Let’s be honest, the advice to “invest in what you know” is hard to heed when you’re trying to build a diverse portfolio.
After all, institutional investors and big banks have started taking it seriously. And it’s hard to miss news of the meteoric rise in prices for bitcoin and other digital currencies over the past several years.
Had you bought bitcoin in early April 2017, for example, you could have seen a 3,700% return in just four years.
But there also have been plenty of price plunges along the way. If you’d bought in mid-April of this year, you would have lost more than half your investment in just four months.
So if you’re tempted to invest, here’s what to consider before taking the leap.
It is a highly speculative investment
Generally speaking, there is no intrinsic value underlying most cryptocurrencies.
Unlike a stock, for instance, they don’t track the growth potential of a real-world company selling real-world products and services. Nor do they track the value of a natural resource the way a traditional commodity does.
(One exception are so-called stablecoins such as tether, USD Coin and binance USD. These are cryptocurrencies pegged to the value of the US dollar, euro and other forms of fiat money, which make them less volatile than non-pegged