Bitcoin Is All the Rage. Should You Invest?

Bitcoin Is All the Rage. Should You Invest?

Pete Kaminski, CRPC®, MBA, Wealth Advisor

Over the last six months, you’ve probably heard a friend, family member or even coworker mention bitcoin. It’s no surprise, the cryptocurrency rallied over 300% last year.

To understand the historic rise of bitcoin, we must first take a look at how we got here. When it started gaining popularity in 2013, it was priced at $13.50. By the end of that year, it reached $1,079. Today, it’s over $31,000.

What’s fueling bitcoin’s recent demand is its anonymity as the gold standard for online, discreet payments. Between the speculation of high returns and loose regulations from the federal government, bitcoin has caught on quick and particularly with young investors. There are virtually no limits on trading hours as there are with traditional stock exchanges, making it easily accessible.

Furthermore, it’s become the go-to payment for international purchases (replacing travelers checks) and large companies like PayPal, Square and JPMorgan have trailblazed institutional adoption of the cryptocurrency.

Despite its impressive runup, you might be wondering whether it’s time for you to jump in and invest. Let’s consider the pros and cons:

Pros:

• There is potential for high returns beyond what traditional asset classes are providing
• Volatility resulting from bitcoin investments can be offset in a diversified portfolio with proper allocations
• Since 2014, the IRS has declared cryptocurrencies property and qualified them to be used as a tax deferral strategy for retirement accounts
  • Pro tip: With blockchain technology enabling the use of bitcoin, blockchain exchange traded funds (ETFs) are often a good place to start and can be considered for retirement accounts like a 401(k) or IRA

Cons:

• Bitcoin is not regulated by a sovereign state like fiat currency, leaving more possibilities for fraud
• The extreme volatility of bitcoin poses uncertainty for many investors, especially those closer to retirement
• Due to the strong surge in demand, trading fees have increased notably as well

While bitcoin could serve as a major benefit for some investors, it could be equally as detrimental to others. Don’t make the decision to invest on your own. Call your advisor at 216.800.9000 to learn whether bitcoin makes sense for your portfolio.