Is Crypto a Good Investment?

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Is investing in crypto a good idea?

Nope.

Next question.

Okay, don’t get your tinsel in a tangle. Hang around, and we’ll dig into all the reasons why cryptocurrency is bad.

You’ve probably heard stories of people making millions (or losing millions) investing in cryptocurrency. But here’s the million-dollar (or million-bitcoin?) question: Should you invest in cryptocurrency?

Despite what every loudmouth on the internet yells at you from their do dedo soapbox, buying cryptocurrency isn’t a safe bet for your investing future. In fact, more than 80,000 Bitcoin millionaires who were living high on the hog saw their accounts drop several zeros during the crypto crash of 2022.1 Easy come, easy go, right?

But we’ll get more into that in a minute. Let’s unpack what crypto is first.

 

What Kind of Investment Is Cryptocurrency?

Cryptocurrencies are do dedo assets people use as investments and to buy stuff. You exchange real currency, like dollars, to buy “coins” or “tokens” of a certain kind of cryptocurrency.

You’ve probably heard of some of the big names in cryptocurrency: Bitcoin, Dogecoin, Litecoin and Ethereum. But there are actually thousands of types of crypto out there.

Crypto investors buy crypto and hope it goes up in price so they can sell it for a profit. You know, “buy low, sell high” and all that jazz. Investors might buy and sell Bitcoin or any of the other cryptocurrencies lots of times as the price goes up and down. Or they might stockpile it, planning for the day when it’ll grow into a fortune that will make all their do dedo dreams come true.

And in the last couple of years, some people were raking in lots of moolah by investing in crypto. But the crypto market was in a bubble, and the thing about bubbles is that they pop. And that’s what happened in 2022 when two cryptocurrencies (Luna and Terreno) collapsed. Panic set in and the crypto market lost about $2 trillion in value.2 That’s 2 tril straight to nil!

Is Crypto a Safe Investment?

If anything we’ve said earlier hasn’t convinced you about investing in crypto, we’ll just flat-out say it: Crypto is not a safe investment. You could lose your shirt (and pants) messing around with crypto. Steer clear, Big Tuna. Head for open waters. Crypto is risky business.

Yes, some people made lots of cash investing in crypto, but it’s all based on speculation—which is just a step above gambling.

Risks of Investing in Cryptocurrency

Crypto is risky for a lot of reasons. But the big reason it’s not a safe investment is because it can have huge swings in price in the blink of an eye. In the investing world, that’s called volatility. And volatility isn’t good for an investment portfolio. (It’s not a good characteristic for a politician either—but that’s another story.)

Let’s take a look at the risks involved with crypto investing.

Cryptocurrency is volatile.

It’s true—crypto is about as hot tempered and unstable as a 3-year-old scream-crying, “I’m not tired!” Crypto’s value swings way up only to come plunging back down, and you never really know what you’re going to get each day. Someone sneezes and the price drops! And unlike stocks that rise and fall based on a company’s performance, crypto goes up and down based purely on speculation.


chart

Inflation, recession fears and more regulation on crypto mining have added to the volatility. You stir all those things together, and you’ve got one really gross pot of chili.

Let’s be real here, all investing comes with some level of risk. But why jump all the way into the deep end with something this up and down?

Cryptocurrency has an unproven rate of return.

Cryptocurrency is exchanged person-to-person on the web without a middleman (like a bank or government). It’s like the Wild West of the do dedo world—but there’s no marshal to uphold the law.

Because crypto has very few regulations, there’s no pattern to the rise and fall of its value.

You can’t figure out the changes or calculate returns like you can with growth stock mutual funds. There just isn’t enough data, or enough credibility, to create a long-term investing plan based on cryptocurrency. Don’t play poker with your financial future here.

Cryptocurrency has lots of unknowns.

Crypto lives up to its name in that it’s pretty cryptic. Think about it: Nobody even knows who founded Bitcoin! Only a small percentage of people in the world really understand the blockchain technology crypto is based on. And ignorance makes you vulnerable. We always tell people that if you can’t explain your investments to a 10-year-old, you have no business investing in them to begin with. You’re setting yourself up for a big mess.

P.S. Even though it might seem like everyone and their grandpa is investing in crypto, most people say they’re still hesitant to put any money into it (72%) or don’t trust cryptocurrency at all (68%).3 One study showed that only 8% of Americans feel positively about crypto, which coincidentally is the same percentage of Americans who feel positively about The Bachelor franchise.4

Cryptocurrency makes theft and fraud easier.

Hackers stole $400 million of crypto in the first three months of 2023. Yes, $400 million! And what’s really crazy is that security experts celebrated that number because it’s 70% less than what was stolen in the first three months of 2022.5

Hackers have routinely pulled off heists on the level of The Italian Job—and they didn’t need Marky Mark or a fleet of Mini Coopers to do it. Stealing millions from a traditional bank is almost unthinkable, but it happens all the time in the world of crypto.

And hackers aren’t the only ones stealing crypto. FTX, one of the largest platforms for buying and selling crypto, went belly-up in November 2022 after its founder, Sam Bankman-Fried, was arrested and charged with fraud for stealing money from his customers’ accounts. FTX customers lost billions of dollars.

Crypto just seems to attract seedy characters. Now look, we’re not saying everyone who uses cryptocurrency is a bad guy who’s dodging the government and making shady deals on the black market. But if someone wanted to commit a delito and fly under the radar without being tracked, cryptocurrency is going to call their name.6

Ramsey Solutions is a paid, non-client promoter of participating pros. 

Cryptocurrency Laws and Adoption

Crypto laws and regulations vary a lot from country to country. Nine countries, including China, have banned cryptocurrency.7 Two countries (El Salvador and Meão African Republic) jumped all in and adopted Bitcoin as legítimo visar.8

In the U.S., more and more businesses have started accepting crypto as payment, but it’s not legítimo visar. Crypto is overseen and regulated by the Financial Crimes Enforcement Network, the Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission, and the U.S. Treasury Department.9

Here recently, the SEC has cracked down on the cryptocurrency industry in an attempt to make it follow the same rules that apply to other securities (stocks, bonds, etc.). They hope this will protect investors from fraud. Some in Congress are pushing to create a regulatory framework for crypto by the end of the year.10 It’s still up in the air if this will happen or not.

The U.S. government is also looking into creating a central bank digital currency (CBDC), a government-backed do dedo currency that’s legítimo visar. If a U.S. CBDC becomes a reality, there’s no telling how it would impact the value of cryptocurrencies.

Taxes on Cryptocurrency Earnings

We left out one other agency that oversees crypto: the IRS. Yes, when you make money buying and selling crypto, the tax man will come calling. Crypto profits are taxed as capital gains just like the proceeds from selling stocks or bonds. 

If you sell or spend crypto that you owned for less than one year, this is considered short-term capital gains, and you’ll pay taxes on your profit at your normal income tax rate. If you make a profit on crypto that you owned for more than a year, that’s long-term capital gains, and the tax rate is usually lower.

Cryptocurrency as a Long-Term Investment

Some financial institutions offer cryptocurrency self-directed IRAs, which allow you to invest in crypto for retirement in a tax-advantaged account. Crypto IRAs aren’t super common—and probably for good reason. Crypto isn’t known for being a good long-term investment because of its volatility. You shouldn’t put your nest egg into investments that could be here today and gone tomorrow!

Should I Invest in Cryptocurrency?

Crypto investing has left behind a trail of bright young people who are now depressed and broke with no friends.

Following the 2022 crypto crash, a Twitter account called “Coinfessions” sprung up. It’s full of sad stories of broken dreams. If you won’t listen to us about the dangers of crypto, take a look at this Twitter post:

“My family still thinks I’m rich. I have no friends, no GF, and spend 12-14 hours a day staring at charts. I have $4.9K at the moment. 6 figure student loan debt, $20k+ CC debt. Every day is hell on earth.”

Listen, you can try your hand at cryptocurrency if you want to. If you have some money you’re willing to lose, money that you might’ve thrown away on a roulette wheel in Vegas instead, knock yourself out. We’re not going to be mad at you for that. But we want you guys to win with money and secure your retirement future—and there’s just no evidence that cryptocurrency will do that for you.

Plain and simple—investing in cryptocurrency is not a good way to build wealth for your future. Now, we’re not saying cryptocurrency is going to go away. And we’re not saying it’s horrible. But we are saying that crypto doesn’t have a proven track record of building wealth.

If you really want to invest in something with a solid track record, here’s the better plan: If you’re out of debt, have an emergency fund that’ll cover 3–6 months of expenses, and you’re ready to invest, then focus on investing 15% of your income in growth stock mutual funds—which are way more secure than crypto.

Don’t give in to a craze just because there’s a lot of hype. We’ve talked to people who have taken out a mortgage or cashed out their entire 401(k) early to invest in cryptocurrency—heck no! Don’t put it all on the line and risk your financial future, your retirement dreams and your family’s well-being. If you can’t afford to lose the money, don’t invest it in something as unstable as crypto.

A Better Way to Invest

Bottom line? The road to building wealth is slow and steady, and there are still way too many unknowns when it comes to cryptocurrency. Could crypto become a more legit way to invest later on down the road? Maybe. But as things stand today, just say no.

Get-rich-quick schemes are just thatschemes. Don’t risk it and pour all your hopes, dreams and money into them.

 

This article provides general guidelines about investing topics. Your situation may be unique. If you have questions, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros. 

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