Cryptocurrency, if you somehow don’t know, is a digital currency secured on a decentralized network of computers, allowing for peer-to-peer transactions free from government interference. The long-term bet on cryptocurrency is that it’s the future of finance, and will eventually supplant traditional fiat currency. Since these cryptocurrencies have a limited or gated supply, in theory anyone who bets correctly on crypto could see sky-high returns on their initial investment (for example, the 10,000 Bitcoins notoriously spent on two Papa Johns pizzas in 2010 would be worth $571,671,000 today).
Similar to gold, crypto is also seen as a hedge against inflation, and as a way to diversify a portfolio away from stocks. As Barron’s points out, from 2015 through 2020, Bitcoin’s performance was almost entirely uncorrelated to U.S. and international stocks, high-yield bonds, real estate, or gold. For that reason, financial advisors commonly recommend an allocation of 1-5% crypto in your overall investment portfolio, provided that you can afford to lose it all, given that it’s an extremely volatile investment.
