A rapidly evolving investment is blurring the line between foreign currencies and securities. Cryptocurrency, shortened as “crypto,” is a currency much like the US dollar. Many speculators trade it like stock, leading many others to join the trend. Consulting with a financial advisor can provide insights and guidance tailored to your goals and risk tolerance.
What is Cryptocurrency?
Each “coin,” such as Bitcoin or Ethereum, is its own currency and can be exchanged for US dollars, like all international currencies. These currencies, in great quantities, only exist virtually, such as money in a checking account, and some businesses accept it as tender. The concept of crypto aims to eliminate third-party involvement in financial transactions. Many coins are legally considered securities.
People add coins to circulation through a complex computer process of “mining.” El Salvador and the Central African Republic have accepted Bitcoin (BTC) as legal currency.
Investment Considerations
Cryptocurrencies are often treated like stocks, but their characteristics warrant independent consideration. For example, crypto can be highly volatile. In 2022, when the S&P 500 (SPY) only decreased 19%, BTC lost 65%. As of October 31, 2023, BTC is up 108% year-to-date, while SPY gained 10%. Such volatility requires a high level of risk tolerance, so investors often approach cryptocurrencies with caution.
Also, since coins function like trading securities on a large scale, they may be required to register with the Securities and Exchange Commission. The SEC increased its Crypto Assets and Cyber Unit staff by 40% in 2022 to combat illicit transaction activity. Investors should also consider increasing regulations and tax considerations before trading.
Opponents of crypto investments argue that, unlike stocks, their fair values cannot be estimated with fundamental analysis. Therefore, supply and demand almost exclusively affect prices, leading many speculators to buy hoping others are simply willing to pay more. Proponents argue that the rewards from past performance and the potential for international expansion make cryptocurrencies a risk worth considering.
Getting Started
First State does not invest in cryptocurrencies for its client portfolios. For those seeking more stable growth, our Gold Chip Standard has consistently met client growth objectives. To explore tailored financial solutions and discuss your investment goals, contact our Tulsa financial advisors at 918-492-1361 for a free consultation.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.