Is Cryptocurrency a Good Hedge in Your Portfolio?

The recent volatility in global markets has investors asking whether they should have some amount of cryptocurrency in their portfolios to hedge against uncertainty. Crypto, as it’s known, and its underlying infrastructure, Blockchain, have been a hotly debated topic in the past few years and now the global pandemic has investors of every age interested in the potential protection against downside risk in the equity markets.

5 Things You Need to Know
About Cryptocurrency

1.  The first question investors should ask themselves is whether or not they understand what they are investing in. Most financial advisors would not advise taking a position in what’s known as a speculative investment. That being said, if you’re a knowledgeable investor, with a high degree of confidence, you may find it beneficial to diversify your portfolio by taking on a position in crypto. If you’re asking “What do you mean, ‘mining’?” it’s probably best to abstain from taking a large position.

2.  There are many ways to invest in cryptocurrency. The first is to purchase the assets directly. The second is to purchase an index or ETF (although most exchanges have prohibited these). The third avenue is to invest in ancillary businesses. For example, mining companies or businesses that accept crypto as payment.

3.  There are over 5,000 crypto assets ranging from “stable coins” which attempt to minimize price volatility by directly corresponding to the price of other assets like the US Dollar, to Bitcoin, which is the largest and most valuable.

4.  When considering investing in cryptocurrency, as a matter of due diligence you should be aware of adoption rates and the government’s regulatory stance.

5.  As with any other complex investment, there are people who want to take advantage of those who do not fully understand it. To avoid falling prey to a scammer, do your research and consult a trusted source like a financial advisor who is a Fiduciary.