Back in 2010, when Bitcoin first came onto the scene, who would have thought such an innovative but strange product would have achieved such success? Actually, a few people did predict exactly that! And with values quickly rising from 8 cents per coin (in 2010) to $65,000 per coin just eleven years later, those lucky few certainly achieved success with the brand new concept. But is cryptocurrency still a viable investment option today, or did we all miss the boat?
It’s hard to say whether Bitcoin or another cryptocurrency will see those types of gains again, especially in such a short period of time. And we can’t completely predict how government regulations will treat cryptocurrencies in the future. But what we can do is review some basic tenets of investing, and then make individual determinations regarding the place cryptocurrency could hold in your portfolio.
Remember the time-tested balance of risk versus reward. Most investments with the potential for large gains often carry a greater risk. At all times we must balance the desire for sizeable gains with the overall risk to our current and future finances. Risk is why we diversify our investments. An old adage teaches us not to put all of our eggs in one basket (in case we drop it and break them all). We usually apply a similar concept to investing; we don’t want one risky choice to wipe out all of our savings.
Timing is also key. While Bitcoin did reach a high of $65,000 per coin in 2021, it has currently leveled out at a more modest $29,000 per coin. For those who bought in early, the currency still proves to have been a wise investment. But those who bought in during the height of the craze in 2021 are probably feeling deflated at the moment.
For you personally, you might wonder if you can devote part of your 401k to cryptocurrency. Yes, some plan managers have made room for cryptocurrency investments within their offerings. Because all defined benefit plans are regulated by ERISA, plan managers must act in the best interests of their clients. Some managers still view cryptocurrency with a suspicious eye, whereas others have determined that this type of investment can serve their clients well. So for the individual, communication with their plan manager is essential before making the decision to invest in cryptocurrency.
If this type of investing interests you, let’s schedule an appointment to discuss it first. We’ll evaluate the different options and decide upon a risk versus reward strategy that feels comfortable for you.