In the 15 or so years since bitcoin, the first cryptocurrency, was created, this evolving area of digital currency has exploded. Now there are a number of working cryptocurrencies, with functions ranging from payment to service to media and entertainment usages.
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With anything new and exciting in the finance space comes experts looking to sell you on them, assuring you that their cryptocurrency is the next hot thing. But what do you need to know before buying any new cryptocurrencies?
Experts offered some key things to watch out for.
You may know the name bitcoin, and thus think it’s a widely accepted form of crypto, but according to Brian Spinelli, CFP and co-chief investment officer at Halbert Hargrove, it’s still establishing itself.
“As a currency, we have very easy ways to make payments right now, and changing that does not appear quickly or in the near future,” Spinelli said. “Most people are not yet using it day to day.”
While a global adoption of bitcoin would make that more likely, it’s not going to be a straight line.
“[L]ike any asset with volatility, it will have its period of setbacks. Wondering if it’s going to crash anytime soon is similar to trying to forecast how public stocks are going to behave anytime soon,” Spinelli said.
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Another issue is that cryptocurrencies are volatile. Even the relatively “senior” bitcoin is still “an emerging asset,” Spinelli pointed out, with “a lot of volatility.”
While it’s reasonable to buy a small amount of cryptocurrencies, you don’t want to pack your portfolio tight with them, because you don’t know how they’ll perform.
Any time you’re looking into investing in a new cryptocurrency, you should follow cybersecurity best practices to avoid falling for a scam, according to Shane Cummings, CFP, wealth advisor and director of technology and cybersecurity at Halbert Hargrove.
“Don’t respond to phishing texts or emails directing you to login to a website. Legitimate services will typically ask you to login but will not give you a direct link. Hackers will create a website with a subtle difference in spelling of an address that people may miss, (such as amaz0n.com instead of amazon.com) and direct investors to a fake website to capture their information,” he explained.