Cryptocurrency is something of a divisive asset – some investors think it's a better investment than traditional assets, while others see it as too volatile and risky.
GOBankingRates spoke to Rick Nott, CFA, CFP, Senior Wealth Advisor at LourdMurray, to get his thoughts on crypto and whether or not you should have it in your investment portfolio.
What risk are you willing to take?
Different investors have different levels of risk tolerance, and the level of risk you are comfortable with plays an important role in deciding whether or not to invest in crypto.
"Consideration of investing in any asset should be taken in the context of your overall 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 views Bitcoin as his own asset class outside of the crypto umbrella.
"I think it's important to separate 'crypto' like all digital assets – new coins, NFTs, etc. – from bitcoin," he said. “I truly believe bitcoin is in a class of its own, and if anyone was looking to invest in crypto, bitcoin is the only asset with enough history, size, accessibility and legal resilience to be taken into account. It is very likely that all other crypto assets are unregulated securities. The US government is actively waging a regulatory war against these assets (and rightly so). »
Check Out: 14 Ways to Invest That Don't Involve the Stock Market
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 become complex, Nott said.
“Unlike a traditional investment you might buy from a qualified and insured custodian like Schwab or Fidelity, buying and storing any bitcoin/crypto you own is extremely complex,” he said. "The security of where you buy, the entity that holds your funds, or the risks if you keep it yourself require a lot more technical know-how than most other investments."
Crypto has unique tax implications
Nott said taxes are also an important thing to consider before investing in crypto.
“By buying any crypto, you will significantly increase your tax complexity,” he said. “Not only are the tax laws not yet really crypto-friendly, your tax preparer may not have the expertise to properly advise you on this. Worse still, if you frequently trade there, you must keep records of these transactions, and custodians do not provide tax documentation like your trading account would at the end of the year.
"I'm of the opinion that the majority of people probably shouldn't invest in crypto yet given these unresolved issues, but someone who has done enough research on what it is, how it works and how the store might consider it." Nott said. "Crypto is complex, and only investors who are willing to do the work to understand this complexity, the impact on their tax position, and the regulatory risks involved should consider it."
Nott offers an alternative option for those who wish to enter the crypto space, but may not wish to invest directly in these assets.
"If you're really interested in getting 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 talk to experts."
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