Cryptocurrency is somewhat of a divisive asset — some investors believe it’s a better investment than traditional assets, while others see it as too volatile and risky.
GOBankingRates spoke with Rick Nott, CFA, CFP, a senior wealth advisor at LourdMurray, to get his take on crypto and whether or not you should have it in your investment portfolio.
How Much Risk Are You Willing To Take?
Different investors have different levels of risk tolerance, and the level of risk you are comfortable with plays a large role in whether or not you should invest in crypto.
“The consideration to invest in any asset should be taken within the context of your entire portfolio and your ability to take the risk of that investment,” Nott said. “Crypto is no different and is a distinct asset class with — at this point — a decent history.”
Nott notes that he personally considers Bitcoin to be its own asset class outside of the crypto umbrella.
“I think it’s important to separate ‘crypto’ as all of the digital assets — new coins, NFTs, etc. — versus bitcoin,” he said. “I truly believe that bitcoin is in a class of its own, and if someone were looking to invest in crypto, bitcoin is the only asset with enough history, size, accessibility and legal resiliency to be considered. It is very likely that all other crypto assets are unregulated securities. The U.S. government is actively waging regulatory war against those assets (and rightly so).”
Crypto Is Harder To Buy and Store Than Other Assets
Crypto may not be the best choice for a novice investor, as buying and storing it can get complex, Nott said.
“Unlike a traditional investment that you might buy at a qualified and insured custodian like Schwab or Fidelity, there is tremendous complexity around buying and storing any bitcoin/crypto that you own,” he said. “The safety of where you buy, the entity that holds your funds, or the risks if you self-custody require much more technical know-how than most other investments.”
Crypto Has Unique Tax Implications
Nott said that taxes are also an important thing to consider before investing in crypto.
“In buying any crypto, you will be significantly increasing your tax complexity,” he said. “Not only are tax laws not truly adapted to crypto yet, but your tax preparer may not have the expertise to properly advise you on it. Even worse, if you transact frequently in it, you have to keep records of those transactions, and the custodians don’t provide the tax documentation as your trading account would at year-end.”
The Bottom Line
“It’s my view that the majority of people should probably not be investing in crypto yet given those unresolved issues, but that someone who has put in the proper amount of research into what it is, how it works and how to store it might consider it,” Nott said. “Crypto is complex, and only investors who are willing to do the legwork to understand that complexity, the impact on their tax situation and the regulatory risks involved should consider it.”
Nott offers an alternative option for those who want to get into the crypto space, but may not want to invest in these assets directly.
“If you are truly interested in having exposure to the price movement of something like bitcoin, a better way, for now, might just be to use a bitcoin futures ETF,” he said. “Do your homework and speak to experts.”
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