Should You Invest in Crypto?

hands holding smartphone. screen has bitcoin position up.

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Social media and crypto talk go hand in hand for millennials. If you’re like me and you spend a lot of time online, you’ll see that investing in bitcoin, dogecoin and other coins is in vogue. According to a survey from NORC, a research arm of the University of Chicago, more than one in 10 Americans invest in cryptocurrencies. Crypto investors tend to be younger (38 years old, on average) and more diverse than traditional stock investors, and 61% started their crypto journey in the past 12 months. Of those who are still hesitant to dive in, 31% say they don’t know where to start. I’m in that camp. I still do not fully understand crypto, but as I read tweets about folks becoming bitcoin rich, I’m starting to wonder if my hesitancy is costing me.

Anyone who thinks they’ve missed the boat needs to get one thing straight: You absolutely have not, says Isaiah Douglass, a millennial and certified financial planner at Vincere Wealth, in Indianapolis, who invests in bitcoin. Bitcoin is a small piece of the global investing pie in terms of market value compared with heavy hitters in the S&P 500 index. Currently, bitcoin is collectively worth about $800 billion; Apple, the biggest stock in the S&P 500, is worth $2.4 trillion. Bitcoin still has room to grow (prices as of August 6).

Bitcoin “isn’t a fad,” says Douglass. He notes that there are bitcoin advocates in the U.S. Congress and that El Salvador recently adopted bitcoin as a form of legal tender. “But the price hasn’t followed the positive momentum,” he says. Young people who put some of their savings into bitcoin over time will be ahead of the “big money” investors who Douglass believes will follow over the decade.

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Why Are Bitcoin Prices So Volatile?

Douglass says his clients who invest in bitcoin have a conviction that blockchain—the technology tracking crypto transactions across a network of computers—is revolutionary. But they’re not investing money they can’t afford to lose, and their holdings are small, accounting for 1% to 5% of their overall portfolio. Successful investors in bitcoin and other coins also employ a dollar-cost-averaging strategy, meaning you invest your money in regular, equal portions over time.

How to invest. Before you put any money into cryptocurrencies, establish a core portfolio in line with your investing goals. If you’re a young professional, that core will likely be funds in your employer-sponsored 401(k), or a traditional or Roth IRA. Next, choose how to invest. Most big brokerage firms don’t allow account holders to trade cryptocurrencies directly. But you can invest in Grayscale Bitcoin Trust (symbol GBTC, $36), an investment fund that holds bitcoin tokens. Note the pricey 2% expense ratio, compared with fractions of a percent for, say, an S&P 500 exchange-traded fund. And be mindful that the trust’s shares can trade at a premium or discount to its underlying assets.

Another option is to go the fintech route. Financial firm SoFi and broker Robinhood allow account holders to buy and sell various cryptocurrencies through their smartphone apps. The risk: Your crypto funds aren’t insured by the FDIC or SIPC, meaning that if the institution goes under, your funds are gone for good.

Or open an account at one of the cryptocurrency exchanges. Coinbase is the biggest, but Swan Bitcoin, which Douglass recommends, boasts lower fees. Digital assets at both firms aren’t covered by any kind of insurance, but U.S. dollars in the accounts are FDIC insured, up to $250,000.

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Rivan joined Kiplinger on Leap Day 2016 as a reporter for Kiplinger's Personal Finance magazine. A Michigan native, she graduated from the University of Michigan in 2014 and from there freelanced as a local copy editor and proofreader, and served as a research assistant to a local Detroit journalist. Her work has been featured in the Ann Arbor Observer and Sage Business Researcher. She is currently assistant editor, personal finance at The Washington Post.