Is Cryptocurrency Right for My Portfolio?

​​It seems there are multiple news stories about cryptocurrencies every day.   It is a favorite topic of conversations with Millennials and Gen Zs as the investment opportunity of a lifetime.  Understandably, we frequently get questions from clients about the topic.  Here are some current facts and our thoughts about crypto and whether it has a place in a long-term investment portfolio.  In addition, we are including an article and video from Dimensional Fund Advisors with more detailed information.

What is cryptocurrency?
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• It is a digital currency (there is no physical form of exchange) and held on digital ledgers called Blockchain.
• No central bank issues the currency and no regulator or nation stands behind it.
• It can either be purchased with traditional currencies (i.e., the dollar) or it can be ‘mined’ by computers solving highly complex mathematical problems.
• It was invented in 2009 by someone using the pseudonym Satoshi Nakamoto.  
• It is a medium of exchange that is unregulated by any particular banking system and operates outside of the traditional financial system. 
• The IRS and other government agencies do not accept cryptocurrency.

​Where do you find it?  

One can buy full coins or fractional coins through exchanges like Coinbase, Binance and Gemini. 
Buyer beware:  Exchanges are not secure.


Other details to consider

• Crypto has a large carbon footprint.  ‘Mining’ Bitcoin requires extensive computing power; it currently uses more electricity than Norway or Sweden.
• There is currently limited use of cryptocurrencies as a medium of exchange.
• Cryptocurrencies generate no cash flow, so potential profits only occur through speculation of price appreciation.
• It is also the prevailing currency on the dark web and the preferred medium of exchange for criminal activity. 
• More than 10,000 cryptocurrencies as of May 27, 2021.

Is it appropriate for my long term portfolio?

This is an important question.  As a fiduciary we do not recommend cryptocurrency for a long term portfolio for the following reasons:

• It is unregulated.
• It is not a widely accepted form of currency.
• It does not represent value (Stocks represent equity ownership in a company and entitle the owner to appreciation in future streams of revenue; bonds are debt obligations that generate coupon payments).
•  It is currently highly speculative.

Feel free to contact Mosaic Fi with additional questions!