Cryptocurrencies are seemingly through the roof! As of this writing a Bitcoin is over $90,000.
We write a lot at UOU about how to save money and stick to a budget. We don’t talk as much about what to do when you have saved it, as our purpose is not to give specific investment advice. Nevertheless, we generally advocate investing cash that you will not need in the next few months.
What about cryptocurrencies? Bitcoin keeps going up. Is it too late to buy? We all fear missing out on a good thing. Should we jump in?
First, let’s discuss what cryptocurrency is. It is a digital currency, that has no tangible asset associated with it, unlike the bank balance, which is digitally displayed in your bank account app, and which can be exchanged any day for actual dollars. Although a cryptocurrency has some features that are different from regular currencies, at its core it is still a currency. That means it is meant to be a store of value, waiting to be exchanged for something else. The dollar changes in value relative to the things you want to buy at the rate of inflation, whereas a cryptocurrency changes in value relative to the things you might buy with it at a much more rapid and ever-changing rate.
It is possible that cryptocurrency may become mainstream someday. However, at this early stage, we view cryptocurrency as very speculative with lots of downsides. The regulatory environment is far from robust, which is one of the reasons that transactions in cryptocurrencies are low cost, a large part of their appeal. The downside is that without a robust regulatory framework, you are putting your hard-earned money into an asset that might attract bad actors, as was the case with crypto exchange FTX and its token FTT. Add the volatility of a new financial asset to a lightly regulated digital investment, and you have a potent mix for a negative outcome. If you guess right, and time your purchase perfectly, get out in time, and don’t get caught in a fraudulent situation, all might be well.
With any investment there is always a certain amount of risk involved. Our advice with UOU is that if you are just starting out with saving and investing, try to start with more traditional investments as you build your understanding. If you want to gamble a bit with riskier investments and have the appetite and inclination to do so, we just recommend waiting until you have gained the knowledge and liquidity to do so safely.
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