Hardly a day goes by that the topic of bitcoin or other cryptocurrency assets doesn’t come up in meetings with clients and prospects or from friends and relatives who want to know, “what all the buzz is about?”
The message is the same, regardless of who’s asking. Cryptocurrency is not a currency at all. It’s a speculative asset class that is not appropriate for everyone. Only people with a high-risk tolerance should consider cryptocurrency assets.
Like other alternative assets, cryptocurrency can be illiquid at times, and its current values may fluctuate from the purchase price. Cryptocurrency assets can be significantly affected by a variety of forces, including economic conditions and simple supply and demand.
While cryptocurrencies are speculative, it's important to point out the markets appear to have matured over the past few years.
By late 2017, for example, Bitcoin became the first cryptocurrency that had a derivative contract launched on an established exchange. And within the past several weeks, a major insurance company purchased Bitcoin, and a publicly-traded company invested in the cryptocurrency.1,2,3
If you are interested in one of the cryptocurrencies, a good first step may be to keep an eye on them for some time so you can experience first hand the fluctuations in price.
If you are comfortable with the volatility and want to learn more, you may find a simple internet search may generate a lot of information. But be careful. It may be helpful to stick with content that’s created by well-known publications.
Keep us in mind as you explore the cryptocurrency world. We must follow our firm’s policy when providing guidance on the topic, but we’d welcome the opportunity to hear your thoughts.
- CNBC.com, December 17, 2017
- The Wall Street Journal, December 10, 2020
- Bloomberg.com, December 7, 2020
A cryptocurrency is a digital or virtual currency that uses cryptography for security. A defining feature of a cryptocurrency is that it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. Because cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. All investments are subject to risk, including the risk of principal loss.