Unless you’ve been in a coma for the past two months, you’ve probably heard about bitcoin and cryptocurrency. The price of bitcoin has boomed from $900 at the beginning of the year to more than $16,000 today.
As a result of those huge gains, investors have bitcoin fever.
So should you get in on the bitcoin/crypto craze?
Like the answer to many buy or sell questions, the answer is… it depends.
First, let’s briefly discuss what bitcoin and other cryptocurrencies are.
Cryptocurrencies are decentralized currencies. These “coins” are often issued by companies, but some are “minted” by mysterious, anonymous figures, as is the case with bitcoin.
In theory, these currencies can be used to conduct transactions, although it’s tough (though not impossible) to find individuals or businesses that will accept them. Bitcoin is a bit of an exception, as it is now accepted by a few big businesses such as Expedia, Overstock and Dish.
These cryptocurrencies are attractive to true believers because they aren’t controlled by a government, are difficult to steal, and aren’t correlated to the stock market or other investments.
Skeptics argue that governments will one day try to regulate it. Cryptocurrencies are backed by nothing (a U.S. dollar is backed by the full faith and credit of the U.S. government) and are intangible. If I have $10,000 in my account, I can go to a bank and get $10,000 in cash. Cryptocurrency exists only in the digital world.
Should You Buy?
Whether you should jump onboard the Crypto Express depends on whether your other financial goals are taken care of.
You should not buy bitcoin or other cryptocurrencies if you are still concerned with how you’re going to pay for retirement, tuition or other necessities.
Cryptocurrency is very speculative and belongs only in the small portion of your portfolio earmarked for speculation.
In this strategy allocation model, cryptocurrency is included in the Early-Stage Investing section. It’s right at the top of the pyramid and therefore consists of the smallest percentage of your portfolio.
Before you even think of investing in a cryptocurrency, make sure your finances are secured with a Core Portfolio and Perpetual Dividend Raisers (Blue Chip Outperformers).
As you fill out those important sections of your portfolio, you can increase your risk by adding sector-specific assets, targeted trading and short-term income. Lastly, if you’re comfortable with high risk for high returns, you can start investing in private equity deals and cryptocurrency.
No doubt, people are making money in bitcoin and other cryptocurrencies. It has become a full-blown mania. If you’re planning to enter the cryptocurrency world, be sure you can handle risk, volatility and potential losses.
It’s important that you allocate only a small portion of your portfolio to this speculative asset – and no more than you can afford to lose.
Cryptocurrency is the mania of the day. It’s exciting, and a lot of money could be made if you time it right. Just be sure you can handle the risk.