Pros and Cons of Incorporating Cryptocurrencies into Financial Planning

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Cryptocurrencies were initially considered obscure and too technical. In the sector’s early days, most people ignored it because they were uninterested or considered it too complex to understand. Interestingly, the industry now commands much attention and is popular even among crypto bears and traditional players. Several governments are also dabbling into cryptocurrencies by designing and launching central bank digital currencies (CBDC) or creating laws to govern the industry.

In the 15 years since Bitcoin launched, the crypto sector has blossomed into a popular tool for payments, investments, leisure, and financial decentralization. Also, merchants allow customers to make digital asset payments, while decentralized autonomous organizations (DAOs) offer community members rights based on governance tokens held. Even in entertainment, gamblers can find a crypto casino that allows players to place bets using Bitcoin, ETH, and several other cryptocurrencies. Integrating cryptocurrencies enables these establishments to facilitate instantaneous deposits and withdrawals, according to crypto expert, Michael Graw.

In addition to the above, crypto is a great way for people interested in financial investment to expand their portfolios and increase their chances of profit. However, anyone looking to design a robust financial strategy must consider the potential benefits of adding cryptocurrency to their financial plan while learning about possible risks and challenges. 

Pros of Adding Crypto to Financial Planning

  • Potential for High Returns: One compelling reason to add cryptocurrencies to financial strategy is the potential for impressive returns. Since most decentralized cryptocurrencies are volatile, users may enjoy a significant rise in value if the market records a considerable upswing. For instance, as of mid-December 2023, Solana (SOL) had recorded an impressive 1000% in year-to-date (YTD) gains, while Avalanche (AVAX) also climbed more than 250% in the same period. Although risky, this level of growth potential is attractive to investors, especially people in the crypto market for short-term investments and trades.
  • Diversification: Most investment and financial planning strategies require people to consider diversifying their assets. In the traditional market, investors may consider spreading funds allocated to investments across several financial vehicles, including stocks and bonds. This helps to optimize returns and manage risks in the event of potential loss. Adding cryptocurrencies to the range of invested assets helps to mitigate risks even further. In addition, cryptocurrencies are not always correlated with traditional markets. This low correlation adds a layer of security to the average investor’s portfolio if the crypto market retains value during a bearish period in the traditional market. 
  • Access to Emerging Technology: Creating a broad investment portfolio that includes cryptocurrencies provides some access to new markets and technologies. People interested in crypto can take advantage of several potential earning tools in the crypto market, including options available in decentralized finance (DeFi). Investors can consider options like staking and yield farming to leverage decentralized networks and blockchain technology. In addition, specific cryptocurrencies held may have potential use cases connected to other sectors outside of finance, such as real estate and healthcare. This enhances the average investor’s portfolio, better optimizing returns and mitigating risks.

Cons of Crypto in Financial Planning

  • Volatility: Unfortunately, the volatility that leads to significant profits can also wipe out investor funds. In very short periods, the prices of several cryptocurrencies can nosedive, causing significant value depreciation or a complete loss of funds. Cryptocurrencies may be influenced by several factors, including tech developments, regulatory updates, and market sentiments across the traditional and crypto spheres. These factors are potent enough to negatively impact the prices of several crypto assets.
  • Security Risks: Although cryptocurrency transactions and wallets are secure as they leverage blockchain technology, the sector is somewhat prone to security hacks and breaches. Hackers have found several ways to break secure personal and exchange wallets and successfully made away with huge sums over time. For instance, the Mt. Gox crypto exchange lost $400 million in 2014 to hackers, contributing significantly to the exchange’s eventual insolvency. In Q1 of 2024, the sector lost more than $824 million to hacks.
  • Regulatory Uncertainty: Laws around cryptocurrencies are evolving and may change multiple times. This means that a jurisdiction’s support of one or more assets may morph into a stricter regime. Authorities may reclassify cryptocurrencies to force them into tighter requirements or create tax laws that may be unfavorable. In general, the uncertainty may stifle innovation and make it difficult for creators and developers to properly infuse cryptocurrencies into the traditional market for easy financial planning.

Conclusion: Merging Crypto with Financial Planning

People interested in taking advantage of cryptocurrencies can still do so by carefully planning their financial strategy. Investors should begin with gaining crypto knowledge, understanding how these assets are used across sectors, and learning market dynamics. In addition, keeping up with crypto news and industry developments is essential. This can help with insights on the best assets to hold and when to buy and sell. 

Cryptocurrencies are as important for playing crypto poker on an online casino, as they are for cross-border transactions. However, investors should consider extensive risk management, ensuring they allocate a reasonably safe amount of funds to crypto. Despite their potential for significant gains, cryptocurrencies are a risky investment class that require people to proceed with extreme caution.