Cryptocurrency is the black sheep of the payments industry — almost everyone has heard of it, but most don’t fully understand how the currency works, and there are plenty of misconceptions about how it’s used.
Cryptocurrency is digital money, transferred online without a middleman, like a bank. You’ve probably heard of Bitcoin or Ether, two popular types of cryptocurrency. Unlike cash, which is guaranteed by governments, cryptocurrency is backed by an open-source algorithm. But it is a currency, and since it’s completely digital, cryptocurrency allows users to make anonymous payments with virtually no fees.
Some may use cryptocurrency to conduct clandestine purchases online without fees or a paper trail, but others simply use it as an investment hedge, the same way you would with gold or collectibles. But is crypto a legitimate way to invest? We asked eight certified financial planners and the results were surprisingly split.
Is cryptocurrency a genuine investment?
Why experts think crypto is a good hedge
“Yes, it is legit! Cryptocurrency and the blockchain technology it is built on will disrupt the way money and information are exchanged. We are already seeing traditional banks invest heavily to develop an infrastructure to create and facilitate this.”
— Tony Matheson, certified financial planner at Matheson Financial Partners
“Cryptocurrencies can be a very legitimate investment with returns that outperform stocks. However they can be very volatile and are not suitable for conservative investors. There are many different tokens available and I recommend getting to know the different types.”
— Mike Casey, certified financial planner at American Executive Advisors
Why experts think crypto isn’t a good investment
“Cryptocurrency is more of a commodity rather than an investment. That’s not to say one can't make money by owning it. Still, I wouldn’t categorize it as an investment because it has no earning growth to buy into, it doesn’t make an interest payment and it doesn’t pay a dividend. Crypto is simply making a bet for the future rather than a true investment.”
— Michael Simmons, certified financial planner at Transitions Wealth Management
“The problem with cryptocurrency is that it lacks the stability it needs for sellers and consumers to be able to determine a fair price for goods. Bitcoin and other cryptocurrencies have been anything but stable through most of their history. Speculation governs cryptocurrency value, so wild swings are inevitable which makes it hard to view it as a long-term investment. I believe that cryptocurrency is a speculative investment that comes with a great deal of risk and investors should be wary of investing money they can’t afford to lose with the hopes of a big payout.”
— Belle Osvath, certified financial planner at VLP Financial Advisors
Want to learn more about cryptocurrency? Here’s what you need to know about crypto and taxes in 2020.