We have been hearing a lot about crypto lately – it has become such a polarizing investment, as people believe it is going to save our financial system while others believe it will destroy it. Cryptocurrency is a digital asset that uses cryptography to secure and verify transactions, as well as to control the creation of new units. The most well-known cryptocurrency is Bitcoin, which was created in 2009 by an anonymous person or group of people using the pseudonym Satoshi Nakamoto. Since then, thousands of other cryptocurrencies have been created, each having their own unique features and characteristics.
The most popular benefit of cryptocurrency is its decentralized nature, which means it is created and managed by a decentralized computer network; unlike traditional currency which is controlled by central authorities such as banks and governments. This means that transactions can be conducted without the need for intermediaries, which can reduce transaction fees and increase transaction speed. Another benefit of crypto is its potential for anonymity due to users not being required to provide personal information, such as name or address on transactions that are held on a public ledger. This can make crypto an attractive option for individuals who value privacy. In addition, it can be a hedge against inflation – unlike traditional currency, which can be devalued by government policies such as quantitative easing, cryptocurrency is not subject to these same economic factors.
While there are potential benefits to investing in cryptocurrency, it’s important to understand the three main risks associated with it: volatility, security and regulatory risk. Crypto prices can fluctuate wildly, and investors can experience significant gains or losses in a short period of time. This volatility can be caused by a variety of factors including market speculation, changes in regulations and even social media activity. While crypto is secured using cryptography, the security of individual wallets and exchanges can be compromised. Hackers have been able to steal millions of dollars worth of cryptocurrency from exchanges and individual wallets, and there is no recourse for investors who lose their funds in this way. Crypto is still a relatively new asset class and governments around the world are still grappling with how to regulate it. Changes in regulations can significantly impact the value of cryptocurrencies and investors need to be aware of the potential for regulatory risk.
Potential investors must keep a few things in mind. First, it’s important to do your research and understand the potential risks and rewards. Crypto is a highly speculative investment and you should only invest money you can afford to lose. In addition, you must choose a reputable exchange or wallet. There have been many instances of exchanges being hacked or going bankrupt, so it’s important to do your due diligence and choose a platform that has a solid reputation and security measures in place. While crypto can be an attractive investment, it should not be the only investment in your portfolio. By diversifying your investments across different asset classes, you can help reduce your overall risk.
Cryptocurrency has the potential to offer significant benefits to investors, including decentralization, anonymity and a hedge against inflation. However, it’s important to understand the risks as well, including volatility, security and regulatory risk. By doing your research, choosing a reputable platform and diversifying your portfolio, you can take advantage of the potential rewards of cryptocurrency while minimizing your risk.
The Accredited Investment Fiduciary (AIF®) Designation demonstrates the individual has met educational standards to carry out a fiduciary standard of care and acting in a client’s best interest. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Registered representatives offer securities through AE Financial Services, LLC (AEFS), member FINRA/SIPC. Investment advisory services offered through OLV Investment Group, a Registered Investment Adviser. OLV Investment Group is independent of AEFS. Neither AEFS, nor registered representatives providing securities products and services through AEFS, may recommend or facilitate the buying or selling of cryptocurrencies. 2901731 – 5/23
