2022 was a reckoning for the crypto industry. Cryptocurrencies deemed stable collapsed while proof of overly risky, shady, and even fraudulent practices emerged among some of the most established crypto companies. Instead of getting into the weeds of what the technology of crypto is or the genesis behind its creation, it’s more important to understand what is happening in the industry as it relates to your retirement and investment opportunities.
Crypto – A Promising but Immature Industry
Whether you’ve heard of the recent fiasco in the cryptocurrency markets, have been following the crypto industry closely, or are new to the space, it’s important to understand how this once booming industry and once lucrative investment option – even a part of people’s retirement investment portfolios via exchange-traded funds or crypto-focused retirement portfolios – is now crumbling.[1]
When inflation hit, interest rates started to rise, the economy tightened, and investments fled from riskier assets and industries. Most of all, the crypto industry. This not only led to the prices of cryptocurrencies and assets declining significantly but also led to illiquidity within the industry itself.
A case of overconfidence in their own products and companies led crypto giants such as FTX and Terra Luna to over-leverage their assets in unique ways, ultimately putting them in a failing position when capital fled the markets.
The moral of the story is that crypto is not invincible and is still young… sometimes quite literally, as many company leaders are under the age of 30 and don’t operate their companies as pragmatic, experienced professionals. Such was the case of Sam Bankman-Fried of FTX, who was, at best, a little too “creative” in the financial structure of FTX and the associated hedge fund that managed much of the company’s assets. As the crypto markets saw massive outflows and lack of liquidity, FTX filed for bankruptcy due to its over-leveraged financial structure.
Crypto as an Investment
When it comes to your retirement, you may see commercials for crypto brokerages, exchanges, or crypto-related companies as it becomes a more mainstream financial concept. You may have also seen ways to participate in Bitcoin or other cryptocurrencies and even purchase them as part of your investment portfolio. Whether you’ve heard the term “digital gold” and were curious about its connotations of stability or the term “moonshot,” which indicates an explosively successful investment, it’s clear that people are interested in crypto investments for a variety of reasons.
However, as a long-term investment, the truth is that there is no guarantee of safety or returns, especially with a new asset and industry that is still figuring out its own ecosystem, and regulation is yet to be solidified. If you have questions about crypto or want to know about other investments that are out there that can achieve what you may be looking for with crypto, call us today.
