Looking at the price chart for bitcoin, it's clear why it appeals to investors. The largest and most actively traded cryptocurrency is up 118% in the last year, with gains astronomical since its inception in 2009.
The meteoric rise of Bitcoin has not only captured the attention of individual investors but has also sparked interest from institutional players. Major financial institutions, once skeptical of cryptocurrencies, are now exploring ways to incorporate Bitcoin into their portfolios. This shift in sentiment has contributed to Bitcoin's legitimacy as an asset class and further fueled its price appreciation.
However, many in the old guard of investing and personal finance are opposed to it. Earlier this year, financial podcaster Dave Ramsey compared buying to investing in the Iraqi dinar, which he considers a risky currency that lacks the strong government backing of the US dollar. Due of its volatility, "I wouldn't wish bitcoin investments on someone I really dislike," he stated.
Warren Buffett, the chairman of Berkshire Hathaway, has also left the company. Buffett once stated that he would not pay $25 for the whole global supply of bitcoin because it generates no earnings or cash.
Despite the skepticism from traditional finance figures, Bitcoin has continued to gain traction in the mainstream. Its adoption as a form of payment by major companies and the development of Bitcoin-based financial products have contributed to its growing acceptance. However, critics argue that the cryptocurrency's environmental impact, due to the energy-intensive mining process, remains a significant concern that needs to be addressed for long-term sustainability.
But don't count Suze Orman among the cryptocurrency skeptics. The financial expert and host of "Women & Money (and Everyone Smart Enough to Listen)" owns bitcoin and believes you should as well.
"Everybody should absolutely have exposure to bitcoin," she says. "But if I'm wrong — and I've been wrong — you have to be willing to lose the money. So put in as much money as you're willing to lose."
Orman's rationale for owning Bitcoin
Crypto aficionados give a range of reasons for holding bitcoin and other prominent cryptocurrencies. Some argue that bitcoin, like gold, may be used as a store of value since it has a finite supply. Others believe Bitcoin could act as a long-term inflation hedge. Others are drawn to bitcoin's function as a currency and plan to hold it in case the dollar or other currencies collapse.
But Orman isn't interested in any of this.
"As younger people make more money and mature, bitcoin will be one of their investments of choice, and that will cause it to go up," she shares. "I do not believe it will ever be a currency or a store of value. But because the younger generation is fascinated by it — and you can sense the energy — and there are so many people interested in it, it might easily catch fire."
According to Morning Consult, millennials (those born between 1981 and 1996) and Gen Z (those born between 1997 and 2012) hold about 70% of cryptocurrencies, despite the fact that these two groups account for 41% of the population.
This generational divide in cryptocurrency adoption has led to interesting dynamics in the investment landscape. While younger investors are more likely to embrace the potential of digital assets, older generations often remain cautious. This disparity has prompted financial advisors to reassess their approach to portfolio management, recognizing the need to bridge the gap between traditional and emerging investment strategies to cater to a diverse client base.
Essentially, Orman's position is that cryptocurrency is a speculative asset that swings depending on investor demand rather than fundamentals, and that it will continue to draw speculators. If you're ready to tolerate some volatility, she argues, you can increase the value of your portfolio in the long run.
"This is an investment that you're either going to lose it all, or you're going to let it run until it's worth $100,000 or $200,000," she tells me.
Keep the hazards in mind.
Still, Orman says, you can't invest without considering the possibility of losing everything. That is why she recommends two guardrails.
One invests just what they can afford to lose totally. That is insufficient for many Americans who will rely on their investments to supplement their retirement income. Many experts recommend allocating no more than 5% of your investable cash to high-risk assets.
Orman also prefers to buy cryptocurrency using a bitcoin spot exchange-traded fund rather than in a digital wallet or through a cryptocurrency brokerage.
"I feel better about holding an ETF because I never want to see another FTX happen. And don't tell me it can't happen again," she continues, referring to the collapse of the once-famous cryptocurrency exchange.
The introduction of Bitcoin ETFs has been a game-changer for many investors, providing a more familiar and regulated avenue for exposure to the cryptocurrency market. These financial instruments offer the potential benefits of Bitcoin investment without the complexities of direct ownership, such as secure storage and private key management. However, it's important to note that while ETFs may mitigate some risks, they don't eliminate the inherent volatility of the underlying asset.
Regarding owning bitcoin directly, "I still will never understand how the wallets work and how if you lose your passcode, you never get it again," Orman says.
Furthermore, Orman prefers to have her cryptocurrency investment in the same portfolio as her equities, ETFs, and mutual funds, rather than in a separate account. "I can really identify to that. I understand it," she says.
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