*There is a lot happening in the world of cryptocurrency. It may be a good time to evaluate this asset class while you are preparing for 2025.
This is still a relatively new market, and one not easily understood. Crypto is not a stock. It is a digital currency. As such it is speculating (guessing) more than investing (doing research, fundamental analysis, etc.). So, unlike investing in stocks, it has a much greater degree of risk.
This article is not an introduction to crypto, but rather, how it has performed over the last year.
I would also like to add that Inspire Financial Planning does not trade cryptocurrency for our clients. We don’t sell real estate either. However, both are options to consider in your overall wealth management strategy.
Where to Trade Crypto
Cryptocurrencies are not traded on traditional platforms like Charles Schwab, Vanguard, or Fidelity. They are traded on cryptocurrency exchanges such as Coinbase.
Coinbase is what is known as a spot market. You can trade crypto there 24 hours a day, 7 days a week. The goal of spot trading is relatively simple. Acquire digital currency at current prices and sell them in the future for a profit. However, this requires a great deal of risk.
What’s New in Crypto
Crypto markets have flourished as of late, over the past year Bitcoin is up 130% as of this writing. That’s about triple what US stocks have done. However, Bitcoin lost about 75% of it’s value from the November 2021 to December 2022.
Bitcoin, Solana, and XRP
Bitcoin is usually the first coin we think of when trading crypto. But, like stocks, there are many to choose from. We will discuss Solana and XRP’s recent performance.
Solana (SOL)
Solana is a blockchain platform designed to host decentralized, scalable applications. Founded in 2017, it is an open-source project currently run by the Solana Foundation based in Geneva, while the blockchain was built by San Francisco-based Solana Labs.
I began making very small speculative purchases in Solana in November 2022. At the time it seemed under favored, like it could be under the radar poised for growth. I made about six purchases of Solana over a 60 day period to hedge my bet.
For the first few weeks, it languished as these things do. And then I didn’t look at it for a while. The next thing I knew it had risen 200% in under a year. As of today it has risen 299% in the last 12 months based on Coinbase reporting.
XRP
XRP is the native cryptocurrency of the XRP Ledger blockchain. Like many other blockchains, it functions to securely store transactional data with distributed consensus. XRP was designed to serve as an intermediate currency for transactions covering multiple crypto-assets and networks between businesses.
I used a similar trading approach to XRP that I had with SOL. I broke down the initial purchases over several weeks and then just left it. Year to date, the return on XRP is 324%. I sold my position about a week ago in XRP. Sure, I may miss out on some growth, but then again, I could lose it all if I left it in.
Investing in Speculative Markets
If you like high-risk, high-return investing and have done some research, investing in crypto might be for you. Most experts say more than 2% to 3% portfolio exposure to crypto is not prudent. This is probably the case. But the performance this year is hard to debate.
Please understand crypto trading is infinitely more risky than traditional stocks. You should not invest money that you cannot afford to lose.
*photo purchased from Getty Images