Over the past year, I’ve fielded a number of questions about the feasibility of investing in cryptocurrency so I thought I’d give you “Kitty’s Take” on the whole “let’s invest in something that doesn’t really exist” situation.
 
What is cryptocurrency anyway? Right out of the gate, we need to understand that these are currencies, not investments, and there are a lot of them (more than 50 at last count). There’s Bitcoin (currently trading at ~$49,500 per token), Dogecoin (trading at $0.41), and PancakeSwap (trading at $29.35 per token), just to name a few. For comparison, the $5 bill in my wallet is trading at…wait for it…$5. Let’s put it another way, when you invest in a share of Ford Motor Company, you own a little itty bitty sliver of Ford Motor Company. When you invest in a bond mutual fund, you become a little itty bitty recipient of the dividends of a bunch of bonds. When you buy a token of a cryptocurrency, you’re holding the rights to a little itty bitty share of…of…an electronic promise. 
 
Cryptocurrencies are usually positioned as an alternative to cash and these tokens can be traded for services and things but only as long as the company selling you those services and things accepts the cryptocurrency as a form of payment. On a positive note, these currencies are run on the blockchain principle, which has some great recordkeeping features meaning no more missing or inaccurate cost basis. Every transaction involving every token is tracked and, in theory, can be pulled out of the ether when you need it (or by someone monitoring your activities but that’s a whole other rabbit hole). On the downside, from a currency standpoint, while the vendor you are negotiating with may take Bitcoin, if you hold PancakeSwap, you have to log on to an exchange, replace your PancakeSwap tokens for Bitcoin tokens, for a fee, then return to the place of purchase and exchange your tokens for whatever it is that you are buying.
 
So why are these currencies so popular? Mainly it’s the convergence of several different factors, including a whole lot of marketing savvy using social media, layered with a lack of anything resembling regulation, and a year of millions of people looking for anything, literally anything, to distract themselves from the COVID situation. Mostly though, it’s been FOMO—”Fear of Missing Out”. Now, FOMO isn’t anything new. It’s been around for as long as humans have been walking upright. FOMO is that Dutch Duke in 1636 spending his ancestor’s fortune on tulip bulbs because his fellow Dukes were all talking about them (and no, that didn’t go well for anyone involved), and it’s the guy on YouTube telling you he traded enough Bitcoin to buy a house (and because it’s on the internet, it MUST be true…).
 
Now, I’m sure you are catching the vibe of my thoughts on the viability of buying cryptocurrency so let’s exit my brain and talk about some real-life issues. First off, about 7 million people in the US and over 2 billion people in the world are unbanked—meaning this new currency is completely out of the reach of all of those people. That’s not really going to improve our wealth inequality situation. For those who are banked and are using some form of this currency, apparently, not only can it be harmful to your net worth, using it can be unhealthy for your relationship, too. According to a Bloomberg study, ~60% of people who “invest” in cryptocurrencies say their beliefs or their investments have had a negative impact on their personal relationships. What if you’re banked and single, or not overly worried about your relationships? How about the environment. These cryptocurrencies are complete resource and energy hogs. To keep these currencies humming, there is an increasing number of server farms parked all over the globe and some of these farms have an energy consumption that is on par with the energy used by smaller countries. Even if all of those farms used renewable energy (chuckle, chuckle), all of those servers need rare minerals to build and some put mining for rare minerals in the same category as blood diamonds. Mmmmm…
 
Bottom line—consider following two simple rules: 1) things that are intangible, lack regulation, and have a lot more in common with gambling over at Turning Stone probably shouldn’t be in your portfolio if you need those dollars to meet your long-term goals and 2) if you don’t understand it and/or if you (or your advisor) can’t explain it to your mother, you probably should be putting your money to better use.