Should I Invest in Cryptocurrency?
This question lures many people into believing they might miss out on the next evolution of a new monetary banking system, not to mention the profits realized from the numerous new startup companies selling their brand of cryptos. The temptation to invest in cryptocurrencies is very alluring. Exuberance is not without merit; however, does this new asset belong in your investment portfolio? If so, how do we quantify and define it?
The plans of the diligent lead to profit as surely as haste leads to poverty
(Proverbs 21:5 NIV).
Austin Pryor, in his book The Sound Mind Investing Handbook, offers some sage advice for investing:
Investing is a commercial undertaking with modest risks with the expectation of a reasonable return. Investing is not speculation that involves a very high level of risk, and it is not gambling with a high level of risks to profit from a game of chance (Pryor and Biller, 2014).
Is cryptocurrency investing, speculation, or gambling? It can be any of these logical quantifiers depending on your current risk tolerance and season of life. For example, if you have a conservative risk tolerance and you are in your late season of life, then the thought of investing in cryptocurrency becomes a gambling proposition. However, if you have a high tolerance for risk and are in your early twenties, adding cryptocurrency to your investment portfolio seems reasonable.
How do we define cryptocurrencies and blockchain technology? Are Bitcoin and its rivals a currency, a commodity, or just a stock? If it is a currency, then investing in cryptos is like investing in the foreign exchange markets, which is very speculative and risky. Similarly, if cryptocurrency is a commodity, what value does it produce? Perhaps bitcoins are simply an inflation hedge like gold or silver? If Bitcoin is a stock, how do you determine its intrinsic value? If the stock value is only based on its current share value, then an investor is only hoping the share value will increase, like the dot.com bubble in the nineties where tech startups hoped to increase share value then sell their company for a hefty profit. Nevertheless, investing in something that is not easily defined may be a foolish idea.
Other factors also need to come into play when deciding to invest in any risky endeavor. How strong is your financial foundation? Which crypto coin should I invest in? Should I invest some money I am not comfortable losing? These questions should be prayerfully considered.
As a fiduciary financial advisor, I cannot recommend any specific investment unless you are a client. Nonetheless, I believe cryptocurrency and blockchain technology will have usefulness in the future and is not just a fleeting trend. Therefore, educate yourself on the various nuances of cryptocurrency investing before jumping into the craze.
The simple believe anything, but the prudent give thought to their steps (Proverbs 14:15 NIV).
The heart of the discerning acquires knowledge, for the ears of the wise seek it out (Proverbs 18:15 NIV).
Your faithful servant
References
Pryor, A., & Biller, M. (2021). The sound mind investing handbook: A step-by-step guide to managing your money from a biblical perspective. Moody Publishers.