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In or Out on Cryptocurrency?

For many investors and market pundits, the world of cryptocurrency looks dodgy at the moment. But is it time to cash out? Here is what you should know:

Cryptocurrency. – What a wild ride! November was a big month. There was the eight billion dollar short fall fall of FTX, followed by European bankers declaring the industry DOA, while other pundits demanded industry regulation.  

Let’s take a deep breath before calling for an autopsy on this very much alive industry. Remember that since its inception, cryptocurrency has had more than a few fallbacks of greater than 50% –  even 80%. Each time cryptocurrency has continued to bounce back. In 2022 cryptocurrency had a drop of over 60%, but even so it continues to be positively traded. It is reasonable to expect it will remain in high demand because it is a cost-effective, useful tool which provides solutions for consumers and investors. 

How should you make your decision? Step one is to stop looking at crypto as money.  Consider it a an asset class which is traded.  In terms of valuation, think of it this way: You have value on artwork. You have a value on gold. You have value on different assets. Cryptocurrency is no different. Next, recognise that it has advantages over traditional means of exchange. For example, if I wanted to move money to South America through traditional wire, the expense might be high. Cryptocurrency is free. 

Should you get out now and take your losses? The fantastic part of being a US tax payer is that there are no wash laws. So you don’t have to sell something and wait a period to purchase it again. You can sell it and buy in the same day, and then harvest the loss. So if you have losses and you pay taxes, and you could use a loss – I would absolutely sell it and take a loss. But you may want to buy it right back. It just depends on your objectives.

Whether you want to be in crypto or not in crypto is an individual decision. It’s an individual decision as to how much risk you want to take, and what position you allow, if any, within your portfolio. The odds are quite high that the continued familiarity, ease and benefits of this industry will lead to ongoing buy-in from the rising generation. Expect to see more people purchase it, invest in it and own it long term. That being said, there are short term doubts. The 2022 interest rate rise has caused some to view crypto as a risky asset class. Much like growth currencies, the value appears to invert in response to the rise of interest. 

Understandably, a growing number of investors feel great about adding crypto to their portfolio. If you are new to the crypto game just keep in mind that owning crypto is different than owning a company. When you purchase a company you are investing in an entity with maybe 100,000 people who wake up every day trying to make that company a leaner, meaner, fighting machine. Crypto is different. It is a volatile asset class driven by supply and demand, and user adoption.  Presently it is at the low end of its traditional range. I would not be surprised if we see upward movement with crypto in the near future. 

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Erik Weir