to the drastic volatility and lack of regulation in the markets. Just as we mentioned in 2018, at Financial Plans & Strategies, our service is based on discussing each client’s financial goals and evaluating risk tolerance prior to determining which investment portfolio is the best fit. Because stocks, corporate bonds, and other traditional investment options provide historically positive returns, it is our stance that these types of investments are still the best options for reaching most people’s major financial goals.
While we do not recommend our clients invest in cryptocurrencies, if you do decide to invest in cryptocurrencies, remember the following:
- Be prepared for volatility: Since 2018, Bitcoin has reached new all-time highs, but this has not come without quick, drastic swings in the market. Recent examples of this volatility include Bitcoin’s 27% decline and DogeCoin’s 19% decline from 05/14/21 to 05/19/21 . You will need to ask yourself “Can I handle such large swings in such a short period of time?”.
- As highlighted on org, “Bitcoin is an experimental new currency that is in active development… Be prepared for problems and consult a technical expert before making any major investments, but keep in mind that nobody can predict Bitcoin's future”.
- Our team firmly believes in the power of diversification. Proper diversification can help minimize long-term volatility within a portfolio. If you do choose to invest in cryptocurrencies, keep this in mind and do not put all of your eggs in one basket.
- One of the largest risks crypto investors are exposed to is regulatory risks. Due to the lack of regulation, malicious moves such as Ponzi schemes and rug-pulls can occur. Essentially, these schemes cause a rapid increase in the price of the currency, at which point the founders sell their shares, causing the price to plummet. These maneuvers can leave investors empty-handed, with no way to recoup the losses.2
Your advisors at Financial Plans & Strategies are here to guide you through any questions you may have. If you would like to learn more about the importance of diversification in your investment portfolio, please give our office a call at 317-882-7675.