It’s been a wild few days during a wild year in crypto world. Exchanges have collapsed, the market keeps falling, and one of the industry’s biggest players effectively killed off their biggest competitor in what looks like an act of vengeance. The downfall isn’t pretty.
Of course, there are more than egos at stake: There’s real money, too. And you’re not alone if crypto’s ongoing shenanigans are making you nervous about your investments.
Financial advisers are divided on whether the average investor should keep their money in crypto. While the typical advice for a down stock market is to stay the course, the crypto market hasn’t been around as long, and it’s hard to know when (or if) it will rebound.
“My clients are retirees or close to it, so I’d advise against it,” says Nicholas Bunio, a Pennsylvania-based certified financial planner (CFP). “And realistically, even someone young shouldn’t keep all their money there. Too much risk and potential for a crypto exchange to go bankrupt or get hacked.”
But financial advisers agree on one thing: If you are invested in crypto, it should be a small percentage of your total portfolio.
“I usually recommend limiting any investment in crypto to 1% of your risky investments,” says Rick Nott, a CFP and senior wealth adviser at LourdMurray, or up to 5% “if you have deep pockets and understand the risk.”
All investments go through cycles, he notes. The stock market has been in rough waters this year as well, although there’s far more historical data to back up that it’s a sound investment for regular people. Crypto is more of a “science experiment,” Nott says. No one knows what it’s truly worth.
If that spooks you, that’s okay. But don’t invest.
“I believe retail investors should understand what [crypto] is and does before even considering buying it,” says Nott. “Then expect that any money they may plan to invest it in may very well go to zero, so the amount you invest should be a very small portion of your portfolio dedicated to speculative investments.”
The point of investing in crypto, he says, shouldn’t be to strike it rich. But rather to build wealth over the long term.
“Wealth is better, but takes longer and requires the discipline to watch from the sidelines while you do your research, and then to be decisive when the world looks scary,” he says.
This advice hasn’t changed owing to recent headlines: Retail investors should always be cautious when it comes to crypto or any untested investment.
“For someone who has a sizable enough portfolio to warrant some allocation into alternative asset classes…you could do worse than cryptocurrency,” says Ben Waterman, cofounder of Strabo, an investment app. “There will undoubtedly be some outsized gains to be made on the upswing that follows the downturn, although when this can be expected no one truly knows. This is the exact reason you shouldn’t be investing money that you don’t have the capacity to lose.”
Going forward, stick to the largest and most well-established cryptocurrency coins—Bitcoin, Ethereum—Waterman says. Many of the smaller projects are the most speculative, and you run the risk that they may not exist in a few months.
If you have investments now, follow the traditional financial advice for a downturn, he says: Sit tight. This moment of investor panic is the worst possible time to sell.
“Worst case, you’ll be selling up at the bottom. Don’t try to catch a falling knife, as the saying goes,” Waterman says. “If you were sensible about the crypto coins you selected, these will likely persist through the downturn simply due to the amount of institutional capital that is now invested.”