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The short version

  • Buying, selling and mining cryptocurrency is speculating, not investing.
  • Cryptocurrency has no place in my retirement investment portfolio.
  • Among other reasons, I think cryptocurrency is a terrible choice because: it's not widely accepted as a payment method, it's soon to be more heavily regulated, scams are common, and crypto prices are highly volatile.

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1. Cryptocurrency is speculating, not investing

When I wanted to learn about investing, I studied successful investors like Warren Buffett, Benjamin Graham, John Bogle, John Templeton and a few others. They wrote extensively about the fundamentals of successful investing and the lessons they learned as investors.

Benjamin Graham, author of “The Intelligent Investor,” said, “The individual investor should act consistently as an investor and not a speculator.” Speculators risk losing their entire principal, whereas investors are focused on the safety of the principal and reasonable risk.

Cryptocurrency is purely speculative. You speculate that the price will go up. It’s more akin to gambling than investing. And I’m not alone in my assessment. Many experts concede, and even Consumer Reports reiterates that cryptocurrency is one of the riskier investments available.

Buying a currency with a fluctuating value determined strictly by the whim of other buyers and sellers is not value investing. And that’s the biggest reason why cryptocurrency has no place in my investment portfolio.

2. Cryptocurrency is vulnerable to cyber crime

Online fraud is real. I fell victim to wire fraud in a significant financial transaction in the fall of 2021. Fortunately, I was able to recoup most of my money.

Cryptocurrency is rife with crime, scammers and fraudsters, and there’s no governmental agency like the Security Exchange Commission (SEC) set up to monitor and protect investors. Common scams include fake websites, Ponzi schemes, fake celebrity endorsements, bogus virtual currency trades, and even “romance scams” where tricksters persuade people they meet on dating sites to send them crypto and funds via fake apps they download to their phones.

In 2018, Coincheck was hacked, and the thieves got away with $534 million and the Bitconnect Ponzi scheme cost hopeful investors $3.45 billion. There are many more examples of how crypto investors can lose their cash. While two-factor authentication requirements provide some protection from scammers, cryptocurrencies are targets for unscrupulous characters.

Like you, I want to avoid losing money. If the computer geniuses running crypto exchanges can’t stop hackers and Ponzi schemes fool crypto investors, I can’t put much faith in my unsophisticated computer skills to avoid scams!

More: How to spot a crypto scam

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3. Cryptocurrency is extremely volatile

Bitcoin is by far the most popular form of cryptocurrency, and it's had huge ups and downs over the years.  Talk about a volatile investment! In November 2021, one coin was trading at nearly $68,000. But now in August 2022, the price has dropped to a “mere” $21,000.

Furthermore, TerraUSF, a “stablecoin” tethered to USD, famously lost most of its value this year, and Ethereum and Bitcoin's value plummeted, leaving experts to wonder if a crypto winter had arrived.

I won't include an investment this volatile in my retirement portfolio, especially since I'm so close to my retirement date.

More: 5 simple steps to creating proper asset allocation

4. Increased government regulation and oversight

Due to scams and investor complaints, the 118th Congress introduced 50 bills and resolutions to regulate cryptocurrency.

In 2021, President Biden signed an executive order calling for increased regulation and the taxation of digital transactions, resulting in a not-yet-public, comprehensive digital asset regulation bill.

At this point, heavy-handed industry regulation is inevitable. As I write, the SEC and the Commodity Futures Trading Commission (CFTC) are discussing whether digital assets should be regulated as securities or commodities.

In 2021, the crypto industry spent $9 million on lobbying efforts to limit government oversight of cryptocurrency. And that’s a significant increase in lobbying funds from previous years. Of course, government regulation defeats the purpose of creating a decentralized financial system.

We typically need government regulation where people fall for scams. However, government regulation always adds compliance complexity and increases business costs. This might mean cryptocurrency will lose some appeal in the coming years. And since supply and demand are the determining factors of digital asset prices, in my opinion, the future doesn’t look bright.

5. Cryptocurrency is not widely accepted as fiat money

The reason to have dollars, or any other currency, is that you can buy whatever you want. Although cryptocurrency has been around for decades, you can’t buy most consumer goods with it.

While niche industries and a few major corporations accept Bitcoin – Microsoft, PayPal, Home Depot, Whole Foods, Starbucks, AT&T and Overstock, for example – the vast majority of consumer goods transactions are only available by using the U.S. dollar.

I don't see the point in trading cryptocurrency if you can’t buy what you need when you need it.

6. The real value of cryptocurrency is unknown

How do you determine the value of cryptocurrency? It’s intangible. Even our government can't decide whether to regulate it as a commodity or a security.

When you buy cryptocurrency, you don’t own anything. I guess, technically, you own a bit of code, but I don’t understand computers well enough to know how to value that.

So my last reason reflects the wise and famous advice of Warren Buffett: “Never invest in a business you don’t understand.”

I don’t understand how to make money investing in cryptocurrency. And that’s reason enough for me to pass on buying digital assets.

More: How to invest my money wisely

The bottom line:

Investing in Cryptocurrency was all the rage in 2021, but since then, prices have declined considerably. I don’t invest in digital assets primarily because there’s no inherent value. And the cost depends entirely on the currency’s popularity, not on any fundamentals. My conclusion is that buying and selling digital assets is a purely speculative move, and I don't consider it investing at all.

Resources for the crypto-curious:

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Ruth Lyons Freelance Contributor

Ruth Lyon is a freelance contributor for Moneywise.

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