One of the most common cryptocurrency FAQs – and we wish it had an easy yes or no answer.
Digital assets like cryptocurrency are highly speculative and extremely volatile investments. Cryptocurrencies have no intrinsic value and do not generate any cash flows, such as interest payments or dividends. There is no source of expected return beyond future demand from other speculators. It is important for investors to understand that any digital asset investment could go to zero.
To illustrate recent volatility, consider this: The price of one bitcoin soared to a record high at more than $63,000 in April, up from around $7,500 a year earlier. Then, Bitcoin collapsed, with a 50% price drop to less than $30,000 in July, including a 35% decline in one week.
Cryptocurrency investments are not appropriate for everyone, especially for those with low-to-moderate risk tolerance. If you feel compelled to get involved, think of your digital asset investment like a lottery ticket. Be prepared to lose 100% of what you invest. Because of the extreme volatility, we suggest only allocating a small portion of your total portfolio should you choose to invest in this asset class. A 1% allocation of your total portfolio would be plenty.