Question of the Week

"Hey Treyton, should I be investing in crypto?"

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Over the past year lots of people have made lots of money in cryptocurrency. The scenarios we don't hear about are the people who invested their life savings chasing the next big thing and end up losing everything. Whenever you invest, there's some level of risk involved but with crypto, that risk is even higher.

The way I like to think about investing in crypto is similar to investing in the regular stock market. There's investors who want to find the next coin that's super cheap right now, get lucky, and make a lot of money - which would be similar to day traders.

On the flip side, there's investors who believe in the cryptocurrency movement as a whole, buy the more established coins such as Bitcoin and Ethereum, and plan to hold them for the long term.

Depending which approach you'd like to take, investing in cryptocurrency is still considered risky - even with the gains and increase in popularity over the past year.

This chart from Statista shows the past few years of Bitcoin's performance. As you can see, the price goes up and down all the time which increases the overall risk. If you made a one-time investment of $20,000 around the end of 2017, the value of it would have dipped below $5,000 the following year.

It can be tough to see your investment lose almost all of its value and if you want to invest in cryptocurrency, I like to take the approach of only investing what you can afford to lose. Since cryptocurrency is still a new space, it's impossible to know how prices are going to react in the future.

I believe it's important to have your emergency fund and retirement investing accounts funded and taken care of before investing in crypto. An emergency fund will give you the security necessary to continue building towards financial freedom and investing for retirement is important because we don't want to work forever, right?

I'm not opposed to investing in cryptocurrency and do own a small amount myself, but I believe an investor should have the basics taken care of first and a financial foundation built before putting money into a riskier form of investment.

If you'd like to read more about crypto, check out The Crypto Guide.