STRATEON INTELLIGENT WEALTH INSIGHTS

Should You Invest in Crypto? It's Not a Simple Answer.

by Mike Halper 06/01/2023

Cryptocurrencies: the digital frontier beckoning adventurous investors with promises of untold riches, technological disruption, and financial independence. As the world becomes increasingly digitized, the allure of this new asset class captivates the curious and the risk-takers alike. But as the crypto market surges and skeptics caution against potential pitfalls, a pressing question emerges: Should you dive headfirst into the volatile and enigmatic world of cryptocurrencies, or exercise caution and watch from the sidelines? It's a question that demands careful consideration, so let's explore the pros and cons, the opportunities and risks, and ultimately unravel the mystery of whether investing in crypto is a daring venture worth taking or a speculative gamble better left to the brave few.

Advantages of Investing in Crypto

When exploring the potential advantages of investing in cryptocurrencies, a world of possibilities unfolds before us. Cryptocurrencies offer enticing prospects such as high returns, diversification of investment portfolios, and the perception of being a hedge against inflation. As we delve into this section, we will examine these advantages in greater detail, shedding light on the potential benefits that have attracted investors to the captivating realm of digital assets.

Increased Diversification

Cryptocurrencies can provide diversification for an investment portfolio. Historically they have had a relatively low correlation with traditional asset classes like stocks and bonds. Adding cryptocurrencies to a portfolio can potentially reduce overall risk by spreading it across different types of assets.


Historically Among the Highest Performing Asset Classes

Cryptocurrencies have gained a reputation for being one of the highest-performing asset classes in recent years, showcasing remarkable growth and delivering substantial returns for investors over their relatively short history. When compared to traditional asset classes, cryptocurrencies have often outperformed stocks, bonds, and other investment options. In some instances, the returns on cryptocurrencies have far exceeded those of traditional investments, attracting the attention of investors seeking high-growth opportunities. Bitcoin, for instance, surged from mere fractions of a cent in 2009 to reach an all-time high of approximately $69,000 in 2021. Other cryptocurrencies like Ethereum, Ripple, and Litecoin have also witnessed significant price increases, leading to substantial returns for early investors.

Potential Inflation Hedge

Before you can fully understand how crypto can be a potential hedge against inflation, it's important to understand inflation and how it works. Therefore, it's recommended to read the Money and Inflation Explained page and the Inflation vs. Deflation section of the Bitcoin Explained page.

Simply, part of the reason inflation occurs is continuous printing of new money. There are other aspects to and causes of inflation, such as interest rates, consumer goods supply and demand, employee wages, and more, but generally if the central bank is printing new and more currency, then that currency is losing value.

On the other hand, while inflation erodes the purchasing power of traditional currencies, some cryptocurrencies, such as Bitcoin, are designed to have a finite supply. Some cryptocurrencies may already have their maximum currency supply in circulation, while others like Bitcoin are slowly inflating at a rate that decreases over time until the maximum supply is reached. There are even some cryptocurrencies that are actually deflating, meaning the supply of the currency that's in circulation is actually decreasing.

Cryptocurrencies operate on decentralized networks, typically based on blockchain technology. They are not controlled by any central authority or government. This independence from traditional financial systems and centralized control can make cryptocurrencies less susceptible to the monetary policies of governments and central banks. In times of inflation or economic uncertainty, some investors may see cryptocurrencies as an alternative store of value that is less affected by traditional economic forces.

Cryptocurrencies offer global accessibility and can be traded 24/7 across different jurisdictions. This accessibility allows investors to diversify their holdings beyond traditional currencies, potentially providing a hedge against inflation in specific regions or currencies. Investors can also use cryptocurrencies as a medium of exchange or a store of value in countries experiencing hyperinflation or economic instability.


Disadvantages of Investing in Crypto

Increased Volatility & Risk

It is important to note that while Bitcoin has shown impressive returns over the past 15 years, its performance can be highly volatile. The cryptocurrency market is known for its price fluctuations, and investors should carefully consider the risks and potential rewards before investing in cryptocurrencies.

Additionally, it's important to recognize that Bitcoin is just one cryptocurrency among many others, and their individual performances can differ significantly. Other cryptocurrencies like Ethereum, Litecoin, and Ripple have also experienced periods of significant growth, although their returns may not match those of Bitcoin.

Greater Risk of Scam and Fraud

As explained in the Addressing Common Objections to Bitcoin page,  crypto as a whole is not a scam. It's important to keep in mind that there are many crypto projects and tokens that definitely are scams, and there are people who will attempt to use crypto for their scams. This is not something unique to crypto though, as there are many cases of scams and fraud in traditional finance and traditional stock markets. Crypto may make it easier for individuals to concoct and run their scams, though, so extra care is needed when investing in crypto. If you do invest in crypto, it's important to be careful and make sure you do your own research, or enlist a trusted advisor, to help you determine which crypto projects, tokens, and coins to purchase and invest in.

Custody Can Be Confusing and Difficult

When it comes to custody of crypto, there can be more complexity, which makes using crypto more confusing, and even more risky.

Cryptocurrencies are digital assets that exist solely in electronic form. Unlike traditional assets like physical cash or stocks held in brokerage accounts, cryptocurrencies are intangible and require specialized digital storage solutions. This digital nature can make custody processes less familiar and more complex for individuals who are accustomed to traditional financial systems.

Cryptocurrencies are secured using cryptographic keys, specifically public and private keys. The private key is crucial for accessing and managing cryptocurrency holdings. Self-custody involves securely storing and managing these private keys to protect against unauthorized access, theft, or loss. Managing private keys effectively requires a good understanding of blockchain protocols, wallet software, and transaction processes to securely store and handle cryptocurrencies. Additionally, staying updated with advancements, network upgrades, and evolving industry standards can be challenging.

Due to the complexities and risks involved in self-custody, individuals and institutions often turn to specialized custodial services provided by reputable companies. These custodians offer enhanced security measures, insurance coverage, regulatory compliance, and expertise in handling digital assets. However, selecting the right custodial solution requires careful consideration, due diligence, and understanding of the specific needs and risk tolerance of the investors involved.

Uncertain Regulatory Future

The regulatory landscape surrounding cryptocurrencies is still evolving and varies significantly from one jurisdiction to another. This lack of uniformity and clarity can create uncertainty for businesses and individuals operating in the crypto space. Regulatory frameworks can be complex, subject to change, and often require interpretation, making it challenging for market participants to navigate and comply with the rules.

Governments and regulatory bodies have expressed concerns about certain aspects of cryptocurrencies, such as their potential use in illicit activities, market manipulation, and investor protection. As a response, regulatory measures may be introduced to impose restrictions or limitations on crypto-related activities. This can include stricter KYC procedures, limits on trading or investment amounts, bans on certain types of transactions or tokens, or licensing requirements. Such restrictions could hamper the growth and innovation of the crypto industry and limit the opportunities available to investors and businesses.

Regulatory actions and announcements can significantly impact the sentiment and stability of the crypto market. Regulatory crackdowns or unfavorable regulations in major jurisdictions can cause market volatility, leading to price fluctuations and increased investor uncertainty. Uncertain or restrictive regulations may also discourage institutional participation, as they often require more regulatory clarity and certainty to navigate compliance and risk management obligations.

It is important to note that while regulatory challenges exist, they also aim to protect investors, mitigate risks, and foster market integrity. The maturation of regulatory frameworks can bring legitimacy and institutional confidence to the crypto industry, potentially attracting more mainstream adoption and investment. However, striking a balance between regulation and innovation remains a complex challenge that needs to be carefully addressed to ensure the sustainable growth and development of cryptocurrencies.

Uncertain Future Taxation

Tax regulations regarding cryptocurrencies can be complex and often lack clarity. Tax authorities may struggle to keep up with the fast-paced nature of the crypto market and the evolving technology behind it. Determining how cryptocurrencies should be classified, valued, and taxed can be challenging, leading to confusion and potential errors in compliance.

Crypto taxation requires individuals and businesses to maintain detailed records of transactions, including the acquisition, disposal, and value of cryptocurrencies. The need to track every transaction and calculate gains or losses can be burdensome, particularly for active traders or businesses that accept cryptocurrencies as payment. The complexity of reporting requirements and the need for accurate record-keeping can result in increased administrative work and potential compliance errors.

The increase in the value of cryptocurrencies can lead to significant tax liabilities when crypto assets are sold or exchanged for traditional currencies or goods and services. Taxation based on capital gains or income from crypto-related activities can result in substantial tax obligations, particularly for those who have accumulated significant gains or engage in frequent trading. Paying taxes on crypto gains can reduce the overall profitability of investments or limit the potential for reinvestment.

Calculating the tax liability for cryptocurrencies can be technically challenging. Factors such as the determination of the cost basis, accounting for different types of transactions (e.g., exchanges, forks, airdrops), and handling wallet transfers can add complexity to the tax calculation process. Although more tools and tax software tailored for cryptocurrencies exist and more are coming out, they do have an added cost, and could be quite expensive for those with hundreds and even thousands of transactions, further complicating the process for individuals or businesses.

Uncertain Future Taxation

Tax authorities may struggle to provide timely and comprehensive guidance on cryptocurrency taxation due to the novelty of the asset class. This lack of guidance can leave taxpayers uncertain about how to accurately report their crypto-related activities. As regulations evolve and tax authorities issue new guidelines, taxpayers may face challenges in staying up to date and ensuring compliance.

Taxpayers should consult with tax professionals or accountants who specialize in cryptocurrency taxation to ensure compliance with the applicable laws and make informed decisions.

Difficulties with Estate Planning

Estate planning involving cryptocurrencies can present unique challenges and complexities. Here are some difficulties associated with estate planning for crypto assets:

Given these difficulties, individuals who hold cryptocurrencies should consider the following estate planning measures:

Proper planning and professional guidance can help mitigate the challenges associated with estate planning for cryptocurrencies and ensure that the wishes of the deceased regarding their crypto assets are carried out effectively.

Investing in cryptocurrencies presents both advantages and disadvantages that potential investors should carefully consider. While crypto investments offer the potential for high returns, diversification, and opportunities in a rapidly evolving digital asset market, they also come with significant risks and challenges. The volatility, regulatory uncertainties, security concerns, and complexity of custody and taxation should not be overlooked.


The decision of whether or not to invest in cryptocurrencies is a complex and personal one that requires careful consideration. Investing in cryptocurrencies should be approached with caution, with a clear understanding of the potential rewards and risks involved, and a commitment to diligent risk management and responsible investment practices. Individuals considering investing in crypto should conduct thorough research, assess their risk tolerance, and seek professional advice to make informed investment decisions that align with their financial goals and circumstances.


Fortunately, with Strateon Intelligent Wealth you have access to a financial professional with expertise in cryptocurrencies and digital assets that is able to provide advice about whether or not you should incorporate crypto investments into your financial plan, and the best way to do so if it's suitable and recommended. To find out if crypto investments are right for you and how to get started with them, feel free to...


The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. 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. Digital assets and cryptocurrencies are highly volatile and could present an increased risk to an investors portfolio. The future of digital assets and cryptocurrencies is uncertain and highly speculative and should be considered only by investors willing and able to take on the risk and potentially endure substantial loss. Nothing in this content is to be considered advice to purchase or invest in any security, digital assets, cryptocurrencies, or any other investment. Some content may be developed from sources believed to be providing accurate information.

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