In our experience, cryptocurrencies are generally counted as intangible assets with an indefinite life, except in some specific situations where investment firms hold them as an investment, in which case fair value accounting applies. Whether you invest in cryptocurrency depends on your goals and preferences as an investor, as is the case with any asset or security. We suggest that clients approach it as a speculative investment and consider the high volatility and risks involved. For those who already have a diversified portfolio and a long-term investment plan, we consider that cryptocurrency ownership is outside the traditional portfolio.
Individual units of cryptocurrency may be referred to as coins or tokens, depending on how they are used. Some are intended to be units of exchange for goods and services, others are stores of value, and others can be used to participate in specific software programs, such as games and financial products. Some investors have been successful in trading several cryptocurrencies in the short term. However, there are some issues that can make cryptocurrencies a problematic investment for long-term portfolios.
Allocating a smaller portion of your total portfolio can help hedge risk and, at the same time, allow you to expose yourself to cryptocurrency assets. Cryptocurrencies haven't existed for long, but they have gained ground as one of the most popular and speculative investments in the market. Cryptocurrency blockchains look like outdated ledgers, except that the ledger is electronic and anyone who has access to the general ledger can also be the accountant. If you're interested in taking a higher risk as an investor, investing in one or more cryptocurrencies may be right for you.
Cryptocurrency investors need to understand the tax consequences of using cryptocurrency, especially if they buy something or sell their cryptocurrency investments. For NFPs who consider digital assets as an investment, it's important to remember that cryptocurrencies are not considered a traditional financial or security asset. Cryptocurrency investors generally need to be comfortable with extreme price swings and potentially lose all their investment. Be sure to consider how to protect yourself from fraudsters who view cryptocurrency as an opportunity to deceive investors.
The easiest way to gain exposure to cryptocurrency investments without buying the cryptocurrency itself is to buy shares of a company with a financial stake in the future of cryptocurrency or blockchain technology. Cryptostaking involves using your cryptocurrencies to help verify transactions on a blockchain protocol. You can invest in Bitcoin directly using one of the major cryptocurrency exchanges, such as Coinbase or Binance. Some cryptocurrencies offer their owners the opportunity to earn passive income through a process called betting.
Given the risk of cryptocurrency as an asset class, it's especially important not to invest more money in cryptocurrency than you can afford to lose. While cryptocurrencies continue to gain acceptance as alternative investments and means of payment, they are still relatively speculative and volatile, so any decision to make transactions or shares involving digital assets requires a thorough understanding of risks.
