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But there's a lot of wild fluctuations, with prices jumping all over the place. So where’s the sweet spot? What percentage of your portfolio should you dedicate to cryptocurrency?

To find out, I spoke with two finance professionals with Atlanta’s CPC Advisors and Raymond James Financial Services. Varun Marneni, CFP® helps clients navigate the complexities of their finances, and David Hunter, CFA is the firm’s Director of Research and Investments. Naturally, both of them have fielded lots of questions about crypto.

What is cryptocurrency? A quick recap

cryptocurrency, or “crypto,” is a form of digital currency. The original idea, outlined by creator Satoshi Nakamoto in his 2008 paper “Bitcoin: A Peer-to-Peer Electronic Cash System”, was to give Internet users a currency that they could safely exchange without the need for a third-party, like a bank or PayPal.

Bitcoin (and other cryptocurrencies) run entirely through the blockchain. A blockchain is like a giant virtual ledger that records cryptocurrency transactions. If I sell you bitcoin, that creates part of a “block” containing a detailed record of our transaction. Blocks of cryptocurrency transactions are linked together in a “chain,” hence the term blockchain.

So unlike paper currencies, Bitcoin is extremely traceable. “Imagine if every dollar in your wallet had a detailed list of everyone who’s ever had it – that’s Bitcoin” said Hunter.

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Why professional wealth-builders aren’t fans of crypto (yet)

Well, as soon as you start talking to investing experts with letters after their name, you start to realize that bitcoin’s beauty is skin deep.

When I asked Hunter and Marneni how much they think people should invest in crypto, they each gave precise numerical answers.

Here are four reasons why they aren’t big fans of crypto.

1. The value of crypto is “100% speculation”

When you look at a traditional investment asset like a stock or a piece of real estate, there are factors you can look at to predict its future value.

For example, some of the researchable factors that can drive a stock’s value include the global and domestic economy, earnings reports, investor sentiment, management shake-ups, and more.

With another asset class like real estate, those factors may include things like interest rates, inventory availability, shifting demographics, demand, overall markets, the availability of government subsidies, and so on.

By comparison, there are just three factors driving the price of a single bitcoin:

  • Supply and demand
  • Access and education
  • Regulation

That list isn’t just shorter – it’s made up of factors that are extremely difficult to measure. As Director of Research and Investments, part of Hunter’s job is to seek out information on cryptocurrency as a potential investment. His conclusion so far?

“There’s not a lot of information out there about the value of bitcoin. That’s what scares me – I don’t know what the true value of this currency is.”

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2. Crypto is unpredictable and virtually impossible to forecast

Here’s my contribution to the 2021 Understatement of the Year Awards: the value of Bitcoin is hard to predict.

To illustrate, here’s the value of a Blue Chip stock, GOOGL, over the past few years:

value of a Blue Chip stock, GOOGL, over the past few years

And here’s the value of BTC over a similar span of time:

value of BTC over a similar span of time

The first chart showcases why financial planners like Hunter and Marneni are more comfortable investing their clients’ money in blue-chip stocks. But bitcoin is going way higher! You might think. True! The value of a single bitcoin has objectively gone up by quite a lot.

But the crypto’s future behavior is still too hard to predict. Since bitcoin’s value is based upon factors that are as scant as they are transient, nobody can say for sure what BTC will be worth in the future. For every strong prediction that bitcoin will keep going up, there’s another one predicting it’ll go down.

Crypto evangelists say it’ll hit $1,000,000 – countless others say it’s a bubble and may plummet to single digits. The crazy thing is, Bitcoin’s past behavior supports both theories; the world’s favorite crypto has lost 25% of its value every year since its creation but rallied back up every single time.

Could crypto hit a million, or even ten million in our lifetimes? It very well could. For all I know, you’re reading this from the future and giggling since BTC hit $181,255,861 this morning, and now your stoner friend from high school is yacht shopping again.

But crypto’s market cap isn’t what’s most important to a professional financial planner. Hunter and Marneni value predictability. Crypto is just too volatile right now, which is why:

3. Crypto doesn’t fit into an asymmetric risk profile

Marneni and Hunter may have different job titles at CPC Advisors, but they share a common goal: to help clients navigate the complexities of their finances and to build their wealth over time.

Part of that mission involves safely investing their clients’ money in ways that provide maximum returns with minimal risk. To achieve that goal, advisors build portfolios into what’s known as an asymmetric risk profile – a “bet” where the odds are greatly in their favor.

“You’ve got to have that asymmetrical risk profile. You want to have the odds really, really in your favor to win over the long-term.”

A great example of an asymmetric risk profile in action is a casino. “The house always wins” is mostly true – the house wins at least 70% of the time, and never a percentage point less. To protect this number, and ensure the odds are always in their favor, casino games are designed with tremendous research, data, and care.

In the investing world, risk profiles have to be even more asymmetric, where the house (or wealth advisory firm) wins 90% or more of the time. Naturally, to achieve such odds in the stock market you need tons of financial models, algorithms, and data trend analysis.

If you’ve ever wondered why returns on retirement accounts are just 7% while Bitcoin is 700%, that’s why; the former has some certainty built into it.

At present, cryptocurrency has no certainty built into it; therefore, it simply doesn’t belong in an asymmetric risk profile. The risk of betting on Bitcoin is nearly 100%, and there’s not enough data to say otherwise.

So investing in Bitcoin as an early retirement strategy is like giving a horse LSD and expecting it to get you to work.

Crypto may be based on transient data, impossible to predict, and have no place in a safe investing strategy, but none of these drawbacks are the main reason why Marneni and Hunter have little interest in it. Number four, they say, is the main one:

“It’s just not necessary.”

4. Crypto isn’t necessary

Over the years, CPC Advisors has fielded tons of questions about Bitcoin. But one cluster of clients has remained noticeably silent.

“We’re not getting questions about crypto from our most successful, seasoned clients.”

According to Hunter and Marneni, CPC’s older, more experienced clients just aren’t that interested in crypto for two reasons:

  1. They lived through several bubble pops.
  2. They don’t find it necessary.

The second reason is the big one; after seeing what compounding interest can do for their portfolios, they just don’t see the need to invest in cryptocurrency.

“If you invest $5,000 in a Roth IRA or some bluechips and earn just average returns, you mitigate your risk and still become a millionaire,” Marneni said.

Sure it’ll take longer, and a $10,000 investment in BTC may be worth $80,000 in a year… but the risk is way less.

“Your financial future isn’t something you should bet on red.”

Hunter and Marneni acknowledge, of course, that all forms of investing involve some amount of risk. Even 401(k)s dip from time to time. But the overall goal of financial planning, says Marneni, is to “win over time by losing less.”

So how much crypto should you have in your investment portfolio?

To reiterate point number four above, you really don’t need any crypto in your portfolio. You can easily become a millionaire by consistently investing 20% of your income with a human– or robo-advisor.

But what if I really don’t want to miss this gravy train, guys?

“FOMO is not an investing strategy.” they said.

OK, fair enough, good point. Let me ask a different way; considering everything we talked about, how much is safe to invest?

Interestingly, Hunter and Marneni offered different answers. Both, mind you, were brief. Due to the volatile nature of crypto, and even the most seasoned professional’s inability to forecast its behavior, the two pros could offer little more than a gut feeling.

They didn’t pick numbers out of thin air – their choices make sense – but don’t expect charts or hard data in this section (because they don’t exist).

“Maybe 10%, but I still wouldn’t recommend it”

Hunter, who’s done a lot of due diligence on crypto investing, thinks between 0% and 10% is a safe range. He still recommends 0%, but if you’re feeling good about it, 10% is definitely the max.

Why only 10%?

“Even if it tanks, you can still retire.”

“Get $100,000 in safe investments first”

Rather than a percentage, Marneni offers a benchmark. He recommends that you should hit $100,000 in safe investments first, and only then consider a crypto investment.

The reasoning is that if you can have $100,000 in safe investments by the time you’re 35, and keep depositing another $100 monthly, you’ll retire a millionaire.

So what does he mean by “safe” investments? Basically, the building blocks of an asymmetrical risk profile. “Broad-based market ETFs, bluechips, etc.”

“You should cushion yourself – then you can safely buy $5,000 worth of crypto.”

Bottom line

The explosive rise of cryptocurrency is wildly entertaining to watch, and it’s natural to ask yourself whether you should go ahead and invest before it’s too late. There’s a massive potential upside to buying bitcoin, and thanks to marketplaces like Coinbase, it’s never been easier.

That said, there are totally valid reasons why seasoned professionals like Hunter and Marneni aren’t buying in. Crypto is too volatile. Its value is based on pure speculation, and its future is uncertain. The bubble may or may not burst, but regulation is definitely coming. Lastly, you just don’t need it to get rich. Compound investing is your friend.

Should you avoid crypto entirely? No, it’s fine to buy a little crypto. Just try to build a $100,000 cushion of safe investments first so your financial future is secure.


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Chris Butsch Freelance Contributor

Chris helps young people prosper - both mentally and financially. In addition to publishing personal finance advice for Investor Junkie (now Moneywise) and Money Under 30, Chris speaks on the topics of positive psychology and leadership through CAMPUSPEAK and sits on the advisory board of the Blockchain Chamber of Commerce.


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