The regulatory landscape for retirement investing shifted dramatically last August. A signed executive order opened the door for alternative assets — including cryptocurrency — to enter 401(k) plans.

For advisers, this creates both opportunity and obligation: Clients will ask about crypto, and you need a clear framework for responding.

What changed (and what didn't)

This change doesn't mandate that plans adopt cryptocurrency. Rather, it compels regulators at the Department of Labor, SEC and Treasury to revisit previous guidance that discouraged digital assets in retirement accounts.

Previously, the DOL issued guidance suggesting plan administrators exercise "extreme care" before adding cryptocurrency options, effectively discouraging adoption without outright prohibition. The August order rescinded these "extreme care" warnings, restoring a more neutral regulatory stance.

The absence of restrictive guidance doesn't mean the absence of fiduciary responsibility. Plan sponsors and advisers still must demonstrate prudent processes, ongoing monitoring and appropriate risk management.

The practical effect is that crypto in 401(k)s has moved from "highly discouraged" to "proceed carefully with proper safeguards."

New rulemaking expected early this year should provide clearer parameters on key issues such as tax concerns and digital assets permitted within retirement strategies, but advisers working with clients interested in this space need frameworks now to address uncertainties.

The client perspective: Benefits and risks

If you haven't already, you may begin hearing from clients who are curious about adding crypto to their retirement plan. Clients considering adding crypto to their account need balanced information about both the potential benefits and risks.

Here's a look at some of the potential benefits:

Diversification beyond traditional assets. Crypto behaves differently from stocks and bonds, potentially providing portfolio diversification benefits during certain market conditions.

Exposure to digital asset growth. Clients who believe in long-term blockchain adoption gain access to this emerging asset class within their retirement savings.

Access to broader alternative investments. The regulatory shift applies not just to crypto but potentially to private equity, real estate, infrastructure and other alternative assets previously difficult to include in 401(k) plans.

Despite these benefits, significant risks exist that demand clear communication:

Extreme volatility. Crypto prices can swing dramatically in short periods, creating substantial account value fluctuations that many retirement savers aren't prepared to handle.

Valuation and liquidity challenges. Unlike publicly traded securities with daily pricing, some crypto holdings lack consistent valuation methodologies and may not be easily redeemable.

Regulatory uncertainty. Rules continue to evolve, potentially affecting the tax treatment, custody requirements and permissibility of various digital assets.

Operational complexity. Custody, security, recordkeeping and reporting for crypto require specialized infrastructure that many plan providers don't currently offer.

Fiduciary liability. Plan sponsors and advisers must document their prudent process for adding, monitoring and potentially removing crypto options.

The education challenge is substantial. Your role includes helping clients understand not just what crypto is, but whether it belongs in their specific retirement strategy.

Clarifying crypto through education

Perhaps the biggest challenge is that many clients who express interest in crypto lack a fundamental understanding of what they're actually buying, how it's valued or what risks they're taking.

Some participants approach crypto as a lottery ticket, hoping for life-changing returns without appreciating the equally life-changing potential for losses.

Others extrapolate recent performance into the future, assuming past gains will continue indefinitely. Still others hear about crypto from friends, family or media without understanding how it differs from traditional retirement investments.

Consider creating a client education framework, developing or sourcing educational materials that explain crypto basics, risk characteristics and appropriate use within retirement portfolios. Your client education could address:

Basic mechanics. What crypto is, how blockchain technology works and why digital assets might (or might not) have long-term value.

Risk characteristics. The potential for substantial losses, not just gains, and how crypto volatility compares to traditional retirement assets.

Portfolio context. Why allocation limits matter and how crypto fits within diversified retirement strategies.

Behavioral pitfalls. The dangers of emotional trading, over-concentration in speculative assets and investment decisions driven by the fear of missing out (FOMO).

Moving forward carefully

Cryptocurrency in 401(k)s represents a significant shift in retirement investing. For some clients and plans, carefully implemented crypto access provides valuable portfolio diversification and meets legitimate participant interest in emerging assets.

For others, the risks and complexities outweigh potential benefits.

Your role as an adviser is to help clients navigate this decision thoughtfully, implementing appropriate safeguards when crypto makes sense and explaining why it doesn't when circumstances don't support it.

Start with small pilots if you're exploring this space. Test infrastructure with a limited number of participants before doing a broader rollout. Gather feedback about education effectiveness and operational friction points. Document your process meticulously, including risk assessments, client communications, education efforts and the rationale behind investment decisions.

The evolution of retirement investing is underway. Advisers who develop clear frameworks for addressing cryptocurrency questions — whether that means carefully implementing access or explaining why they're waiting for greater regulatory clarity — will serve clients better than those who simply ignore the topic or react defensively.

The key is approaching crypto in 401(k)s the same way you approach any retirement investment option: With due diligence, appropriate risk management, clear client communication and a well-documented fiduciary process.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

"Do you think I should put some money in bitcoin or crypto?" That's a question I get a lot as a financial planner.

These cryptocurrency conversations tend to swing between two poles.

On one end, you have the "bitcoin is going to zero" crowd that will never believe in deregulated finance, the blockchain or bitcoin itself.

On the other, the "bitcoin replaces every asset" crowd that believe the entire future is built on the blockchain, the U.S. dollar is going away, and cryptocurrencies will replace it all.

Both are emotionally interesting and analytically useless.

My position, as always, is simpler. Treat bitcoin like any other asset class. Look at the data. Evaluate risk. Study correlations. Understand where it fits in a portfolio and where it absolutely does not.

A look at historical data

With that lens, I decided to revisit my analysis from 2020, Implications of Adding Bitcoin (Crypto Currencies) to Traditional Portfolios, and look at bitcoin's (potential) role in a portfolio. I pulled historical price data on bitcoin, the S&P 500 and the Magnificent 7 — Apple (AAPL), Alphabet (GOOG; GOOGL), Microsoft (MSFT), Amazon.com (AMZN), Meta Platforms (META), Tesla (TSLA) and Nvidia (NVDA).

The numbers tell a much more reasonable story than the headlines.

1. Bitcoin's recent performance looks different than people think

The first thing everyone wants to know is who "won." On pure returns, bitcoin has outperformed almost everything over longer periods. This is true. It's also incomplete.

The story is really two parts — bitcoin pre-2018 and bitcoin post-2018.

For the purposes of this analysis, I am looking only at bitcoin post-2018, since its 1,000%+ returns pre-2018 are easy enough to interpret. The question now is: Would you still invest new money today?

Below is a look at annual returns across bitcoin, each Mag 7 component and the S&P 500 since 2018.

I compare bitcoin directly to the Mag 7 because, like crypto, these companies represent high-growth, high-volatility, future-oriented assets that dominate both narrative and performance cycles. If an investor is choosing "the next big thing," these are the most realistic substitutes.

Source: Koyfin. As of 11/19/2025

A few things jump out from this dataset:

• Bitcoin has delivered several years of triple-digit returns
• Bitcoin has also had multiple calendar years where it fell more than 50%
• The Mag 7, despite massive recent dominance, still look orderly compared to bitcoin's volatility
• The S&P 500 remains the steady compounder it has always been

So, yes, bitcoin's long-term return profile is exceptional. But when compared with the Mag 7, those exceptional returns come with extreme volatility, and since 2018, it actually underperforms many of the Mag 7.

The level of volatility relative to return would suggest that the risk premium, or excess return an investor can expect to earn from investing in bitcoin, is not justified. Simply put: Return alone doesn't settle the question.

2. Drawdowns: The part most people ignore

If someone tells you only the return, and not the drawdown, they're leaving out the part that determines whether investors actually stick with an asset.

Bitcoin's drawdowns are not just large — they are violent.

Even mega-cap growth stocks, which are hardly low-risk, don't draw down as much as bitcoin has experienced. Nvidia, Meta and Tesla have had large drops, but bitcoin has had periods where it lost more than 80% of its value.

This isn't just an academic point. A portfolio allocation works only if an investor can stay invested. Most people will not hold through an 80% decline, no matter what narrative they believe.

And more importantly, the return (as shown above) has not rewarded investors for holding bitcoin the same way it has for Nvidia, Tesla or even Apple.

In practice, the biggest risk to bitcoin holders isn't the asset itself — it's the behavioral failure it induces.

3. Correlations: The case for diversification is more nuanced than people think

One of the strongest arguments in favor of bitcoin is its historically low correlation to stocks. That was true in the early years. It's less true today.

Using rolling three-month correlations, the relationship between bitcoin and the rest of the market looks very different depending on the period.

A few insights explain most of bitcoin's behavior:

• Bitcoin increasingly trades like a risk-on asset, not a diversifier
• Correlations rise during periods of market stress, the exact moments investors want diversification to work
• Since 2018, bitcoin has not behaved like "digital gold." Specifically, whereas gold has a low correlation to the broader market and lower volatility, bitcoin is the oppositive
• Correlations remain unstable across cycles, making forecasting its performance in the future difficult, especially as a risk diversifier

The bottom line: Based on behavior and the way it moves with the broader stock market (e.g. S&P 500), bitcoin is not your portfolio's insurance policy. It is more like high-beta tech with a different marketing department.

4. So, should bitcoin be in a portfolio?

This is the part where investors expect a binary answer. In my view, it's not that simple.

I suggest investors think about bitcoin the same way you think about private investments, early venture or any asymmetric risk asset — sizing matters more than prediction.

Regarding the specific role of bitcoin in a portfolio, here's how we think about it at Defiant Capital Group (as always, this is highly client-specific and it's not right for all clients):

Potential benefits

Asymmetric upside. The upside tail is real and historically has been meaningful.

Low long-term correlation. Even imperfect diversification can help when position sizes are small.

Rebalancing optionality. Volatility creates opportunities if the investor is disciplined.

Institutional adoption. ETFs and custodial improvements make the asset more investable. As more institutions hold bitcoin and other cryptocurrencies, there is an increasingly stronger and more stable market for it.

Risks that matter

Extreme drawdowns. The path is often worse than the result.

Regime-dependent correlation. Works until it doesn't.

Speculative flows. Narrative changes drive returns as much as fundamentals.

Behavioral strain. The average investor massively underperforms the asset because they enter and exit at the wrong times.

And for entrepreneurs, who are the bulk of our client base, bitcoin has to be viewed through an even narrower lens.

If most of your wealth already lives in a single business, you don't need more convexity or more volatility. You need stability, planning and liquidity alignment.

Bitcoin had an incredible rally up to 2017/2018, but since then, the performance has looked more like a high-tech stock. Yes, it can still massively outperform the broader market, but at significantly higher risk.

In our view, bitcoin can play a role in a diversified portfolio, but usually a very small one.

5. A practical allocation framework for bitcoin and crypto

Going straight to the point, here's the general framework we use with clients:

1. Keep it small. We view investing in bitcoin or other cryptocurrencies like a risky stock investment — there's high concentration, high risk and the ability for loss. Invest only what you are willing to completely lose.

For most investors, that's a 1% to 2% investment, which is typically enough to capture the upside without exposing the portfolio to catastrophic drawdowns.

The larger the allocation, the larger the required discipline of the investor.

2. Rebalance regularly. Volatility is only useful if harvested. Without rebalancing, the allocation drifts into a behavioral problem.

3. Match the sizing to the investor's real risk budget. Look at an investment in bitcoin relative to your existing portfolio and other income streams. Make your allocation in the context of both income and portfolio investments.

4. Understand how bitcoin actually behaves. In our view, bitcoin is no longer a portfolio hedge — its correlation to equity markets is too high, its volatility is closer to that of a mega-cap tech company, and its drawdowns are significantly higher than the broader stock market.

Since 2018, bitcoin has not performed like gold, an inflation hedge or even provided downside protection.

The data simply doesn't support that story.

6. The bottom line

Bitcoin's long-term returns are undeniable. So are its drawdowns. So is its volatility. So is its inconsistent correlation profile.

The most productive way to think about crypto is not as a replacement for traditional assets and not as a guaranteed moonshot. It is an asset with a unique return distribution that can fit into a portfolio if treated with discipline, structure and humility.

At Defiant Capital Group, we don't dismiss bitcoin. But we don't romanticize it either. Like anything else in a portfolio, it has to earn its place.

And the way it earns that place is not through prediction, but through design — the same principle that guides everything we build for clients.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

To help you understand what's happening in the economy our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

The banking industry is pushing for a legislative fix to the GENIUS Act, a law that established the first federal framework for stablecoins, a form of digital token that represents a fixed amount of a fiat currency, such as the U.S. dollar. While the GENIUS Act prohibits stablecoin issuers from directly paying interest to holders, firms including Coinbase and Circle have circumvented this restriction by offering “rewards” programs. In these arrangements, customers lend their stablecoins to a cryptocurrency platform, which then generates yield for the customers. Banks argue this is functionally identical to interest, and are asking Congress to close what they call a dangerous regulatory loophole by explicitly banning firms from offering such rewards to customers.

Banks say these interest-bearing stablecoins pose a serious risk to the economy. They argue that, unlike bank deposits, which are protected by FDIC insurance, stablecoin holdings have no such government backstop, exposing consumers to greater risk. Banks also argue that a significant shift of funds away from traditional, insured deposits, which are the primary source of funding for bank lending, could reduce the availability of everything from home mortgages to small-business loans, slowing the broader economy. The Treasury Department has amplified this concern, estimating potential deposit outflows of up to $6.6 trillion if stablecoins are permitted to offer competitive yields. The crypto industry counters that this is fearmongering by the banking industry, claiming that allowing rewards simply introduces much-needed competition that will pressure banks to provide more competitive interest rates to customers who have earned little on their savings for over a decade.

At least for now, Congress is siding with the cryptocurrency industry. Lawmakers from both sides of the aisle seem reluctant to pass a narrow fix for the GENIUS Act, fearing it could stifle innovation in a fast-growing sector. Some key Senate Banking Committee members have signaled they’re open to addressing the issue but prefer to do so within a more comprehensive crypto bill, such as the Digital Asset Market Clarity Act. Such a bill would establish rules for market structure, consumer protection and the roles of various regulators. Proponents of the comprehensive approach argue that a holistic framework is necessary to provide long-term clarity for the industry, rather than engaging in a legislative game of "whack-a-mole" with every new product. They believe that narrowly targeting rewards could stifle innovation and push digital asset companies offshore, undermining U.S. leadership in financial technology.

For now, the outcome of this fight is hard to predict, given that both sides are intensely lobbying lawmakers. The stakes are high for both sides, as banks aim to maintain their traditional role in taking deposits from customers and making loans to households and businesses, while stablecoin issuers seek to gain a foothold in the financial sector.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

Read more

• Would You Benefit From Investing in Cryptocurrency?
• The GENIUS, CLARITY, and Anti-CBDC Acts: What Bitcoin Investors Need to Know
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In 2023, InvestiFi helped WeStreet Credit Union and Frankenmuth Credit Union offer crypto investing services to members.

"At the time, most credit unions weren't willing to jump into the market," says Kian Sarreshteh, CEO and co-founder of InvestiFi.

The environment for cryptocurrency is much more favorable today. Bitcoin went above $124,000, an all-time high, earlier this year, while many other coins are notching milestones of their own.

Crypto stocks are also red hot, as evidenced by the impressive price action in cryptocurrency platform Coinbase Global (COIN) and the strong public offerings of CoinDesk owner Bullish (BLSH) and stablecoin provider Circle Internet (CRCL).

In the meantime, the regulatory environment is much more amenable, as seen with the recent passage of the GENIUS Act, short for the Guiding and Establishing National Innovation for U.S. Stablecoins Act, which provides a framework for stablecoins.

There is also the recent regulatory guidance from the National Credit Union Administration, which has made it easier for credit unions to provide crypto services through partnerships with licensed service providers.

"These relationships allow credit unions to facilitate crypto investing without directly managing or holding the digital assets," says Felix Shipkevich, special professor of law at Hofstra Law.

In light of these developments, credit unions have shown growing interest in welcoming digital investing solutions. In the case of InvestiFi, it's continuing to partner with notable institutions such as Florida's Ocala Community Credit Union, Nevada's Clark County Credit Union and Oklahoma's Citizens Bank of Edmond.

"Credit unions are realizing that if they don't offer crypto to their members, their members are going to engage in crypto anyway and transfer their money to third-party crypto platforms to do so," Sarreshteh says.

Let's look at the type of services credit unions are offering their members, as well as the pros and cons for investing in crypto.

What types of crypto services are credit unions offering?

Generally, a credit union will use a technology partner such as InvestiFi to manage crypto services, including the buying and selling of digital assets.

This allows consumers to have a more robust offering, with access to mobile apps, a wide variety of cryptocurrencies, and high levels of security and risk management.

Credit union members can make transactions through their bank account, which makes the process convenient. The fees are usually competitive, too.

"Most credit unions are finding a happy medium with transparent transaction fees to the members that are lower than most major crypto exchanges and also don't have nearly as high of spreads as many of the platforms," Sarreshteh says.

The spread is the difference between the bid and ask price on a crypto transaction. This is a way that some cryptocurrency exchanges will disguise fees, even though they claim to be "commission-free."

The pros and cons of crypto investing

One of the main benefits of bitcoin and other cryptocurrencies is to allow for peer-to-peer electronic cash transactions that do not rely on governmental or financial institutions.

Built on blockchain technology, these assets record transactions in a publicly accessible ledger secured through cryptography.

"Cryptocurrencies can be traded or transferred 24/7, often at a fraction of the cost of traditional methods, and are especially useful for international payments," says Philip Martin, chief security officer at Coinbase. "They create opportunities for diversification, more efficient transactions, and greater financial flexibility."

However, for many people, cryptocurrencies are about the potential of making attractive returns. This type of investment is emerging as an asset class, similar to stocks or bonds.

Yet the volatility can be extreme. Within minutes, the price of bitcoin and other cryptocurrencies can make a dramatic move higher or lower, with little or no apparent reason.

Because of this, it's important for investors to evaluate their financial goals and tolerance for risk. It's usually a good idea to talk with a financial adviser.

One very important note: When investing in crypto through a credit union, the deposit insurance, which is similar to the FDIC insurance that protects your money at a bank, doesn't apply to digital assets.

"At InvestiFi, we thoroughly vet our crypto custodial partners, which are all regulated trust companies," Sarreshteh says.

"They all carry a certain amount of private insurance. While this does not cover all types of events of lost crypto and is not always dollar-for-dollar coverage, it is more than what you would get on almost every other crypto exchange or wallet."

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To help you understand what's happening in the economy our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

The White House wants to usher in a golden age of cryptocurrency and make the United States the “crypto capital of the world” by rolling back some regulatory enforcement and championing legislation that would broaden its accessibility and appeal.

The most telling feature of the Trump administration’s radical policy shift regarding crypto is the overturning of several policies put in place by the Biden administration that emphasized a cautious posture that sought to identify and mitigate the risk of cryptocurrencies. This was a stance that many in the cryptocurrency industry perceived as stifling for innovation, leading to the “Crypto Winter” of late 2022. At the heart of the White House’s new crypto framework is a comprehensive effort to resolve the persistent regulatory ambiguity that has defined the digital asset landscape in the U.S. for years.

The Trump policy strategy tackles reforming the cryptocurrency market by pushing for landmark legislation to create a permanent, clear market structure, coupled with an immediate executive mandate for federal regulators to provide more clarity to the industry.

A similar push to codify the regulation of digital assets is in the works in Congress. The first of these bills to become law, the Guiding and Establishing National Innovation for U.S. Stablecoins Act, or GENIUS Act, established a regulatory framework for stablecoins. Alongside the GENIUS Act, the House also recently passed the Digital Asset Market Clarity Act, or CLARITY Act, and the Anti-CBDC Surveillance State Act. The CLARITY Act would establish a clear regulatory framework for digital assets, mainly by distinguishing cryptocurrencies as either commodities or securities. Meanwhile, the Anti-CBDC Surveillance State Act would ban the Federal Reserve from releasing a central bank digital currency without congressional approval.

These developments have set a clear regulatory path for stablecoins and crypto platforms, ushering in a new wave of institutional legitimacy and potentially widespread adoption of digital payments and finance in the U.S.

The GENIUS Act is the first major regulatory change that could trigger several significant shifts in the cryptocurrency industry, despite being limited to the regulation of stablecoins.

Stablecoins are a form of tokenized digital money using blockchain technology, the digital recordkeeping technology that bitcoin and other cryptocurrencies rely on. Their design aims to maintain a stable value, typically pegged one-to-one with conventional fiat currencies, most commonly the U.S. dollar. While bitcoin and other cryptocurrencies are volatile and trade as speculative assets, stablecoins are primarily used for payments, remittances, and liquidity in crypto trading and lending platforms.

So far, demand for stablecoins has largely been confined to the crypto industry. The GENIUS Act’s requirement for 100% backing of stablecoins with high-quality assets is projected to create a substantial new source of demand for U.S. Treasury securities and other safe assets. The scale of this demand, however, will depend on how quickly and widely stablecoins are adopted outside of the crypto industry.

Stablecoins offer merchants and consumers potential incentives over traditional money. Merchants could benefit from greater efficiency for payment settlement, particularly for cross-border transactions. For consumers, stablecoins work primarily as a non-interest-bearing store of value akin to store gift cards. While there are potential benefits to be unlocked by merchants from the likes of rewards programs for using stablecoins, similar programs for gift cards or credit payments are already available to consumers, so for now, consumers may not see a clear benefit to switching to stablecoins for payments.

Stablecoins could also pose some risks for banks, primarily as a new form of competition. Stablecoins will likely become direct competitors to other financial products like bank deposits and government money market funds. Banks, however, seem to be aware of this potential problem and many are working on launching their own stablecoins.

The establishment of a regulatory framework is helping move digital assets from the fringes of financial markets into the mainstream. This shift will attract new investors and will likely accelerate growth in the industry. That said, lack of understanding remains the primary reason most people don’t hold crypto. Most people still don’t feel knowledgeable about trading or using it.

Trust is another big hurdle for the widespread adoption of crypto, with many people still skeptical of an industry that has been plagued from the beginning with large-scale scams, fraud and stolen funds. As ownership of cryptocurrencies becomes more common, it is also important to remember that many risks remain, and fraud is still a big issue in the industry.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

Read more

• Would You Benefit From Investing in Cryptocurrency?
• The GENIUS, CLARITY, and Anti-CBDC Acts: What Bitcoin Investors Need to Know
• Is It Too Late to Invest in Bitcoin?
• The Best Bitcoin ETFs to Buy

Since President Donald Trump won the election in November, the price of bitcoin has surged from about $70,000 to roughly $120,000. This massive climb is due to high expectations for looser regulation, along with a crypto-friendly regime in both Congress and in the White House.

And Matt Mena, crypto research strategist at 21Shares, sees even bigger gains ahead. "With policy, macro, and flows aligning, bitcoin may be setting up for a bullish end to the year – where a push toward $200,000 is no longer just a long shot, but a growing probability," he says.

While the realities of finding consensus among lawmakers on cryptocurrency have delayed some progress so far, the passage of the GENIUS Act in late July, which we detail below, shows that the industry is poised to score some major wins.

And with two other crypto-related bills on lawmakers' radar, it's worth sizing up the legislative landscape. Indeed, these bills have the potential to deliver tremendous impacts to those with exposure to the space, from retail investors to traditional banks to eager fintech and blockchain startups.

If you're wondering what bitcoin investors need to know about the crypto bills in Congress right now, here's a quick rundown.

The GENIUS Act

The GENIUS Act, short for the Guiding and Establishing National Innovation for U.S. Stablecoins Act, was passed by legislators in late July and signed into law by President Trump. It marks the first crypto bill to make it over the finish line in the 119th Congress.

This legislation will establish a framework to accelerate the development of stablecoins, which are a type of digital currency designed to minimize volatility by having their value pegged to a more stable secondary asset such as the U.S. dollar.

The goal is the same as legacy currency, in that the value remains constant so that businesses and consumers can transact with confidence. The regulation allows for the privacy that crypto enthusiasts want, as well as the benefits of quick and cheap transfers on digital payment rails.

One challenge stablecoins face is the built-in privacy of cryptocurrencies, which offers a serious stumbling block for regulators and law enforcement professionals.

Take tether, the leading stablecoin that is estimated to have a $160 billion market value. It continues to face regulatory scrutiny regarding loose "Know Your Customer" requirements, which are standard at traditional banks to ensure these institutions are not supporting war criminals or terrorist states.

But the GENIUS Act looks to find a middle ground, proposing "permitted stablecoin issuers" who are subject to state and federal licensing and oversight.

This is expected to bring a measure of accountability to the space without forcing the issuers to follow traditional banking rules or undercutting some of the privacy features that make stablecoins popular to begin with.

Why it matters for bitcoin investors: Adoption and support for stablecoins will make more mainstream consumers and businesses increasingly comfortable with crypto as they look beyond the legacy financial system.

In a recent earnings call, JPMorgan Chase (JPM) CEO Jamie Dimon admitted his firm has to focus on internal stablecoin development if it wants to fend off competition on payments processing, deposits and even credit card rewards.

The billions of dollars currently held in tether stablecoins seem to indicate these digital assets can and will coexist with minimal impact on the value proposition of bitcoin.

In truth, many investors see bitcoin's volatility as a feature – so long as that volatility continues to generally provide upside, of course.

But continued confidence in digital currencies used for normal consumer and business transactions would be undeniably good for bitcoin, providing yet another proof point that this digital asset is far more than just a fad.

The CLARITY Act

The CLARITY Act, also known as the Digital Asset Market Clarity Act of 2025, aims to clarify registration requirements and regulatory structures for bitcoin market participants, including digital commodity exchanges, brokers and dealers.

The hard reality is that a multi-year turf war between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over jurisdictional issues has created headaches for companies that want to get involved with bitcoin or crypto, but don't know who is in charge of enforcement or oversight.

Consider major exchange Coinbase Global (COIN), which even brought a lawsuit to federal courts in an effort to force the SEC to respond to one of its requests after years of foot-dragging.

When a regulator is so disengaged or confused that they ignore market participants rather than answering "yes" or "no" on new products or approaches, it is not a good signal for companies that are looking to innovate or challenge the old way of doing business.

The situation is further complicated by proposals that have been floated to do away with the CFTC altogether and roll the organization into the SEC.

And considering the CFTC has just two commissioners at present, one of whom announced in May she would be leaving the agency, there is an urgent need to figure out who's the boss.

As for the CLARITY Act, the bill passed in the House of Representatives on July 17 and now heads to the Senate for consideration.

Why it matters for bitcoin investors: Some bitcoin-related entities operate offshore, and sometimes in unscrupulous ways. So, regulatory clarity is a critical step in building investor confidence as well as supporting market structure providers.

In many ways, it's pretty amazing that bitcoin has grown as much as it has in the face of this confusing situation between the SEC and CFTC.

Disruptive technologies often force public policy stakeholders to rethink the ruleset. But bitcoin has existed since 2009 and has had institutional interest on Wall Street for roughly a decade.

So the glass-half-full take on the lack of clarity at present could be that there are great tools, eager market participants and next-gen applications waiting in the wings for regulatory clarity.

And if not, at minimum, the CLARITY Act would provide the long-term path to a regulated and safe environment – but also one that becomes more competitive as startups gain confidence that their next big idea is worth pursuing as it falls within congressionally approved parameters.

Anti-CBDC Surveillance State Act

Part of the reason movement on crypto regulation has been hard is that some of these bills get tied together. In fact, some lawmakers tried to include language from the Anti-CBDC Surveillance State Act into the CLARITY Act that would ban efforts to establish central bank digital currencies (CBDCs) in the U.S.

The Anti-CBDC Surveillance State Act was eventually passed in the House of Representatives on July 17 as a separate piece of legislation that now heads to the Senate.

CBDCs can be thought of as a digital dollar or digital euro, a form of currency that is issued and backed by a local central bank – just like hard currencies.

For some hardline conservatives, this idea of government-sponsored blockchains of citizen transactions veers too close to Big Brother financial surveillance. Hence, the name of the bill includes opposition to both CBDC as well as the "surveillance state."

According to Majority Whip Tom Emmer (R-IN), the passage of the bill that he sponsored will "codify President Trump's effort to prevent the development of a central bank digital currency, or CBDC, and ensure the United States' digital currency policy remains in the hands of the American people, and not the Administrative state."

Why it matters for bitcoin investors: To many bitcoin believers, CBDCs are the antithesis of the cryptocurrency promise. After all, the very prefix "crypto" implies something hidden or secret – and the privacy offered by digital assets that operate outside the traditional financial system has in many ways fueled its appeal.

Many experts have speculated that increased movement or even discussions around CBDCs will drive more folks to bitcoin because of its proven record of privacy, and its global nature that is separate from national politics and central banking.

Time will tell if this provision advances in the Senate, or more importantly, whether the U.S. Federal Reserve or any other Western bank launches a CBDC that catches on.

Even the European Central Bank, which is far more advanced in its quest for a digital currency, hasn't moved beyond initial preparation and stakeholder discussions. That means there's little risk of bitcoin losing its appeal anytime soon to a CBDC.

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If you've noticed a new option to buy Bitcoin and other cryptocurrencies inside your workplace retirement plan, you aren't alone. Following a major shift in Department of Labor oversight, employers are increasingly offering digital tokens in their 401(k) menus, leaving savers with a high-stakes decision to make.

Last spring, the Department of Labor (DOL) made it easier for employers to add cryptocurrency to 401(k) plans, but that doesn't mean they should. While cryptocurrency has its supporters, including big Wall Street firms such as JPMorgan, Goldman Sachs and Morgan Stanley, providing more access to it via 401(k) plans is fraught with risk. After all, Bitcoin, the leading digital token, is known for its volatility and wild swings up and down.

“With crypto, you can lose it all or make tenfold,” says Denny Artache, president and CEO of Artache Financial Group. That volatility may be fine for people in their 30s and 40s, but if retirement is in the next five or ten years, you can’t afford to lose 50% on a single day.

For investors in their 50s who need their money to last the rest of their lives, Artache advises against investing a lot of money in crypto. If they are in their 30s and 40s and are seeking a speculative, high-risk investment, crypto can give them that, he says.

Making it easier to invest in crypto

In the spring, the DOL rescinded a 2022 Biden-era guidance calling on plan sponsors to use "extreme care" when considering crypto investments. That change relieves regulatory pressure on plan sponsors.

The DOL, under the Trump Administration, scaled back what it said was overreach on the part of government agencies. This move aligns with Trump's strong support for the cryptocurrency industry.

In addition, the Securities and Exchange Commission (SEC), which is tasked with regulating cryptocurrencies, is overhauling its efforts under new SEC Chairman Paul Atkins. Atkins argued that cryptomarkets have been “languishing in SEC limbo for years” and vowed to change that.

In a press release announcing the change, the DOL stated that the 2022 language deviated from the requirements of the Employee Retirement Income Security Act (ERISA) and represented a departure from the agency’s neutral approach to fiduciary investment decisions.

Eyes wide open

When it comes to adding cryptocurrency to your 401(k) plan, Derrick Longo, a wealth advisor at Exencial Wealth Advisors, says savers have to go into it with their eyes wide open and understand the risk involved with investing in something that is purely speculative. The price moves with market sentiment, which tends to change often.

“This is more of a speculative investment. Are you ok with the movements? Do you understand what bucket Bitcoin falls into? Just because you hear about it a lot in the news doesn’t mean it's suitable to buy,” says Longo. “It has to match up with your risk tolerance.”

There’s also the danger that regular investors will think Bitcoin isn’t that risky if more plan sponsors include it in their 401(k)s, which could set them up for big losses.

As it stands, you have to download an app to purchase Bitcoin. If it's a choice in a 401(k) plan, all you have to do is click a button or fill out a form to get access. “You don’t know how Bitcoin will do long term. You can have somebody just completely time it wrong and destroy their retirement," says Longo.

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For those new to blockchain and crypto, you may have heard the term decentralized finance, or DeFi for short. What exactly does DeFi mean, and what’s driving its rise? A little context on both the business and technology side will help to explain it.

An alternative to 'trusted third parties'

If you want to pay someone for an item or service and that person is in front of you, you can just take money from your wallet and pay the other person directly. In technical terms, this is a “peer-to-peer” payment. There is no other person involved. Just the two of you.

On the other hand, if you and the other person (or party) are some distance away, or even halfway across the globe, in general, you want a trusted third party such as a bank, wire service or retailer (e.g., Amazon) to handle it for you.

However, some computer scientists have been working on ways to go back to a peer-to-peer payment or exchange method, where it would feel like you were transacting directly with another person without that “trusted third party.”

These initiatives are driven by the prevalence of bank frauds, theft and scams or even government intervention (e.g., debanking). These computer scientists wanted a system that no single “trusted” party controls, but is controlled by a global community at large.

In 2008, someone published a blueprint — a white paper for a decentralized cryptocurrency on the blockchain. The author, writing under the pseudonym Satoshi Nakamoto, published the white paper for Bitcoin. (Note: I am currently not an investor in nor own any of the blockchains and crypto mentioned in this article.)

Although bitcoin (and succeeding cryptocurrencies) solve the problem of a trustless peer-to-peer way to send value over the Internet without requiring a bank or wire service, blockchain’s use cases don’t stop there.

After all, finance is not just about sending payments to and from parties.

Enter DeFi

The summer of 2020 is often called “DeFi Summer.” Because of the pandemic, applications such as Uniswap and Aave suddenly garnered more users and allowed other aspects of finance, not just value remittance (such as what bitcoin does), to be transacted on the blockchain (on-chain).

These applications run on smart contracts, which initially ran only on another blockchain, ethereum, but have since spread to most new blockchains such as Solana and others.

DeFi allows users to transact with these smart contract decentralized applications (apps) without the need for banks.

They also are an alternative to third-party centralized crypto exchanges, such as Coinbase and Binance, which although they offer good service, especially to newcomers, are not the ethos of decentralization if you ask the hardcore crypto enthusiasts.

DeFi is a catch-all term that encompasses everything from token swaps (e.g., ethereum ERC20 tokens); intra-chain bridges (e.g., from ethereum to Solana and vice versa); yield and liquidity farming, which is like earning interest from a time deposit; and so on.

I cannot discuss all the possible applications that DeFi encompasses here, especially since more are in development.

The pushback

When you deal with a bank, you normally deal with a layer of people such as tellers, bank managers, customer service agents and the like. Even if you do electronic banking, this is simply automating part of your bank account. There are still people who work in the bank who handle your money.

DeFi is different. Basically in DeFi applications, bankers are replaced with software smart contracts running on blockchains. Because these are software smart contracts, there is not much room (if at all) for human discretion.

If you have deposited the payment, the smart contract should remit that payment to an intended recipient as defined in the code. Basically, if one party has satisfied the requirement, the transaction should be processed.

Once the transacting parties have done the required deposit, payment or task, then the smart contract ensures that this transaction proceeds, with no “trusted human third party” to exercise discretion on whether to stop it or not.

Of course, this technology does not win fans in the traditional banking and finance space.

For example, the European Central Bank (ECB) opposes many of Trump’s pro-crypto policies. Instead, they are advocating for central bank-controlled digital currencies (CBDCs).

Although this would use blockchain technology, it is important to note that their vision of blockchain-based finance is that they would centrally control all the aspects of the network, so ownership would not be decentralized.

The takeaway

DeFi is probably the future of blockchain and crypto. It allows for peer-to-peer financial transactions even at long distances, not encumbered by bank and government restrictions to some extent, thus regaining some of our financial freedom and privacy.

We pay someone in cash when we are face-to-face with them without any other party involved; DeFi advocates want the same for sight-unseen transactions, because the “trusted third parties” who are supposed to ensure these transactions happen smoothly have not always lived up to that task.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

With cryptocurrency making headlines almost daily, it’s no surprise that many investors are considering adding it to their portfolio. Digital currency has become more appealing to investors looking to diversify their portfolios.

Since its launch in 2009, cryptocurrency has experienced meteoric rises and staggering drops in value. However, despite its current rise in popularity, investors must remember that it can present its own set of challenges.

So if you are considering investing in crypto, it’s important to gather as much information and context as possible.

Who could benefit from investing in crypto?

Before you start investing in crypto, you need to consider your age. Depending on how close or far away you are from retirement will change the amount of assets you risk putting into crypto.

The younger you are, the more risk you may be able to take. This is because you have time on your side to make up for any potential losses. If you are getting close to retirement, you don’t have as much time to make up for any investment mistakes.

Because cryptocurrency is still a fairly new investment, it can be pretty unstable, meaning it’s not uncommon for drastic price changes to happen very quickly.

However, if you are a risk-tolerant investor, crypto could be a good avenue for your money. This is because you are more comfortable with short-term volatility for the possibility of high returns.

If you are an investor who wants to put their money somewhere that isn't controlled by a single government or bank, crypto is a good choice. Cryptocurrencies are decentralized finance or DeFi, which means people using it can send, purchase and exchange assets without relying on third parties.

Many investors are looking for faster ways to make transactions, and DeFi allows them to make direct peer-to-peer transactions.

How do taxes work with crypto?

As you should do with any of your investments, you need to understand how taxes could impact your crypto investment.

In the United States, the IRS doesn’t see crypto as a true currency yet and will treat that asset as property. This means that if you buy or sell cryptocurrency, it will count as a taxable event.

If you have owned the asset for less than a year and sell it, those profits will be considered short-term capital gains and you will be taxed at your normal income rate.

On the other hand, if you have had the cryptocurrency for more than a year when you decide to sell, profits are considered a long-term gain and will be subject to long-term capital gains tax rates.

If you are simply buying and owning crypto without moving it, then it is not taxable.

Transferring crypto between your accounts is also not taxable.

If you invest in crypto and wish to sell it for cash at a later date, you will owe taxes if you sell it for more than you paid. If you sell at a loss, you may be able to write them off to help offset gains and reduce your taxable income.

What does the future of crypto look like?

Many investors believe that the global cryptocurrency market will more than triple by the year 2030. However, the future of crypto depends on a few different factors that investors should pay close attention to.

First, what will the regulations around crypto be in the United States and around the world? The best-case scenario would be for universal worldwide regulations. That seems unlikely to happen soon because countries view crypto very differently.

The United States may have a better regulatory outlook than some other nations given a president and administration that has been outspoken in promoting the advancement of crypto.

Another thing to consider is whether more institutions will integrate crypto into their payment systems. Will there be a mass-market adoption in the future or will the rollout be slower? This could influence whether people consider adding crypto to their portfolios.

It may still be a relatively new investment avenue, but I tell my clients that crypto will continue to become a more common investment option and they should start considering it. While the exact future of cryptocurrency is still uncertain, it isn’t going anywhere.

If you are interested in crypto, do your homework and meet with a financial professional who understands the risks and rewards of this new investment avenue.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As cryptocurrencies like bitcoin surge to unprecedented values — having crossed the $100,000 mark earlier this year — both seasoned investors and newcomers are pouring billions into this thriving asset class.

The SEC’s approval of spot bitcoin ETFs and the creation of the Strategic Bitcoin Reserve (SBR) by President Donald Trump, has only accelerated this trend, inviting greater mainstream adoption and wealth accumulation.

Yet, despite these meteoric gains, many holders of cryptocurrency have given little thought to the estate and asset protection opportunities available to safeguard their digital investments.

If you own, plan to own or know someone who holds cryptocurrencies, now is the time to consider strategic legal planning.

By implementing the right structures and tools, you can shield these valuable assets from estate taxes, potential creditors and unforeseen lawsuits.

Here are five critical strategies to consider:

1. Structure your holdings through LLCs and asset protection trusts

One effective way to protect your cryptocurrency is by placing it in a limited liability company, or LLC, and then into a properly structured trust — whether a foreign or domestic asset protection trust.

This arrangement helps ensure that your digital assets remain off-limits to potential creditors, providing a powerful safeguard in the event of litigation.

2. Reduce the incentive for litigation

With millions of lawsuits filed every year, wealth often attracts unwanted legal battles. Taking proactive steps to diminish the financial incentive for someone to target your holdings can deter frivolous claims.

Properly executed asset protection strategies can minimize the visibility of your cryptocurrency, making it more challenging for creditors to pursue your assets.

3. Craft an estate plan tailored to cryptocurrency

Many estate planning attorneys are not yet equipped to handle digital assets. Working with a law firm experienced in cryptocurrency estate planning ensures that your wills, trusts and other documents account for the unique challenges and opportunities presented by digital currencies.

Proper structuring can prevent excessive estate taxes, allow for seamless transfers to heirs and preserve your wealth for future generations.

4. Maintain comprehensive records

In the cryptocurrency world, meticulous record-keeping is invaluable. Detailed transaction histories simplify tax reporting and strengthen your position if the legitimacy of your ownership is ever questioned.

Numerous software solutions can streamline this process. For example, Node40 can help you keep precise records of all your cryptocurrency purchases, sales and transfers.

5. Employ secure storage solutions

“Not your keys — not your bitcoin” is a common refrain among longtime investors. To truly protect your digital assets, prioritize secure storage methods.

Hardware wallets or reputable online wallets can help safeguard your coins against hackers, theft and other threats.

Consider integrating these secure storage solutions into your broader estate and asset protection plan to ensure a smooth transition of your holdings to heirs.

Achieve long-term security for your digital wealth

As the cryptocurrency landscape evolves, so do the legal frameworks and strategies needed to protect these assets.

By taking the steps outlined above and working closely with an experienced legal team, you can safeguard your investments against estate taxes, creditors and potential lawsuits — ensuring your holdings remain intact throughout your lifetime and pass on as a lasting legacy.

The information in this article is for informational purposes only and does not constitute legal or tax advice.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Investing in cryptocurrency is one of the most exciting and volatile financial opportunities of our time. It has created millionaires overnight and has also left many investors with empty wallets. I’ve learned firsthand that success in crypto requires a deep understanding of risk vs reward, along with a solid strategy to navigate this ever-changing market.

If you’re considering investing in cryptocurrency, it’s crucial to approach it with a mindset that balances the thrill of potential rewards with a strong risk-management strategy. Here are the key insights and strategies I use to make informed, calculated decisions.

Understanding risk in crypto investing

Cryptocurrency is known for its extreme volatility. Unlike traditional stocks or real estate, which tend to have slower, more predictable movements, crypto can experience massive price swings in a single day. While this presents lucrative opportunities, it also comes with significant risks.

Key risks to be aware of:

Market volatility. Prices of cryptocurrencies can skyrocket or plummet based on speculation, regulatory news or macroeconomic factors.

Regulatory uncertainty. Governments around the world are still figuring out how to regulate crypto, and sudden policy changes can drastically impact the market.

Security risks. Crypto wallets and exchanges are prime targets for hackers, making security a top priority.

Lack of fundamental valuation. Unlike stocks, which have earnings and financial statements, many cryptocurrencies rely on utility, adoption and speculation for value.

Scams and rug pulls. The crypto space is filled with projects that look promising but are designed to defraud investors.

With all these risks, you might wonder why anyone would invest in cryptocurrency at all. The answer lies in its high-reward potential when approached with a solid strategy.

Reward: Why crypto is still worth considering

Despite the risks, cryptocurrency has created wealth opportunities unlike those of other asset classes in recent years.

Potential rewards:

High returns. The growth of bitcoin, ethereum and even some altcoins has outpaced traditional markets. As of March 3, 2025, bitcoin's price was $83,899, ethereum traded at $2,098, and the SPDR S&P 500 ETF Trust (SPY) was at $583.77. This disparity highlights the rapid appreciation of leading cryptocurrencies compared to traditional financial assets.

Decentralization and control. Crypto gives investors more control over their assets, eliminating middlemen like banks and brokers.

Early adoption opportunities. Investing in promising projects early can lead to substantial gains as adoption increases.

Hedge against inflation. Some investors see cryptocurrencies as “digital gold” that holds value in times of economic uncertainty.

Diverse opportunities. Beyond buying and holding, crypto offers staking, yield farming, non-fungible tokens (NFTs) and other ways to grow wealth.

With this high-reward potential, the key to success is managing risk effectively while still positioning yourself for substantial gains.

Risk vs reward strategies for crypto investing

Through my own investing journey, I’ve developed a set of strategies to balance risk and reward in the crypto space:

1. Invest only what you can afford to lose.

This is rule number one. Crypto is unpredictable, and while massive gains are possible, so are significant losses. I allocate only funds that I can afford to lose without it affecting my financial stability.

2. Diversify your crypto portfolio.

Putting all your money into one coin is extremely risky. I diversify my investments across different categories, such as:

• Blue-chip cryptos. The most established, lower-risk assets
• Mid-cap altcoins. Projects with strong fundamentals that have growth potential
• High-risk altcoins. Emerging cryptos that could offer massive returns but come with more uncertainty

Diversification helps mitigate losses if one area of the market underperforms.

3. Use a dollar-cost averaging (DCA) strategy.

Rather than trying to time the market, I invest small amounts at regular intervals. This reduces the impact of short-term volatility and allows me to accumulate assets over time without stress.

4. Take profits on the way up.

One of the biggest mistakes I see investors make is holding on to gains for too long, only to watch them disappear. I set predefined targets and take profits as prices rise, ensuring I lock in returns while still holding some for future growth.

5. Secure your assets properly.

Security is crucial in crypto. I never leave large amounts on exchanges, as they are vulnerable to hacks. Instead, I use:

• Hardware wallets for long-term holdings
• Secure passwords and two-factor authentication to protect my accounts

6. Stay informed and avoid hype-driven investments.

The crypto space is full of hype, and many investors get caught up in fear of missing out. I do my own research, looking at:

• The team behind the project
• The utility and real-world application of the crypto
• The community and developer activity

If a project lacks transparency or seems too good to be true, it probably is.

7. Be prepared for market cycles.

Crypto moves in cycles — bull markets followed by bear markets. I remind myself that downturns are normal and use them as opportunities to accumulate assets at lower prices instead of panic-selling.

8. Consider stablecoins and staking for passive income.

To reduce exposure to extreme volatility, I allocate a portion of my portfolio to stablecoins, which hold their value, and participate in staking or yield farming to earn passive income. This helps balance risk and increases the chances of consistent returns.

Final thoughts: Balancing the risks and rewards

Crypto investing isn’t for the faint of heart, but with a calculated strategy, it can be incredibly rewarding. The key is understanding the risks, protecting yourself from unnecessary losses and taking advantage of the opportunities when they arise.

By investing only what I can afford to lose, diversifying, securing my assets and staying informed, I’ve been able to navigate the crypto market successfully. The goal isn’t to avoid risk — it’s to manage it wisely while maximizing potential rewards.

If you’re considering investing in crypto, take the time to learn, develop a strategy and approach it with a long-term mindset. Risk is inevitable, but with a strategic approach and a bit of luck, the rewards can be substantial.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

To help you understand what's happening in the economy our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

The crypto industry has scored some early wins since President Donald Trump took office, including crypto-friendly appointees at key regulatory agencies and a flurry of directives that relaxed regulations for the industry. The price of bitcoin hit an all-time high shortly after the results of the presidential election were announced in November. However, the optimism that propelled bitcoin to all-time highs hasn’t been able to translate into sustained gains for investors as the price of bitcoin has since remained volatile.

Here's what to know about the new administration’s whirlwind of crypto-related moves in its first month:

Trump’s executive order on digital assets
Trump signed in his first week an executive order that, among other things, created a working group to advise the White House on policies governing digital assets (such as cryptocurrencies and non-fungible tokens), with the involvement of some federal agencies, including the Justice Department, Treasury Department, Securities and Exchange Commission, and the Commodity Futures Trading Commission.

The executive order aims to establish federal policy that promotes the “responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy,” by providing regulatory clarity and certainty to the industry. It also seeks to support the development of dollar-backed stablecoins worldwide, and fair and open access to crypto-related banking services. The working group will submit a report in about six months that would include recommendations towards reshaping cryptocurrency regulation.

SEC launches a “crypto task force”
The SEC launched a “crypto task force” on January 21 that will review the agency’s approach to dealing with digital assets and work on developing registration rules for crypto. The move signals a sharp departure from the Biden administration’s enforcement-heavy approach to a more collaborative and industry-friendly stance.

The task force will craft disclosure frameworks and provide clarity on when crypto tokens qualify as securities. The group aims to develop a comprehensive and clear regulatory framework for crypto assets, addressing long-standing industry concerns about regulatory uncertainty and potentially lowering barriers for businesses in the industry.

The cryptocurrency industry is optimistic that the task force will provide a road map for growth amid a broader push by the Trump administration to pull back on the regulation of the industry. Meanwhile, the SEC has scaled back a special unit of more than 50 lawyers and staff members that had been dedicated to bringing enforcement actions against crypto-market participants. The agency also recently withdrew enforcement cases against Coinbase that sought to regulate the company as a stock exchange.

A national bitcoin stockpile
The White House’s first-ever crypto and artificial intelligence czar, David Sacks, and the task force are also looking into the possibility of creating a national bitcoin reserve. A reserve asset is typically a critical resource that can be used in times of crisis. The U.S. currently has an emergency petroleum reserve, which it can use to protect against oil supply shocks. The U.S., like many other nations, also has a gold reserve.

Proponents of a bitcoin reserve say the crypto asset would be an effective reserve as its supply is finite, making it an attractive hedge against inflation. Only 21 million coins will ever exist because of the algorithm written into bitcoin’s blockchain. The prospects of a national bitcoin stockpile would likely cement endorsement of the asset by the U.S. government and push its price even higher. But how such a reserve would work in practice is unclear.

The creation of a strategic reserve poses several structural challenges. Chief among these are how the federal government would fund bitcoin purchases, and whether the Federal Reserve or the Treasury Department would take the lead in purchasing bitcoin for the national reserve. The U.S. government already holds around $21 billion in bitcoin, which it has seized through criminal investigations, which would likely be added to the national reserve. A U.S. strategic reserve would likely spur similar efforts by other nations, according to AllianceBernstein.

The odds of crypto legislation rising
Congress has formed a bicameral working group to craft crypto regulation. The Senate also established a new subcommittee for digital assets under the Senate Banking Committee. Congress is already working on legislation for stablecoins. The bill is gaining traction on Capitol Hill and could become law later this year.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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As cryptocurrency becomes an increasingly common part of personal wealth, it also introduces unique challenges to estate planning. Traditional tools, like wills and trusts, must adapt to the decentralized and secure nature of digital assets. And just like any other asset, cryptocurrency can be locked in probate for months without proper planning.

Why probate is a concern for cryptocurrency

Probate is the legal process of validating a deceased person’s will and distributing their assets, an often slow-moving and potentially costly process. One of the biggest concerns with cryptocurrency is volatility. Cryptocurrency values can fluctuate rapidly, meaning delays in probate could result in significant financial loss.

Beneficiaries’ access to these cryptocurrencies is another concern. Ownership of cryptocurrency is tied to private keys — without them, beneficiaries have no way to access the assets. And since cryptocurrencies such as bitcoin (BTC) and ethereum (ETH) are decentralized, operating on blockchain technology, there’s no centralized institution to intervene if credentials are lost. To avoid these risks, proactive estate planning is essential.

Bypass probate with beneficiary designations

One of the simplest ways to bypass probate is by designating beneficiaries, if the cryptocurrency exchange offers it. This process is similar to naming a beneficiary for a bank account or retirement plan. To set it up, you’ll need to log into your account and locate the beneficiary designations. Some platforms may call this a Transfer on Death, or TOD, form. Fill out the form by providing the beneficiary’s full legal name, birth date and contact information, and keep a copy for your records.

Understanding digital wallets is also critical to effectively planning your estate with cryptocurrency. Digital wallets store the private keys required to access, send and receive digital assets, and there are various types with various features. Similar to some cryptocurrency exchanges, private wallets such as Ledger, Trezor and MetaMask typically don’t offer built-in beneficiary designation features. Therefore, keeping a record of access credentials and securely storing private keys is a must.

As you're planning your estate, include detailed instructions on how to access the wallet, including passwords, recovery phrases or locations of physical devices. As for storing private keys, consider using a hardware wallet or an encrypted file. In some situations, a custodial solution may be the answer. Some custodial services specialize in managing digital assets and may allow for simplified beneficiary designations.

Using trusts to manage cryptocurrency

Implementing a trust agreement is another option for those who own cryptocurrency. Placing your digital assets into a trust can ensure they’re managed and transferred according to your wishes without involving probate.

If you want to take your planning a step further, a revocable living trust may be worth looking into. These trusts allow you to retain control of your cryptocurrency during your lifetime while specifying how it should be distributed upon your death. An estate planning attorney can help you draft the trust document that explicitly includes provisions for digital assets. Once the trust is set up, you’ll need to move your cryptocurrency to a wallet owned by the trust. In some cases, this may involve creating a new wallet under the trust’s name or transferring funds to an existing wallet.

Once ownership is transferred to the trust, you’ll need to designate a trustee. This person will be responsible for safeguarding private keys and recovery phrases and should know how to navigate the specific wallets or exchanges holding your assets.

Practical tips

Cryptocurrency offers exciting opportunities for wealth building but requires careful planning to integrate into your estate plan. Here are some practical tips for estate planning with cryptocurrency:

• Secure storage of keys and credentials. Use a hardware wallet or encrypted digital storage for private keys. Ensure your executor or trustee knows how to access these safely.
• Maintain an updated inventory. Document your cryptocurrency holdings, including wallet addresses, types of currency and approximate values. Regularly update this inventory to reflect changes.
• Provide instructions in estate documents. While it’s essential to maintain security, your estate documents should include enough information for your executor or trustee to locate and access your cryptocurrency.
• Plan for less popular cryptocurrencies. If you hold altcoins or tokens not supported by mainstream platforms, document these assets clearly to ensure they are not overlooked.

For guidance tailored to your unique situation, consult with an estate planning attorney experienced in digital assets. Taking these steps now can save your loved ones significant stress and ensure your legacy is protected in the digital age.

Patrick Simasko is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Simasko Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Few things can capture an investor's imagination like FOMO, especially when that fear of missing out is rooted in six-figure-profit stories. Such was likely the case for investors who witnessed the price of bitcoin rally to record highs in late 2025.

If you've been on the bitcoin bandwagon for a good length of time, you were probably one of those singing a merry tune amid the cryptocurrency's meteoric rise.

But if you're among the multitudes who have shied away from what remains a volatile asset, perhaps you saw its recent pullback and started wondering if it's time to position for bitcoin's next leg higher?

Bitcoin past, present and future

Before you can determine if bitcoin is a good investment today, you need to be sure you understand what you're getting into.

Bitcoin is a decentralized asset, meaning there is no government or bank acting as a central authority overseeing it. This puts it in a weird regulatory grey area that also makes it susceptible to fraud and scams.

For example, in 2011, Mt. Gox, the largest bitcoin exchange at the time, was hacked. The hackers made off with millions of user funds, but even investors who were not directly involved took a hit when the price of bitcoin plummeted more than 90%.

This is important for prospective investors to keep in mind: bitcoin can fall as fast as it can rise — if not even faster. Indeed, we just witnessed a massive liquidation event in late 2025 when the price of BTC crashed more than 30% from October to November.

That said, bitcoin has rebounded off its late-2025 lows. And while the cryptocurrency will probably continue to be a rocky ride, experts say the chances of it going to zero are unlikely.

"Too many large institutions own cryptocurrencies," says Dan Casey, founder of Bridgeriver Advisors and Panic Proof Retirement. "Whether you understand the blockchain or not, cryptocurrency is here to stay."

Additionally, Congress is currently considering additional legislation to create more regulatory boundaries for cryptocurrency. In 2025, the GENIUS Act, which developed guardrails for stablecoins, was signed into law.

There's also the Digital Asset Market Clarity Act, which would outline a system for regulating digital assets, and the Anti-CBDC Surveillance State Act, which would ban the Federal Reserve from releasing a digital currency with congressional approval.

These regulatory frameworks "would provide the institutional 'seal of approval' needed for the next leg of the bull cycle," says Matt Mena, crypto research strategist at 21shares.

What is the current bitcoin price relative to its all-time high?

As of Tuesday, January 13, bitcoin was trading near $93,580. This is roughly 25% below its all-time high of $124,752.13 from October 6. Bitcoin is up roughly 7% so far in 2026 and flat relative to its year-ago price level.

The digital asset is now trading comfortably above the $90,000, which served as resistance in late 2025, says Mena. "Institutional funds are redeploying capital, and on-chain data confirms that whales (wallets holding 1k–10k BTC) ... pivoted from distributors to aggressive net buyers in the first week of 2026."

Mena believes this "smart money" pivot could keep the wind at bitcoin's back.

How do interest rates and inflation impact the outlook for bitcoin in 2026?

Bitcoin rallied hard throughout most of 2025 as expectations that the Federal Reserve would lower interest rates increased investors' appetites for riskier assets.

Uncertainty over President Donald Trump's tariff policies, sticky inflation and the Fed's rate-cut plans certainly increase the likelihood of volatility.

But David Hernandez, crypto investment specialist at 21shares, believes bitcoin, because it is "a scarce risk asset," could be in a position to benefit no matter what the central bank does with the federal funds rate.

"If rates keep coming down, cheaper money could flow into bitcoin," says Hernandez. "If rates stay elevated, investors could view the asset through its emerging store-of-value lens, seeing its finite supply as an essential hedge against the central bank's difficulty in taming inflation without crashing the economy."

What are the risks and volatility factors with investing in bitcoin?

So the question remains: Is it too late to invest in bitcoin? Ultimately, the answer rests with you, your financial goals and your tolerance for risk.

The fact of the matter is the cryptocurrency market will continue to be volatile, due in part to uncertainty over macroeconomic factors such as inflation and interest rates and potential regulatory delays. That said, Bernstein analyst Gautam Chhugani is optimistic about where bitcoin is headed in 2026.

He believes bitcoin bottomed near $80,000 in Q4 2025 and will end 2026 closer to $150,000. Key catalysts for cryptocurrency, according to Chhugani, are the passage of the CLARITY Act, which he expects in Q2, and the Securities and Exchange Commission's (SEC) crypto innovation exemption, which will allow companies an easier path to test new products.

If you do choose to invest in bitcoin, most advisors recommend limiting your investment to 1% to 5% of your net worth, says R.J. Weiss, a certified financial planner and CEO of The Ways to Wealth. The real question to ask yourself isn't if now is a good time to invest in bitcoin. Rather, your focus should be on whether it "has a long-term place in your portfolio, depending on your goals and risk tolerance."

If a 50% drop will make you panic, this likely isn't the investment for you.

How to invest in bitcoin

If you've decided to invest in bitcoin today, the next question is how to do it. Luckily, modern finance is your friend. You can start investing in bitcoin with as little as $1 through a broker such as Fidelity or an exchange that lets you buy bitcoin tokens on a per-dollar basis.

However, you'll need a place to store those coins, typically with a crypto wallet or with an exchange. Both of these methods are susceptible to hackers and scams.

Another way to invest in bitcoin is through a bitcoin ETF. These funds are designed to track the price of bitcoin, and they trade just like any of the best ETFs to buy.

They can be easier and more familiar than buying bitcoin tokens. And they can even hold a variety of different cryptocurrencies. You also won't need to store your crypto keys in a wallet or on an exchange.

Bitcoin ETFs let you participate in bitcoin's price appreciation (or depreciation) through a more secure channel – but know that you don't own actual BTC. You own shares of the fund. These funds also come with expense ratios, so ensure the benefits outweigh the costs.

Whatever method you choose to invest in bitcoin, have an exit strategy in mind.

"Given bitcoin's volatility and cyclical peaks, it may be wise to take profits gradually or begin exiting well before the projected cycle top," says Utkarsh Ahuja, founder and managing partner of Moon Pursuit Capital.

Ahuja notes that "institutional investors, well-versed in bitcoin's cycles" will trade in a way that increases risk for retail investors who try to time the market.

It's important to put the same level of thought and care into how and when you'll sell as you do into whether you should invest in bitcoin in the first place.

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In December, Michael Saylor, executive chairman of Microstrategy, presented to the Microsoft board. Saylor argued that Microsoft should put part of its treasury funds in bitcoin. (Author’s note: I currently do not hold bitcoin or any other cryptocurrency.) A large majority of the company’s shareholders voted down the proposal.

That this measure was even put forth to a shareholder vote is significant, though. Although companies such as Tesla and others already hold bitcoin on their balance sheets, Microsoft is a U.S. stock market bellwether and could sway other corporations to copy its move.

The arguments in favor of bitcoin for corporations

The main argument that bitcoin evangelists put forth (Saylor is just one of them) is that it is an inflation hedge. Why is that? For starters, bitcoin is hard capped at 21 million by design. No one can change that, unless the entire community “hard forks,” which would probably shake up and cause widespread fallout. This is in contrast to the U.S. dollar and most other fiat currencies, which governments worldwide often increase in supply, which leads to inflation.

Saylor and others argue that bitcoin acts as an “uncorrelated” asset, meaning that bitcoin moves independently (not as a herd) from other assets such as stocks, bonds and gold and could offset any losses for a particular quarter or calendar year.

Additionally, the Financial Accounting Standards Board in 2023 issued guidance to allow for “fair-value” accounting of digital assets on corporate balance sheets. Before this FASB ruling, companies needed to reflect digital asset value losses but not gains in their updated balance sheets.

Another important development was the SEC's approval of bitcoin ETFs in January 2024, which paved the way for people, funds and companies that did not want to hold the actual volatile underlying digital bitcoin asset to hold it in an SEC legally protected stock instrument.

Now corporate buyers have several options to hold bitcoin or participate in its growth. They can hold actual bitcoin, hold companies that have a lot of bitcoin, hold an SEC-approved ETF or trade perpetuals, futures contracts or options.

Bitcoin has outpaced other assets in terms of growth in the past decade.

Additionally, bitcoin is a new asset class with fewer “counterparty” risks relative to other asset classes used to store funds or wealth, such as bonds, gold and real estate, a feature noted in the original 2008 bitcoin whitepaper. A “counterparty” risk is something like corporate theft, fraud or malfeasance that could force a high-flying stock to zero overnight.

That said, it is not true to say bitcoin itself has no counterparty risk, as quantum computers could potentially hack its cryptography, but so far, that has not happened. The internet itself could also go down globally, albeit probably only for short periods.

What the future may bring

Over the years, I have grown to respect this new asset class. While many technologies encountered serious opposition during their early years, there is something called the Lindy effect that says that if something nonperishable has survived over time, it will likely remain.

Sometimes older generations dismiss things because new developments do not fit into the pattern they have been accustomed to. Although I have not personally put bitcoin on my own balance sheet, I can see Gen Z — who will take the reins of corporations in the future — doing so. That’s because Gen Z has grown up as digital natives without analog payphones, library card catalogs, LPs and the like.

Whether bitcoin (or other cryptocurrencies) significantly becomes a treasury asset for many of the world’s businesses and corporations is something to watch. At the moment, most nonbelievers point to its volatility (beta) as a negative, but hardcore bitcoin and crypto believers point to volatility as a “feature not a bug,” meaning that when these price drops happen, buyers swoop in to acquire more, thus maintaining the long-term rise its price trend shows.

As the new bitcoin-friendly Trump administration moves in, and more companies acquire even small amounts of bitcoin (or other derivative instruments) into their treasuries alongside larger pension and sovereign wealth funds, the growth phase and volatility of bitcoin may become more tempered and even be called a “boring” growth asset in the future.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

President Donald Trump's policy promises and their potential impact on the stock market are in focus after he kicked off his second administration on January 20.

Equities rallied hard in an immediate reaction to Trump's win last November as the outcome "provided much-needed political clarity," says George Smith, portfolio strategist for LPL Financial. "The removal of election uncertainty, coupled with hopes for a pro-business environment under the new administration, boosted investor sentiment and contributed to market gains."

However, momentum stalled to start the new year, and a challenging macroeconomic backdrop could hint at continued technical troubles, says Adam Turnquist, LPL's chief technical strategist.

Still, despite uncertainty over Trump's proposed tariff policy and ongoing geopolitical turmoil, "there are plenty of reasons to be optimistic," Turnquist adds. "The economy is holding up well, earnings are expected to grow again this year by double digits (with contributions broadening beyond the mega-cap names), while the artificial intelligence (AI) theme continues to support market enthusiasm."

Turnquist adds that the Trump administration is "expected to bring a pro-growth agenda, less regulatory oversight, and potentially lower taxes," though some of these policies could boost inflation and the U.S. deficit.

Here, we examine the second Trump administration's potential impact on the stock market and your portfolio.

Interest in crypto is expected to rise

Bitcoin and other digital currencies surged in 2024 due in part to then-candidate Trump's about-face on crypto. In his first term, Trump was not a fan, as evidenced by a July 2019 post on what was then Twitter and is now X where he said the value of cryptocurrencies is "highly volatile and based on thin air."

But, by 2024, Trump had warmed to digital assets, saying he planned to make the U.S. the "crypto capital of the planet." And World Liberty Financial, a cryptocurrency business backed by the Trump family, launched its own token in October. And in the days leading up to his inauguration, Trump and First Lady Melania Trump launched their own respective meme coins.

In reaction, bitcoin prices popped back up to $107,000 and Wall Street expects even more upside in 2025.

"[S]peculation surrounding the ... Trump administration's potential establishment of a U.S. bitcoin reserve – an initiative analysts estimate has a 60% likelihood – could help the cryptocurrency" surge, says Matt Mena, crypto research strategist at 21Shares.

He adds that the bullish outlook for crypto is also getting a lift from the anticipation of a pro-crypto administration and a Congress controlled by tech-friendly Republicans. "Analysts are projecting a path to $150,000, driven by a confluence of supportive policies and increasing institutional interest," Mena says.

Trump could spark interest in new ETFs

The Trump-inspired turn toward crypto could also funnel more money into the burgeoning exchange-traded fund (ETF) market.

ETF assets jumped 28% year over year in 2024 to $10.36 trillion, driven by market gains and a record $1.12 trillion in inflows, says Aniket Ullal, head of ETF Research & Analytics at CFRA. "Growth-oriented cyclical themes like crypto and the 'Magnificent 7' dominated the best-performing ETF categories based on total returns in 2024," he adds.

And $41 billion of net new assets flowed into bitcoin and crypto ETFs, say FactSet's Director of Global Fund Analytics Elisabeth Kashner and Senior ETF Analyst of Global Fund Analytics Lois Gregson, which "underscores growing investor interest."

Kashner and Gregson add that surging interest in cryptocurrency due in part to Trump's reversal on digital assets "suggests a probable rise in the launch of trend-driven ETFs such as those combining bitcoin with hedging strategies, diversified asset class stackings, and other alternative investments for fear of missing out."

Tariffs could stall the stock market rally

A big reason stocks have sold off to start the year is investors' concern that Trump's tariff proposals will fuel inflation.

"Most economists believe the effects will likely include a stronger dollar, higher inflation and interest rates, a decline in growth for countries that export to the U.S., and retaliation by at least some of them," writes Kiplinger contributor James K. Glassman in his feature "How to Hedge Against Tariffs."

Glassman adds that "the fallout will probably depress the profits of American companies with strong sales abroad."

Initial expectations were that the new administration would impose tariffs of up to 20% on all imports and a 60% punitive tax on Chinese imports on Day 1. However, more recent reports suggest the Trump team will levy 25% tariffs on Mexico and Canada on February 1.

If inflation re-accelerates, the stock market may need to adjust expectations to "what could be a slower and shallower Fed rate-cutting cycle than markets are currently pricing in," LPL Financial's George Smith says.

Uncertainty over corporate tax rates could create volatility

"While the full menu of potential policy actions and their respective details remain unknown, President Trump has strongly signaled his desire for lower taxes, federal budget cuts and greater deregulation," writes Morgan Stanley Investment Strategist Monica Guerra.

As for tax policy, the Trump administration and Republican-controlled Congress are widely expected to extend most expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA). Guerra notes that this has consequences for individual investors namely in the form of income tax brackets and estate and gift tax exclusions.

She points out that it's the uncertainty surrounding corporate tax cuts that could spark a selloff in stocks. Specifically, while Trump has proposed dropping the flat corporate tax rate to 15% from 21%, "fiscal concerns and the need for revenue offsets may drive lawmakers to hold the 21% corporate tax rate steady."

Guerra adds that "unchanged corporate income taxes or the consideration of other corporate tax increases to offset deficit spending could disappoint financial markets."

The bottom line

There's no way to tell for sure exactly what the Trump administration will do and what impacts the initiatives that do get through will have on the stock market.

And with the 10-year Treasury yield up significantly since Trump won the election, the bond market could create boundaries to just how much the administration can do without sinking the stock market.

Still, "with uncertainties stemming from the new administration's policy initiatives and equity markets priced to perfection, there is little room for error regarding economic and earnings disappointments – particularly if the Federal Reserve (Fed) is unable to cut interest rates further should inflation surprise to the upside," says Larry Adam, chief investment officer at Raymond James.

And it's this uncertainty, he adds, that "will likely lead to higher volatility in 2025."

For market participants, this means staying the course on longer-term investment strategy. "An effective goals-based investment approach assumes unexpected twists and turns in the market are inevitable and can provide investors with the ability and confidence they need to ride out volatility, say Glenmede's Chief of Investment Strategy and Research Jason Pride and Vice President of Investment Strategy Mike Reynolds.

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Decentralized finance, or DeFi, is emerging as a powerful alternative to traditional banking and investment methods. By offering blockchain-based, peer-to-peer transactions, DeFi seeks to provide users with direct access to financial services without the hassle of intermediaries.

The new services offered by DeFi create a much more transparent and efficient marketplace for new and innovative investors. It opens up possibilities for those previously excluded by traditional banking while providing an advanced platform for seasoned investors to explore.

DeFi offers a revitalized branding of financial movement that reshapes the operational limits of traditional centralized systems. It ushers in tools such as smart contracts and decentralized exchanges to facilitate seamless business performance. With leading industry experts around the world staying active in its progress, DeFi’s role in democratizing finance has allowed it to be thrust into the spotlight as a strategic opportunity for investors.

How decentralization opens new doors

Though well-developed, traditional investment systems are still holding on to inherently outdated methods. Centralized control over financial institutions often means high fees, restricted access and steep entry barriers. DeFi offers an alternative using blockchain-based applications designed to open financial services to anyone with an internet connection. Built on top of decentralized networks such as Ethereum, DeFi applications harness smart contracts: self-executing, enforceable agreements in place of intermediaries.

This peer-to-peer approach allows users to lend, borrow, trade and conduct mainstream financial activities without having to go through a central authority. Innovators may utilize DeFi to identify the best prices and most efficient trading ports for token swaps, allowing diverse groups to participate in the global economy.

DeFi can remove barriers, lower transaction costs and create a more transparent and fair financial ecosystem. This accessibility has drawn a large audience, from highly experienced investors to those who were previously unable to access an investment portfolio of any kind.

New tools, new risks

DeFi is the path to rewriting the script to today’s financial rules, propelled forth by new implementations and opportunities for more user empowerment. Four central innovations — smart contracts, decentralized exchanges (DEXs), yield farming and staking, and the tokenization of real-world assets — usher in this transformation.

1. Smart contracts and ensuring secure transactions. DeFi is built on top of smart contracts, which automate transactions in a secure, user-based manner. These self-executing contracts are coded to follow pre-set rules, meaning that once conditions are met, they automatically execute the agreed-upon actions. This seamless mechanism ensures that all parties adhere to the terms of the contract, further reducing the time lost in a traditional intermediated transaction.

Along with user-centered security, smart contracts also allow DeFi applications to achieve top-level efficiency and transparency. Autonomous in nature, they reduce human error and remove the need for expensive third-party intervention. They are tailor-made for applications ranging from simple lending and borrowing to complex financial derivatives.

2. DEXs and cutting out the middleman. DEXs redefine asset trading by offering a way for users to trade with one another rather than through a centralized exchange. Built on top of the blockchain, DEXs eliminate the middlemen that traditional exchanges require, giving users more control over their funds. The smart contracts powering DEX transactions are made transparent, reducing counterparty risks and marketing themselves as an attractive alternative to traditional exchanges. They also encourage a trading environment that is more open and accessible than simply cutting costs.

3. Yield farming and staking as passive income. The two most prominent passive income-earning DeFi mechanisms are yield farming and staking. Yield farming involves lending assets to DeFi platforms, which then use them to provide liquidity; in return, the user gets rewards, normally in the form of additional tokens. Another way is staking, where one locks up assets to support network operations and earns interest on their holdings.

Those possibilities create new income-generating opportunities for investors by turning their idle assets into profit.

4. Tokenization of real-world assets and expanding access. Tokenization is an innovation that has rebuilt real-world assets, such as real estate or commodities, on the blockchain. In doing so, DeFi breaks down these assets into digital tokens, enabling fractional ownership and purchase or selling smaller portions of an asset previously only available to high-net-worth investors.

The downsides of DeFi

While DeFi presents a promising alternative to traditional financial systems, it is not without its downsides. A closer look at the potential risks and ethical challenges can provide a balanced perspective on its adoption and usage.

Regulatory uncertainty. One of the main challenges facing DeFi is regulatory uncertainty. Current banking regulations, which were developed for centralized systems, sometimes clash with DeFi applications because of their decentralized nature. This ambiguous policy threatens both developers and customers.

For instance, if there are no obvious legal protections, investors may find it difficult to obtain their money back in the case of fraud or platform failure.

Security vulnerabilities in a trustless ecosystem. Despite being innovative, DeFi’s reliance on smart contracts and blockchain technology is not without issues. Due to flaws, hackers and code errors, users have experienced significant financial losses. Furthermore, because blockchain transactions are irreversible, mistakes such as sending money to the wrong address cannot be easily corrected.

The potential for deceit and isolation. Because DeFi is decentralized and partially anonymous, it has been the focus of fraudulent schemes and scams. Customers are vulnerable to phishing efforts and rug pulls, in which developers halt projects after receiving payment without monitoring.

Overcoming the obstacles

The DeFi community is actively working to lower these risks using a variety of tactics. For example, to create frameworks that protect users and foster innovation, DeFi platforms collaborate with authorities. Additionally, smart contract audits, bug bounties and insurance plans are becoming standard practices to safeguard users’ assets.

Although DeFi has the potential to revolutionize finances, its long-term survival hinges on its ability to control its dangers and ethical quandaries. By addressing these issues, the ecosystem can grow into a more secure and hospitable financial environment.

Driving DeFi forward

DeFi’s course of action for the future points toward mainstream adoption and incorporation into finance.

Once DeFi technologies improve to peak performance, analysts are optimistic that more people will start appreciating the many perks. Continuous innovation and interests by investors could make the effects of DeFi huge on worldwide financial systems.

Over the coming five years, I hope to see further integration between DeFi and traditional finance, with decreased tension and a closer sense of approachability in global finance. With platforms such as Uniswap and Compound pushing the envelope, DeFi is set to open doors for both long-term and new investors alike.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Digital assets and cryptocurrencies have captured significant attention in recent years. Despite retreating significantly at the start of 2024, the total crypto market has recently experienced strong price appreciation and stands at $3.59 trillion in total market capitalization. The digital asset space continues to evolve with important developments that merit attention. In this article, we’ll dive into recent changes and what they may mean for investors navigating the world of digital assets.

What should we expect in 2025? With Donald Trump winning another presidential term, there has been a broad rally in digital asset prices. Many investors seem to expect the next Trump administration to provide more support for digital assets and likely remove governmental obstacles to crypto projects. SEC Chairman Gary Gensler has announced his upcoming departure as head of the SEC. Gensler has been a critic of digital assets and brought several lawsuits against various crypto projects on behalf of the U.S. government. The current Trump administration nominee to run the SEC, Paul Atkins, is expected to be much less hostile to crypto and regulation of crypto exchanges. This might mean the SEC will turn its attention to other issues and not focus on taking action to restrict certain digital assets.

This may explain the rally in digital assets prices we’ve seen since the 2024 presidential election. Bitcoin has topped $100,000 in December, which is a significant milestone. Many other top digital assets are seeing major price gains as well.

New ETFs mean a new way to invest

Earlier this year, the SEC approved the launch of several bitcoin (BTC) exchange-traded funds. What does this mean for bitcoin investing? Before the launch of ETFs, investors could invest in bitcoin only by holding the tokens directly, through an exchange or in limited circumstances a fund, such as the Grayscale Bitcoin Trust. However, due to the structure of the Grayscale Trust, it didn’t always track the price performance of bitcoin itself.

The new bitcoin ETFs are designed to more closely track the price of bitcoin while offering lower costs to investors and allowing for intraday trading, similar to buying or selling a stock. As of October 2024, the largest among them is the iShares Bitcoin Trust ETF, with $21.1 billion in assets. The launch of these ETFs and increased liquidity is expected to attract more institutional interest in digital assets and increase inflows into bitcoin ETFs.

Hot on the heels of bitcoin ETFs, the SEC approved ethereum ETFs later in 2024, and similar ethereum-tracking ETFs launched shortly afterward. Currently, the largest ETF in this space is the Grayscale Ethereum Trust, with $972 million in assets. Ethereum is typically the second-largest crypto asset by value, after bitcoin. Both bitcoin and ethereum are the most well-known and liquid digital assets, largely due to their strong investor bases and extensive network usage. Ethereum is often recognized for its versatile smart contract capabilities, while bitcoin remains dominant as a store of value.

Some providers, like Bitwise, also offer ETFs that invest in digital assets beyond bitcoin and ethereum, such as Solana, XRP (Ripple) and Cardano. However, these lesser-known digital assets tend to be more volatile and less liquid. Their prices are often driven by behind-the-scenes trading, making pricing trends harder to predict. For that reason, risk-averse investors may want to avoid investing in lesser-known cryptos. Additionally, these assets may carry more regulatory risk or idiosyncratic risk.

Buying digital assets direct vs ETF investing

For investors seeking certain features, such as active tax-loss harvesting, owning digital assets directly may still be valuable. Currently, tax law does not subject digital assets to wash-sale restrictions, meaning investors can sell digital assets to harvest tax losses and then immediately buy them back. This is not allowed with marketable securities, offering a potentially significant advantage for taxable crypto investors looking to offset capital gains.

However, owning digital assets directly on an exchange introduces complications, such as the risk of being hacked or managing a digital wallet. Unlike traditional securities, digital assets are not as regulated, and fewer protections are in place than on traditional brokerage platforms. For casual investors, digital asset ETFs may remove some of these headaches. A financial adviser can help you determine an appropriate approach to investing in digital assets.

Digital asset price trends

Bitcoin has a history of dramatic price swings. At the start of 2024, it was priced around $44,000, and as of December 12, 2024, it has climbed to $100,033 — a roughly 126% return year to date. In comparison over the same period, the S&P 500, representing U.S. large cap stocks, has risen a little over 27% year to date, and ethereum has gained about 64%.

While such returns can excite investors, it’s critical to remember that this comes with significant risk. For example, bitcoin peaked at about $65,000 in November 2021, only to crash to $16,625 by January 2023 — a staggering 74% price drop. While bitcoin has since increased, investors who bought in near the 2021 high may have endured years of losses if they remained invested.

Investors may be drawn to crypto by stories of some early adopters becoming millionaires, but it’s essential not to invest more than you can afford to lose. A conservative allocation to digital assets may be appropriate in an effort to avoid negatively impacting an investor’s financial future. Digital assets are not for everyone, but a financial adviser may be able to help integrate them into a diversified portfolio.

It should be noted that investing in digital assets comes with significant risk of loss (including complete loss) that you should be prepared to bear, including, but not limited to, volatile market price swings or flash crashes, market manipulation, economic, regulatory, technical, and cybersecurity risks. In addition, digital asset markets and exchanges are not regulated with the same controls or customer protections available when investing in traditional asset classes.

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without previous notice. There is no guarantee any forward-looking statement will come to pass. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material should not be relied upon by you in evaluating the merits of investing in any securities or products mentioned herein. In addition, the Investor should make an independent assessment of the legal, regulatory, tax, credit, and accounting and determine, together with their own professional advisers if any of the investments mentioned herein are suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Any reference to a specific investment or product is for informational purposes only and should not be construed as a recommendation or endorsement thereof. Any reference to a market index is included for illustrative purposes only as it is not possible to directly invest in an index.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Archimedes was a Greek mathematician, physicist and inventor born sometime around 287 B.C. in the Greek colony of Syracuse in Sicily. He is known to this day for his statement: “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” The concept of leverage can, of course, be measured with some precision in the physical world, and it is a powerful concept.

But Archimedes never worked on Wall Street, and he wouldn’t recognize what today’s inventors of financial products are doing in the name of leverage. Leverage in the financial world can lead to astonishing success … or a crushing collapse.

Financial leverage

No academic has ever explained the use of financial leverage better than actress Selena Gomez in the movie The Big Short, with a great assist from behavioral economist Richard H. Thaler. In three minutes, these two explain financial leverage in a way anyone can understand. Once you watch that scene, you will want to see the entire exceptional movie and also read the book it’s based on, The Big Short: Inside the Doomsday Machine by Michael Lewis. The book and movie chronicle the collapse of the housing market and related securities that led to the crash of 2008. Why the crash? Leverage run amok.

On to bitcoin

So how is leverage rearing its head on Wall Street today? If your answer is “a bet on bitcoin,” the crown jewel of the cryptocurrency universe, you win. Let’s explore how investors are using leverage to invest in bitcoin. Perhaps Archimedes would advise that leverage works best when one stands on solid ground instead of assets that exist in a cloud.

To proceed step by leveraged step:

First, bitcoin itself. It is an asset with no physical presence, no government backing and a value set by an active and very volatile market. You could simply buy a bitcoin or a fraction of one. This can be done, amazingly enough, at grocery store vending machines. But that is only the beginning.

Second, enter a company called MicroStrategy (MSTR). It buys bitcoin, borrowing a substantial portion of the purchase price, a classic use of leverage when one expects the asset purchased to rise. The company then issues more equity shares, selling those shares to investors like … you. And uses the proceeds of the sale of the shares to … purchase more bitcoin. And then it repeats the whole process. MicroStrategy holds about $41 billion in the cryptocurrency. Since it is the bright shiny thing on Wall Street at the moment, investors have pushed up the market value of the company’s stock to $91 billion. People who got in early on MicroStrategy have made extraordinary returns. The obvious question is whether the market value of the stock is sustainable in light of the value of the bitcoin the company owns.

Third, there are “single stock exchange-traded funds,” such as Tuttle Capital Management and Defiance, which seek to offer double the daily return on MicroStrategy stock by using complex derivative contracts, such as instruments known as total return swaps, and options. Thus, another lever. Archimedes would certainly ask if these levers are long enough for the exchange-traded funds (ETFs) to accomplish their goals.

Each of the corporate entities discussed here has made lawyers wealthy drafting the appropriate disclaimers and warnings about volatility, the novelty of the process, regulatory uncertainty about what a bitcoin really is and who should regulate it. One would be wise to actually read those warnings.

You’ve read the warnings and still want to get in the game

Enough about warnings. Enough about risk. You want to get in the game. Fair enough. I would urge you to do so in a fashion that doesn’t make you the poster child for those who put all of their money into this relatively new and exciting investment class and end up living on a friend’s couch when/as/if the bitcoin market has a major correction. So how to get involved before somebody else makes all the money while you are sitting on the sideline? Six considerations:

• Make sure your basic financial life is in order (I am a devotee of The Only Investment Guide You’ll Ever Need by Andrew Tobias).
• Don’t buy anything on a cold call. These people are seeking to make money for themselves, not you, but they can be charming, convincing and, eventually, ruthless.
• Educate yourself. You should never buy a financial product if you don’t have at least a passing idea of what it involves. Be able to explain the investment to someone else. And the one fact you should absolutely understand in this conversation is that leverage works both ways: It does indeed magnify gains, but it also magnifies losses.
• Don’t cross-collateralize your conventional financial assets with bitcoin or any other cryptocurrency. If you don’t understand the preceding sentence, please see the third bullet, above.
• In an account unrelated to your other financial assets, at a separate financial intermediary, put no more than 5% of your liquid assets into the speculative investment you’ve chosen. This should be money you can afford to lose.
• Don’t become obsessed with any investment. Don’t let it take over your life. If your bitcoin investment goes up, be pleased, but consider if you should take your profits, keeping in mind the capital gains tax consequences. If it goes down, consider it the price of an education.

Either way, go outside and watch a few kids play on a seesaw. It is a perfect example of balance and leverage. Archimedes would be pleased.

For more on this topic, see the follow-up to this article, Financial Leverage, Part Two: Don't Say We Didn't Warn You.

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• Should You Own Crypto if You’re Retired?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

After receiving approval from the U.S. Securities and Exchange Commission, the first ethereum (ETH) spot exchange-traded funds started trading in July. This follows the successful approval of bitcoin (BTC) ETFs that were launched earlier this year. Before this, there was a lack of regulatory clarity that made it difficult for risk-averse investors to consider any crypto assets in their portfolios.

So why are these ETFs significant, and why are they tracking ethereum?

What are spot ETFs?

An ETF is an investment vehicle wrapper that complies with SEC regulations for reporting and other requirements. "Spot" means that these ETFs track the real-time "spot" price of the traded asset, as opposed to a "futures" ETF.

Like company stock, an ETF is tradeable in exchanges such as the New York Stock Exchange and Nasdaq. This is consequential because many corporates and funds are set up to trade in exchanges as they normally have accounts with broker-dealers, such as Charles Schwab, T. Rowe Price and others, who can also help them store these ETFs. 

Many corporates have been hesitant to invest in crypto due to regulatory uncertainty and custody concerns, among other reasons. Corporates may be more amenable to buying a small amount of these ETFs from their broker-dealers since they are already doing so in the normal course of business. Contrast this with crypto holders who have to fiddle with cryptographic seed phrases, software and hardware wallets, and the risk of hacks.

Why do the new ether ETFs matter?

Crypto advocates have been pushing for ETFs for years, as ETFs could open the nascent sector to corporate treasury inflows, which could be huge relative to the previous inflows, which were mostly individual retail sales.

In support of this, in 2023, the Financial Accounting Standards Board allowed for fair value accounting of digital crypto assets. This means that companies that possess digital crypto assets can reflect the rise and fall of the value of these assets in their balance sheets, whereas before, only value loss (and not gain) could be reflected. This means that if a digital asset such as bitcoin or ethereum moves counter to the price movement of other traditional assets, companies could use a small amount of digital assets in their books to offset their total asset values at the time of reporting.

Why the interest in ethereum?

Ethereum is the second-largest class of digital assets as per the industry standard price tracker CoinMarketCap. As of late August, the total crypto market cap was around $2.17 trillion, with bitcoin accounting for a little over half of that. Market cap is computed by multiplying the current spot trading price (in USD) by the total number of crypto tokens outstanding. 

Ethereum’s market cap is roughly one-fourth the size of bitcoin’s. Note that these ratios change in real time and all cryptos are volatile assets (high financial beta).

For traditional finance people, store-of-value assets, such as gold and bitcoin, are typically less favored than assets with yield, such as bonds and dividend stocks. While gold can rise and fall in terms of value, holding it does not typically produce yield. For bitcoin, although the situation has somewhat changed with new applications such as ordinals, traditionally the only thing you could do with bitcoin was keep it or sell it for a profit.

Because ethereum is capable of executing what are called smart contracts, it has become a platform for decentralized exchanges, non-fungible token markets, games and myriad other applications. 

Ethereum has native yield. The native yield of ethereum comes from the fact that all of the users of these applications have to pay ethereum “gas” fees to process their transactions on the blockchain. These gas fees are used to pay the validator server owners who keep the network running. Yield flows also allow finance people to better use their present valuation models.

Ethereum holders can do other activities including staking, liquid staking, etc., that could be likened to deposits in banks. Suffice to say, this ecosystem of blockchains and applications produces a huge “liquidity” of inflows to ethereum.

While the SEC has not allowed ETFs to do staking, which produces yield for the ETF holders, it does allow the bearers (such as corporate treasuries and traditional investors) to participate in ethereum’s future potential price growth, especially with the FASB accounting rule approval. Only holders of the actual ethereum crypto — and not ETF holders — can get the native yield, though.

What might the future hold?

While future adoption is speculative, some diehard fans believe that ethereum can eventually overtake bitcoin. Aside from the native yield that attracts investors, there is also the potential of the global traditional finance sector using a public blockchain to have a common transaction and asset ledger system. At the moment, transactions and asset ownership transfers are slow because each bank and financial institution has its own separate siloed transaction ledger database. With a common shared ledger, finance transactions could happen and settle and finalize faster.

Although there are many other chains on the market, such as Solana, and others that are competitors, ethereum is the biggest blockchain that has native yield for holders of the actual crypto and the one that traditional finance is looking at aside from bitcoin. With so many Layer 2 chains and applications, with their armies of ethereum believers, traders, developers and the like, it’s unlikely, in my opinion, that ethereum will fail and lose relevance.

For now, ethereum’s growth seems likely. SEC approval brings regulatory clarity, Gen Z increasingly is becoming more comfortable with digital assets, and slowly older generations and the global financial sector are beginning to accept them. While tech adoption is never a straight line going up, naysayers who bet against tech often end up on the losing side of the trade. 

I believe this new ethereum ETF will encourage widespread adoption even more.

Related Content

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• How Spot Bitcoin ETFs Work: Are They Right for You?
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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

What would you think, upon answering a phone call, if you heard, “How would you like to make 21% on your money, guaranteed?”

You would probably wonder, “Hmm, sounds interesting, so what’s the catch?” Or, you might think, “Wow! Sure! How do I get in?” That’s what scam operators are banking on — you falling for a way to get a return on your money that no one else is offering.

As a legal affairs columnist, I had to listen to the pitch instead of hanging up, because no doubt lots of people were hearing the same song. So I replied, “Tell me what you’re offering and why it’s not a Ponzi scheme.”

Let’s take a moment to remember Bernie Madoff

This potential scam resembles a Ponzi scheme in that the “guaranteed” high returns are unrealistic. The largest Ponzi scheme in U.S. history was run by Bernie Madoff, who took investors’ money, promising steady returns. Instead, he defrauded thousands of people out of an estimated $65 billion over about 17 years, paying early victims with money from later victims until it all came crashing down in 2008. Many lost their entire life savings. There were suicides. Madoff died in prison in 2021.

Iggy delivers his pitch

“Mr. Beaver, I’m sure you are well acquainted with the digital currency bitcoin,” “Iggy” began, launching into his pitch. “I work for a digital asset creation organization based in Austin, Texas, where we mine bitcoins with powerful computers. We arrange for you to buy computers that we lease from you and use them to mine cryptocurrency, paying a fixed and consistent monthly cash flow. After five years, we buy back the computers for what you paid. We make our money by selling the bitcoins that your computers generate.”

As he was talking, I was thinking, Hang on, the price of bitcoin has never been stable, so how can they guarantee a 21% steady return? And why do they need me to buy their computers? Why don’t they just use them themselves, for free, to mine bitcoins?

Beautiful advertising material: The pressure begins

I asked for, and Iggy agreed to email me, documentation on his company, which arrived in seconds. The materials are as smooth as a newborn’s behind, describing company philosophy and how the purchase-leaseback works and showing photos of the contracts customers sign (though the contracts shown are not readable).

It was clear to Iggy that I just didn’t understand this new world of digital currency. The following day, one of his managers phoned. Over about half an hour, I listened to a polished explanation of why something I could not touch was the next greatest thing. “Look at the online reviews. They are all excellent,” he boasted.

Most were, but great reviews can be purchased, as I discussed in my article Can You Trust Online Reviews? Apparently Not Much.

“Well, it is obvious that you are old-school, Mr. Beaver,” Iggy’s manager said. “I’ll bet that years ago if someone told you about an investment in cellular networks or Wi-Fi, you would have had the same skeptical attitude,” he said in a condescending tone of voice.

I replied, “Not at all. My concern here is about how unrealistic your guaranteed return is for a currency that is notoriously volatile. But I do appreciate your call.”

Request from a reader and former client

I thought that was the end of it, but the next day, a reader and a former client called our office to ask if I knew anything about this same company. They both had received similar sales calls and asked if I would review the company’s contracts for them. The reader is a fairly well-off retired pharmacist, but my former client sustained a brain injury in an accident and receives monthly checks from an insurance settlement. He wondered if it would be a good idea to cash in part of the annuity and invest.

So I called Iggy and requested a specimen of their contract to review. And that led to an interaction worthy of a Saturday Night Live skit.

The same manager phoned and explained that everything is “Docusigned” online, so there is no sample contract available.

“Oh, so you can’t just run off a blank one?” I asked.

“No, we only process a contract after you become a client of ours and are ready to invest.” But the kicker was something that I had never thought of: “And besides, we will not have any computers to sell until November.”

“Really? What does that have to do with sending me a sample contract?”

He did not answer.

So, is this a scam, or is it legit? I do not know. But anytime someone wants me to invest, lease a building or establish an ongoing financial relationship, I want to see their contract and have it reviewed by my financial adviser and CPA. If that request is refused, then my answer is no!

Here are some things you can do to avoid falling for a scam:

• Always ask questions
• Don’t feel pressured
• Consider whether what you’re being offered is logical/realistic
• Request a sample copy of the contract to show to your financial adviser or lawyer and follow their advice on whether it’s a good deal or not.

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Digital assets, like Bitcoin, have provided a new asset class for investors and traders, minting new millionaires in the process.

Cryptocurrencies, DeFi and stablecoin staking, non-fungible tokens (NFTs) and other digital assets have given high-net-worth investors diversification, enhanced liquidity and the potential for significant appreciation (along with a hefty dose of risk).

Most business owners and entrepreneurs who come into wealth when they exit their companies will turn to wealth management and financial planning firms to help them with their newfound riches.

By stark contrast, a cryptocurrency whale who has suddenly come into great wealth tends to have a higher risk appetite and yet generally lacks the experience of handling the rigors and complexities of administrating their newfound abundance. The skill set it takes to create wealth is a very different skill set required to preserve and protect wealth.

Despite their advantages, digital assets for the inexperienced investor pose unique challenges. The regulatory environment for digital assets is still evolving, which can lead to legal uncertainties and potential compliance issues, including the arduous tax reporting and basis tracking rules promulgated by the IRS. Furthermore, the pseudonymity that attracts many to digital assets can complicate estate planning and asset transfer upon death or incapacitation.

Strategies for mitigating tax liabilities

Even when your cryptocurrency investments like Bitcoin pump, they are exposed to two significant threats: estate taxes at death and lawsuits from creditors and predators. Without advance estate tax planning, the value of your cryptocurrency holdings when you die could be subject to a 40% estate tax. If the predictions for the future value of Bitcoin are anywhere near accurate, without proper estate tax planning, your heirs could unexpectedly owe tens of millions or more in death taxes. That would require significant assets to be sold to cover the taxes due, depriving your beneficiaries of the future growth and benefits of owning Bitcoin and other cryptocurrencies.

Moreover, recent tax proposals aimed at lowering the national debt may further increase this burden. One potential strategy is to use your current (2024) lifetime gift tax exemption to transfer up to $13.61 million of assets you expect to appreciate (like Bitcoin) to a Nevada irrevocable third-party dynasty trust. Once in the trust, the value of your Bitcoin is removed from your taxable estate, and the taxman will not collect a penny of death taxes on this asset class for literally hundreds of years. However, it’s important to act before January 1, 2026, when the lifetime gift tax exemption will be reduced by half.

 However, it’s important to act before January 1, 2026, when the gift tax exemption will be reduced by half.

For active traders, setting up an LLC to hold your cryptocurrency can be advantageous. By gifting the LLC interest to an irrevocable trust, you can avoid estate taxes on the appreciated value of your crypto. If your investment exceeds the gift tax exemption, consider selling the excess amount to the trust for a long-term promissory note. The note’s face value will be included in your estate, but the appreciation will not, providing substantial tax savings to your heirs.

Protecting against lawsuits

Lawsuits pose another significant risk of loss of your stack. Many HODLers, individuals who own and frequently trade in cryptocurrency, are unaware they can protect their digital assets from lawsuit creditors and litigators by using an LLC and an asset protection trust. By placing your LLC interest in the proper trust, your assets may be shielded from future unforeseen personal creditors.

Structured correctly, this strategy ensures that, absent fraud, your cryptocurrencies remain inaccessible to creditors following a lawsuit.

Conclusion

With tens of millions of lawsuits filed annually in the United States, and the majority settling for pennies on the dollar, it’s essential to remove financial incentives for becoming a defendant. Strategically implementing these legal strategies can provide options for protecting your wealth, ensuring your digital assets remain secure and preserving those gains for future generations.

If you have questions about digital assets and protecting yours, feel free to address them to author Jeffrey Verdon at JVerdon@frblaw.com, chair of the Comprehensive Estate Planning Group at Falcon Rappaport & Berkman LLP.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Do cryptocurrency assets belong in a conservative investment portfolio?

Fidelity Canada believes so. They have recently incorporated their spot bitcoin ETF into their Conservative All-in-One portfolio. However, a financial institution has many different priorities than the average investor, whose goals focus on retirement, homeownership, education and other financial life expenses. For the rest of us, where does a wildly volatile, low-correlation asset like cryptocurrency fit into a conservative investment strategy?

I think the example of Fidelity Canada’s Conservative All-in-One fund is actually a useful blueprint for a personal, conservative investment strategy. Their allocation of 1% to 3% crypto into a fund of otherwise low-cost, low-risk assets is a far cry from the full-steam-ahead FOMO investing that we see from enthusiastic retail investors.

Adding to this trend, even BlackRock announced its decision to include spot bitcoin ETFs in its popular Global Allocation Fund (MALOX) for retail investors, highlighting a growing acceptance of crypto assets as a viable component of conservative investment portfolios.

What not to do when investing in crypto

The typical crypto hype cycle looks like this: Bitcoin or a similar fund posts rapid growth. People don’t want to miss out, so they buy in right when the asset is most expensive, only to suffer when the price oscillates downward.

Or, they look at the current value of a bitcoin and decide it’s too pricey, not realizing it’s possible to buy less than one bitcoin. So they look for a cheaper crypto asset in an absolute sense. They overallocate to make up for the perceived loss from mistiming the market. This isn’t a behavior exclusive to crypto either. Tech sector investors may feel like they missed the boat on Nvidia’s gains but that the cost to buy into Nvidia (NVDA) is too high, so they look for an “Nvidia-like” stock to overinvest in, hoping it benefits from the same forces that lifted Nvidia.

In short, you can’t chase after crypto hype without blowing up the entire purpose of a conservative investment strategy.

That said, it can seem counterintuitive at first glance to include any amount of cryptocurrency in a conservative portfolio. What drove Fidelity Canada to stick a 3% bitcoin allocation next to a bundle of Canadian government bonds?

The difference between risk and volatility

It makes perfect sense when you realize that risk is not the same as volatility. Traditional measures of volatility may not fully capture the risk and opportunity in the crypto market. Since these measures often consider volatility a downside risk, they might not accurately reflect the potential for significant gains in rising markets.

This peculiarity makes crypto assets a challenging asset class to evaluate through conventional risk metrics alone. Bitcoin is the textbook definition of a volatile asset. In the span of its existence, it weathered six 50%-plus drawdowns, bouncing back every time. But it is also an asset with a very low correlation to traditional markets.

By including investments that don't move in lockstep with the rest of the market, investors can reduce portfolio volatility. This means that when one part of the market is underperforming, the impact on the overall portfolio is mitigated. In a small enough quantity, a volatile asset like cryptocurrency can actually de-risk a portfolio.

How the allocation percentage was reached

Fidelity Canada did not arrive at the 3% allocation by chance. We reached a similar conclusion after we ran the numbers to try to find the Goldilocks range for cryptocurrency in a conservative investment strategy. We started with a 50-50 split of global bonds and equities. We added crypto allocations, 1% at a time, back-testing every 250-day period of performance from 2015.

At 1% to 3%, we found there is virtually no difference in downside risk between a crypto-free baseline and the same portfolio with a 3% crypto allocation. But the 3% version broadens the range of upside performance. Once we went past a 7% allocation, though, crypto’s volatility began to undermine the low-risk, low-cost goal of a conservative strategy.

A 1% to 3% allocation of bitcoin won’t make you rich. But it won’t destroy you either. Resist the temptation to think of cryptocurrency as a key to instant wealth, because for the majority of us, it’s not. Instead, consult with a financial professional and look at crypto as a tool to use in a specific amount for a focused goal.

The views and opinions expressed are those of the authors but not necessarily those of MarketVector Indexes GmbH.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Bitcoin has had a phenomenal journey from a niche digital currency to a trillion-dollar asset class in a 15-year period.

The January 2024 approval of 11 spot bitcoin ETFs was a watershed moment, presenting investors with a gateway to being able to invest in bitcoin through their traditional investment accounts. We expect this will continue to boost broader investor adoption of bitcoin and attract investors who previously did not want to open a digital wallet or a digital asset custodial account. The approval of 11 products all at once can seem overwhelming, so the following guide can be used as a tool for investors who are interested in adding these types of investments to their portfolio.

Understanding spot bitcoin ETFs

An exchange-traded fund (ETF) is a type of pooled investment security that can be bought and sold much like an individual stock. The main difference between an ETF and a mutual fund is that though a mutual fund is also a pooled investment, it trades only once a day after markets close. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be designed to track specific investment strategies.

A spot bitcoin ETF is a breakthrough financial vehicle that tracks the current price of bitcoin, providing a simplified investment approach without the complications of direct ownership. In contrast to mutual funds that trade once at the end of the day, these ETFs operate similarly to stocks, allowing for real-time trading, adding flexibility to investment strategies.

Spot bitcoin ETFs operate by securing and holding actual bitcoin, stored in secure digital wallets by custodians. These custodians play a crucial role in safeguarding assets, employing sophisticated security measures such as cold storage to mitigate theft risks.

Bitcoin trades 24/7 throughout the world, but remember, the 11 spot products that were approved will trade only when markets are open, even though their underlying investment will be trading all of the time. For example, if you are looking at the spot price on a weekend, you will not see the ETF price changing until markets open the coming week.

A closer look at the approved spot bitcoin ETFs

The selection of SEC-approved spot bitcoin ETFs comes with various expense ratios and fees, tailored to meet different investment profiles. To entice investors, some offer limited-time fee waivers or reductions. Some of those ETFs include:

• ARK 21Shares Bitcoin ETF (ARKB). No fees for six months, until hitting $1 billion in assets.
• Fidelity Wise Origin Bitcoin Trust (FBTC). Fees waived until July 31, 2024.
• Franklin Bitcoin ETF (EZBC). No fees until August 2, 2024, or until reaching $10 billion in assets.
• Invesco Galaxy Bitcoin ETF (BTCO). Zero fees for the first six months, or until $5 billion in assets is accumulated.
• Others, including the Bitwise Bitcoin ETF (BITB) and the Grayscale Bitcoin Trust (GBTC), have opted not to offer fee waivers.

Investors should carefully consider all fees and terms before making investment decisions and do research or talk to a professional before choosing to invest. Since these products are designed to track the performance of spot bitcoin, we recommend not solely focusing on fees to make a decision on which one to buy. If the product is low-cost but doesn’t track very tightly to the performance of bitcoin, then you are incurring a “cost” in addition to the stated fee.

Risk assessment and considerations

Investors must carefully weigh the risks associated with spot bitcoin ETFs, including regulatory uncertainties, custody arrangements, fees and price volatility. This is still an emerging asset class and will likely have big price moves day-to-day that we don’t think can be timed.

If clients express interest in having bitcoin exposure, we will generally recommend about 1% to 2% of the portfolio to start. This allows investors to acclimate to the high volatility. We emphasize that even if bitcoin were to hit zero, with a 1% to 2% portfolio allocation, it would not significantly impact their overall portfolio return in the long run. With an asset that can move in short periods of time +100%, a small allocation will still provide benefits to overall performance of the entire portfolio. A little can go a long way with this type of investment.

If clients want to have the ability to move bitcoin to a wallet, they won’t be able to do that with an ETF. Some investors prefer to be able to control the token vs having it wrapped in an ETF with other investors. Think of it this way: You can buy a gold coin and store it on your own, or you can buy an ETF with gold as its sole holding.

If at any point there are unrealized losses that an investor wants to harvest for tax reasons, they are subject to abiding to the same wash sale rules of securities. If you sell the bitcoin ETF, the way the IRS rules are written, you have to stay out of it for 30 days if you want to book the loss on this transaction. Selling one spot bitcoin ETF and buying another that invests identically is likely going to be a violation of the wash sale rule.

It is unclear at this point how custodians will monitor this on investor 1099s and how it will be enforced. If they own the token directly and harvest it, they can buy it back immediately under current tax rules, which is a notable difference vs using an ETF.

A shift in sentiment

The approval of spot bitcoin ETFs signifies a significant shift in regulatory sentiment toward digital assets. While this marks a milestone, uncertainties remain regarding future approvals and regulatory developments.

As the digital asset landscape continues to evolve, informed decision-making remains paramount for navigating the complexities of this dynamic market. If you have interest in learning more, speak to your financial adviser about your risk tolerance with an investment like this and what place bitcoin may have in your portfolio.

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

These days, it feels like there's not a lot Americans agree with each other on. But we do seem to have one consistent belief: that real estate is a great long-term investment. 

Americans voted real estate as the best long-term investment, according to a new Gallup poll. And in fact, real estate has come out on top of this poll every year since 2014, beating out stocks or mutual funds, gold, and savings accounts or CDs. 

This year, 36% of Americans put real estate on top. Next up was stocks, at 22%, followed by gold, 18%, and savings accounts or CDs, 13%. Coming in at the bottom of the list was bonds, at 4%, and cryptocurrency, at just 3% — not a huge surprise, considering many people are still trying to figure out what cryptocurrency is. 

That real estate has been such a consistent winner this past decade is interesting, though. Now, don't get me wrong: Both real estate and the stock market have historically been great long-term investments. They have both exceeded the rate of inflation, meaning that if you were invested, you saw some great returns in the long-term. They also both generally have higher rates of return than safer vehicles like savings accounts, CDs (even with the high CD rates these days) or bonds. 

But lately, stocks have given a better return than real estate, and those returns have come as investing has gotten increasingly accessible thanks to tools like online brokers and trading platforms. Real estate, meanwhile, has only gotten less accessible, if you're not already a homeowner, as prices have been rising and down payments are a bigger barrier to entry than, say, throwing $100 into a Vanguard account. (That's particularly true now, when people like myself are arguing it is the worst time to buy a house between high mortgage rates and prices.)

If you're an older homeowner or real estate investor, though, it's easy to understand why you'd say real estate is a better investment than the stock market. From 1990 to 2006, returns on housing were higher than stocks, according to Investopedia. 

But since 2006, stock market growth has exceeded housing. Using the S&P 500 vs the Vanguard Real Estate Index, Sean Ross at Investopedia found that from December 2013 to December 2023, the real estate index had a 37% total return — while the S&P 500 had a 155% total return. 

Even so, again, I can understand why people stick with real estate. It's a simple idea, really, which is that real estate feels safer. The stock market has bumps and volatility in short-term segments, while housing generally keeps a more slow but steady climb. And you can't disagree that on a rainy day, a roof over your head feels like a better investment than a GOOGL share in your Robinhood account. 

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When we trade stocks, bonds, commodities, derivatives and other financial instruments, we normally rely on markets. These markets in New York, Chicago, London, Tokyo, etc., have traditionally been run by humans — humans who need to take breaks on weekends and go home to their families and rest after working hours. 

Billions (if not trillions) of dollars' worth of these instruments exchange hands daily. The really good ones can “front run” orders because of the speed of their networks in what the public now knows as “high-frequency trading.” These trades run so fast that sometimes profits are made in the span of microseconds. 

But what is often still slow about these markets is the settlement and finality. Sure, you’ve sold your shares of your favorite tech company (or whatever company you want). However, the money from the sale of your shares arrives only a few days later. The industry refers to this as T plus (number of days). So if you get your funds three days later, you’ve experienced a T+3 settlement. 

That might work for many older generations, but crypto degens (degenerates) and many in Gen Z use something called decentralized finance, or DeFi for short.

What is DeFi?

DeFi, as opposed to traditional finance or TradFi, uses no humans in the loop. Instead, DeFi uses a blockchain, which often has thousands of servers around the world running identical trading software. These software are often referred to as “smart contracts.” These smart contracts pretty much do what the bank staff does when they process payments, but in a matter of seconds. The transaction records are synchronized and finalized across all DeFi blockchain servers globally in a few seconds. 

Larry Fink, the CEO of BlackRock, has said the tokenization of stocks, bonds and other instruments is the next generation of securities. Many financial experts agree.

The reason DeFi is faster (basically T+0) is that everyone uses the same network. In the banking and financial services sectors, the current mode is to have their own in-house servers to keep track of who owns what. So if broker A wants to sell a stock, they have to upload that into the broker’s trading server. Similarly, when a buyer is interested, they send money, and the stock is sent to them or their broker custodies it on their behalf.

The key thing to remember here is that the ledgers are separate. Robinhood’s ledgers and T. Rowe Price’s ledgers are separate. The brokers have ledgers, the markets have ledgers, and updating the record to reflect who bought what for how much takes time — because these records are in different places.

However once stocks, bonds, commodities and other financial instruments have been tokenized, they would all run on one global network. Thus when you buy or sell a tokenized stock, the system gets updated as to who now owns what in a number of seconds. Transactions and transfers of ownership are updated and synchronized.

If a well-known personality gets married, the wedding is broadcast globally. Then because that transaction has been updated into all our brain “ledgers,” it becomes next to impossible to deny that the wedding took place. It’s the same with the blockchain. If all the blockchain ledger servers get updated to reflect that Bob paid Susan $100, then that is that.

DeFi is the future

DeFi has grown in popularity since 2020, and there are now many decentralized exchanges (DEXs), such as Uniswap. Each crypto token tries to have at least one that caters to it. Ethereum has several, Solana has several, Cardano has several and so forth.

The rationale for DeFi goes even deeper. In 2008, when Satoshi Nakamoto published the Bitcoin white paper, the objective was to create a system that does not rely on the need to trust third parties such as banks, stockbrokers and the like. Instead, what he wanted to do was to create a system of trading tokenized assets that did not need humans. 

DeFi is not perfect. It still has some high-profile hacks, and its user-friendliness leaves much to be desired. However, there are enough people around the world who want the freedom of trading with whomever they want. 

It appears that financial services are slowly moving in that direction. If we try to go against it, we run the risk of getting run over.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

It was an interesting first quarter for investors as stocks climbed a wall of worry, carving out record highs along the way. Indeed, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite gained between 5% and 10% over the three months.

This impressive price action once again came at the hands of several mega-cap tech and communication services stocks. Among the biggest gainers were artificial intelligence (AI) chipmaker Nvidia (NVDA) and Facebook parent Meta Platforms (META) – two of the Magnificent 7 stocks – that have surged roughly 80% and 40%, respectively, so far this year. 

New S&P 500 stock SuperMicro Computer (SMCI) created its fair share of tailwinds, too, with shares of the AI infrastructure firm quadrupling since the start of the year – and gaining $41 billion in market value along the way. (Although, this is peanuts compared to the $1 trillion in market cap Nvidia added in Q1.)

Are we in a bubble?

The fast and furious rise in these stocks has led to lofty valuations across the equities market and has several folks questioning if what we're seeing is similar to the dot-com bubble from the early 2000s. There are many ways to spot a bubble, and experts see distinct differences between the two time periods. 

"As was the case in the rally leading up to the March 2000 S&P 500 high, the recent market rally has featured a relatively small number of technology-oriented stocks pushing the S&P 500 higher," says Scott Wren, senior global market strategist for Wells Fargo Investment Institute. 

Wren points to a key difference between then and now: The quality of the companies leading markets higher.

"Today, the companies driving the rally are showing strong revenue and earnings growth to go along with robust balance sheets and acceptable debt levels," the strategist says. "Back in 2000, many of the companies carried the SPX to record levels based on high hopes of one day producing strong revenues and earnings." 

That's good news for bullish investors hoping to ride the wave higher – but there's a lot at stake over the next three months that could quickly shift sentiment. 

With this in mind, we'll take a look at the Q2 investing outlook and how the key themes experts are watching could impact portfolio returns.

Earnings

First-quarter earnings season kicks off in two weeks when big banks such as JPMorgan Chase (JPM) and Bank of America (BAC) report. Q1 saw turbulence in the regional banking industry after New York Community Bank (NYCB) crashed on commercial real estate concerns.

Rodrigo Sermeño, associate editor for The Kiplinger Letter, believes declining values in office buildings will continue to pressure some banks. But large banks "should avoid the stock sell-off because they are more diversified and have set aside greater reserves to cover potential loan losses than smaller banks."  

As a group, analysts have been less pessimistic about the upcoming earnings season, says FactSet Senior Earnings Analyst John Butters. Companies, however, have been more pessimistic. This has resulted in earnings estimates that are lower today vs where they were at the start of the year, he adds.

Still, S&P 500 earnings are expected to be up 3.4% year-over-year in Q1, which would mark a third straight quarter of growth.

For investors, the fact that stock prices and valuations are high heading into earnings season "leaves little room for disappointment if companies fail to deliver strong earnings," says Clark Bellin, president and chief investment officer at Bellwether Wealth. 

However, negative earnings reactions can create opportunities for tactical investors.

"On pullbacks, we will be buying the dips of high-quality earnings names, just as we did in October 2022 and November of 2023," says Nancy Tengler, chief executive officer and chief investment officer of Laffer Tengler Investments.

Inflation and rate cuts

The first quarter reminded Wall Street that the final stretch to bring inflation down to the Fed's 2% target will be the hardest. Consumer Price Index (CPI) reports for both January and February came in higher than economists were expecting, due mostly to stubbornly high shelter inflation. 

"CPI ex-shelter has been below 2% since June – where a lack of supply has met structural demand, pushing prices ever higher," says Ross Mayfield, investment strategy analyst at Baird Private Wealth Management. However, recent data, such as Redfin's report that new listings hit a two-year high of 3.8% in February and a fourth straight monthly increase in homebuilder confidence, according to the National Association of Home Builders (NAHB), are encouraging, Mayfield notes. 

"Whatever the root cause, multiple forces are working in favor of more inventory – that's good for buyers and the Fed, alike," Mayfield adds.

Still, sticky inflation has pushed back expectations for the Fed to start lowering the federal funds rate from its current 23-year high. 

"The current expectation is that the first Fed cut will take place at the June 12 meeting," says David Payne, an economist at Kiplinger, in his interest rate outlook. Typically, the first rate cut would be followed by additional rate cuts at every other meeting. However, to avoid being "a lightning rod during the presidential campaign season," the Fed may cut on June 20, July 31 and again on November 7, immediately after the election."

If the Fed does cut rates in June, stocks could potentially see a short-term tailwind. According to Charles Schwab, since 1929, the S&P 500 has averaged a 9.9% gain in the six months following an initial rate cut. This improves to 13.4% at 12 months out.

Rate cuts could be good for the bond market too. "We have shown on multiple occasions how bonds have always rallied in the three months before the first rate cut going back to 1970, says Joseph Kalish, chief global macro strategist at Ned Davis Research.

IPOs

The first quarter saw thawing in what has been an ice-cold initial public offering (IPO) market in recent years. According to Renaissance Capital, there were 30 public offerings through March 28, up 20% year-over-year. And the $7.8 billion raised from these offerings triples what was raised in Q1 2023.

Enthusiasm around generative artificial intelligence resulted in an exciting debut for Astera Labs (ALAB), a company that makes data center connectivity chips for cloud and AI companies. This was followed by strong demand for the Reddit IPO, with both events sparking hope that more offerings will soon hit the market.

The list of upcoming IPOs looks exciting, with names such as Kim Kardashian's shapewear brand Skims and online sports retailer Fanatics among those rumored to be going public soon, prompting concerns beginner investors understand what an IPO is before getting swept up in the hype.

One potential offering that Sophie Lund Yates, lead equity analyst at Hargreaves Lansdown, is upbeat about is Databricks, a cloud-based storage and software firm. 

"The AI boom would definitely be a tailwind and should offer a structural growth opportunity," Lund Yates wrote in a note. "Databricks itself isn't ignoring the hype, having acquired generative AI company MosaicML for $1.3 billion in June. The company is hoping it can integrate this tech into its own products."

A rebounding IPO market indicates "an uptick in enthusiasm from both IPO issuers and investors, hinting at shifting market dynamics and a more welcoming landscape for public listings," writes George Chan, global IPO leader at EY.

However, investors should be cautious before buying IPO stocks. While some companies have strong first-day showings, returns over the next year tend to be weak, says the team of analysts at Trivariate Research, a market research firm based in New York. And since 2020, "the average IPO has lagged its industry average by 30% over the subsequent three years following its first closing price."

Bitcoin

Bitcoin went on a monster run in Q1, spiking nearly 70%. Helping the cryptocurrency was the late-January regulatory approval of the first spot bitcoin ETF (exchange-traded fund), which gives "investors direct exposure to the price of bitcoin without the complexities of managing bitcoin ownership directly," says Mason Mendez, investment strategy analyst at Wells Fargo Investment Institute. 

Between January 11 and March 28, assets under management (AUM) of the 11 spot bitcoin ETFs on the market reached a jaw-dropping $58 billion, according to Mendez.

More upside could be in store for the digital currency considering the upcoming bitcoin halving event, expected to occur in mid-April.

"Historically, bitcoin halvings have been associated with significant price increases in the cryptocurrency," writes Kiplinger contributor Randy Ginsburg in his feature on bitcoin halvings. "The theory behind this is simple: As the supply of new bitcoins entering the market decreases, the demand for them could surpass the supply.

Before buying bitcoin in hopes it will continue to rise, though, let's remember that the cryptocurrency market remains highly speculative and should be approached with extreme caution. For those interested in dipping their toes into the crypto space, it is crucial that they do their research and only use money they can afford to lose. 

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After months of bear signals, bitcoin, along with the broader digital asset market, is once again trending higher. In mid-March, the cryptocurrency had more than tripled on a year-over-year basis to trade at an all-time high of $73,835.

Since then, the cryptocurrency's price has come down a bit, last seen at $63,300 on April 18. But retail traders and institutions are eyeing an upcoming key event that can further impact the digital currency's value: The bitcoin halving that is expected to occur at some time over the next few days.

What is bitcoin halving? 

The first and most widely recognized cryptocurrency, bitcoin (BTC) has a unique feature coded into its protocol called "halving" – an event where the reward for mining bitcoins is reduced by half. 

In the bitcoin network, miners use a Proof-of-Work (PoW) system to validate transaction information. Miners compete to solve a block's cryptographic puzzle, which requires significant computational power. 

After successfully solving a puzzle, miners will propose a new block of transactions to be added to the blockchain, or the decentralized, public ledger that records transactions. As a result of their computational effort to validate transactions, the miners get rewarded for their work. 

When bitcoin was first launched in 2009, miners were rewarded with 50 BTC for every mined block. Every time the network mines 210,000 blocks, which takes roughly four years, the halving cuts the block reward by 50%. 

Since the system is designed to have a finite supply of 21 million BTC, the halving ensures the controlled release of new bitcoins until all are in circulation. 

How many bitcoin halvings are left? 

There are 32 halvings in total, with the last one predicted to happen around the year 2140. 

The first bitcoin halving occurred in 2012, reducing the block reward from 50 to 25 BTC. This was followed in 2016, then in 2020, cutting the reward down to 12.5 and then to 6.25 BTC. This leaves 29 more halvings, with the next one expected at some point over the next few days. 

It's difficult to pinpoint the exact date of the upcoming halving because it's dependent those 210,000 blocks being mined. However, it's projected to occur around mid-April, and this event will lower the reward to 3.125 BTC per block. Following the four-year interval, this will be succeeded by another halving in 2028, then another in 2032, and so on until the final bitcoin is mined. 

By then, miners will earn only the fees for verifying transactions paid by network users. These incentives will motivate the miners to continue sustaining the network.

How will the halving impact bitcoin prices?

Historically, bitcoin halvings have been associated with significant price increases in the cryptocurrency. The theory behind this is simple: As the supply of new bitcoins entering the market decreases, the demand for them could surpass the supply. 

There are currently around 19.65 million bitcoins in circulation, leaving approximately 1.35 million left to be mined. With fewer bitcoins available, their value increases, making them more attractive to investors.

However, it's important to note that other factors also contribute to this price increase. For instance, halvings usually attract more press coverage. With increased public attention comes heightened speculation and market activity, which can drive up Bitcoin's value. Regulatory changes such as the recent approval of spot bitcoin ETFs, increases in use cases, and global economic conditions may also influence its price. 

How will the halving impact bitcoin miners?

Besides bitcoin's value, halvings may also affect miners. As block rewards decrease, miners may become less profitable, especially those with less efficient hardware or higher energy costs. Some may even be forced to shut down operations, leading to a temporary decline in the network hash rate.

But the bitcoin network is also designed to counter these potential effects. The mining difficulty adjusts every 2,016 blocks (around every two weeks) to maintain a consistent block production rate of around 10 minutes per block. Even as miner participation fluctuates, this mechanism ensures that blocks are consistently mined, maintaining network stability and sustainability of the bitcoin ecosystem.

While past performance suggests a connection between halvings and bitcoin's price appreciation, there's no way of accurately predicting the outcomes of future halvings. Investors should always conduct thorough research and approach halving events cautiously, taking into account both the cryptocurrency's volatility and broader market conditions.

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In our increasingly digitized world, our lives are inseparable from technology. From cherished memories stored in digital photo albums to valuable assets held in online accounts, our digital footprint has become a significant component of our overall legacy. Yet, despite the prevalence of our digital presence, many individuals overlook the importance of digital estate planning for the management and distribution of their digital assets once they pass away.

This oversight can lead to confusion, disputes and even a loss of valuable assets for loved ones left behind. This is where digital estate planning becomes crucial — a proactive approach to ensuring that your digital legacy is managed according to your wishes. In this comprehensive guide, we'll look at the nuances of digital estate planning, providing practical insights and actionable steps to help you secure your digital legacy effectively.

What are digital assets?

At the heart of digital estate planning lies the recognition and cataloging of your digital assets. These assets encompass a wide array of items, including but not limited to:

• Email accounts
• Social media profiles
• Digital photos and videos
• Online banking and investment accounts
• Cryptocurrency holdings
• Intellectual property stored digitally
• Subscriptions and memberships
• Personal documents and files stored in the cloud

The first step in creating a robust digital estate plan is to compile a comprehensive inventory of these assets. Documenting each digital account, including login credentials, account numbers and any relevant access information, forms the groundwork for effective digital asset management.

Once you've identified and cataloged your digital assets, the next crucial step is to appoint a digital executor. Similar to a traditional executor who oversees the distribution of physical assets, a digital executor is responsible for managing your digital estate after your passing.

Selecting a trusted individual who is both technologically savvy and capable of carrying out your wishes is very important. This individual will play a pivotal role in executing your digital estate plan, ensuring that your digital assets are handled in accordance with your wishes and in compliance with relevant laws and regulations.

How to craft your digital estate plan

With your digital inventory and executor in place, it's time to craft your digital estate plan. This plan should outline how you want your digital assets to be managed and distributed after your passing. Considerations may include:

• Instructions for accessing and managing digital accounts
• Preferences for the preservation or deletion of social media profiles
• Guidance on the transfer or disposal of valuable digital assets
• Provisions for protecting sensitive information and maintaining privacy
• Directions for digital memorials or tributes

It's essential to review and update your digital estate plan regularly to reflect any changes in your digital assets or preferences. New accounts may be created, passwords may change, and digital assets may accumulate over time. By keeping your digital estate plan current, you ensure that your wishes are accurately represented and can be effectively executed when the time comes.

Navigating the legal landscape of digital estate planning can be complex, as laws governing digital assets vary by jurisdiction. Consulting with legal experts who specialize in estate planning can help ensure that your digital estate plan complies with applicable laws and regulations. Your attorney can provide invaluable guidance on drafting and implementing your digital estate plan, as well as addressing any legal considerations that may arise.

In addition to legal considerations, it's crucial to take proactive steps to protect your digital assets and sensitive information. Utilizing secure password management tools, encryption technologies and other cybersecurity measures can help safeguard your digital estate against unauthorized access or tampering.

Don’t keep your plan to yourself

As you’re working on your plan, be sure to keep your loved ones informed throughout the process. Effective communication is key to the successful implementation of your digital estate plan. Ensure that your loved ones are aware of your digital assets, your chosen digital executor and the specifics of your digital estate plan. Providing clear instructions and access to relevant documents will empower your executor and loved ones to carry out your wishes with confidence and clarity.

Ultimately, digital estate planning is about more than just preserving digital assets — it's about preserving your legacy and ensuring that your wishes are honored and respected after you're gone. By taking proactive steps to create a comprehensive digital estate plan, you can provide peace of mind for yourself and your loved ones, knowing that your digital legacy will be managed according to your wishes.

Justin Stivers is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Stivers Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Visa has partnered with Transak, a payments infrastructure provider, on what they call a “revolutionary” step to offer customers in 145 countries the ability to convert their cryptocurrency holdings into local currencies.

Citing a lack of options for people seeking to transfer their cryptocurrency to fiat, Transak said the partnership will allow a quick and easy process to convert balances, in 30 minutes or less, which can then be used at businesses where Visa cards are accepted. Transak serves the crypto and non-fungible token (NFT) market.

The partnership will hugely expand on current crypto transfer offerings and allow people to quickly exit the crypto market, Transak said in a blog announcing the deal.

The news follows the Securities and Exchange Commission's (SEC) approval of rule changes last month that will allow spot bitcoin exchange-traded funds (ETFs) to begin trading in U.S. markets. Bitcoin is the world's largest cryptocurrency, and the approval will help pave the way for mainstream investors to more easily access exposure to the cryptocurrency, as Kiplinger previously reported.

40 types of cryptocurrencies covered

The Transak and Visa partnership will cover more than 40 types of cryptocurrencies and, according to the Transak blog, will expedite access to funds in a “dramatic” way.

Yanilsa Gonzalez-Ore, North America head of Visa Direct and Global Ecosystem Readiness, said in the blog that, by enabling real-time card withdrawals through Visa Direct, "Transak is delivering a faster, simpler and more connected experience for its users — making it easier to convert crypto balances into fiat, which can be spent at the more than 130 million merchant locations where Visa is accepted."

Separately, Visa has taken a number of steps toward integrating more cryptocurrency options in recent years. These include programs to help creators navigate NFTs and programs for brands to create digital wallets where customers can store rewards.

The SEC's Office of Investor Education and Advocacy urges people to be cautious if considering crypto investments and provides a website to explore for more information.

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To help you understand what is going on with the recent Bitcoin rally that started in late 2023, the world of digital tokens and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

If you think stocks have been on a tear, just look at the market for cryptocurrency, where prices soared at dizzying rates last year. What’s behind this rally, and can it continue?

Start with Bitcoin. It’s up 69% recently, thanks to a rally that began in early October. After tumbling in 2022, the best-known digital token doubled last year. Less familiar Bitcoin alternatives rose even more. Shares in one crypto company, Coinbase Global (COIN), shot up a staggering 391% in 2023.

Speculators are betting on new Bitcoin funds that could launch soon. Financial regulators are due to decide whether to allow several Bitcoin ETFs, exchange-traded funds, that would give investors much easier access to Bitcoin via their brokerages. BlackRock, Fidelity, Wisdom Tree and Invesco are some of the sponsors hoping to launch such ETFs.

The supply of new Bitcoin is also due to slow thanks to an upcoming “halving.” Every four years, the algorithm that governs Bitcoin (BTC/USD) cuts the amount “miners” get paid to unlock new coins by half. The energy-intensive computing power miners need to solve the increasingly complex computing problems that unlock new Bitcoin could become too costly. Previous halvings led to big jumps in the currency’s price. 

There’s also hope that cryptocurrency is shaking off its sketchy image. The frauds perpetrated by one-time crypto kingpin Sam Bankman-Fried showed the ugly side of crypto as a potential medium for ripping off naïve investors. His recent prosecution, plus other legal actions against bad actors in the industry, could renew public trust.

Clearly, more people are buying and selling various digital coins. The number of accounts that can receive crypto has doubled over the past two years, to 15 million. And more investors with deep pockets are getting involved. Venture capital flowing into the market hit $11 billion last year and is expected to increase in 2024.

And yet, there are plenty of reasons to be wary. Cryptocurrency is famous for booms and busts. Prices peaked in 2021, crashed in 2022, and soared again in 2023 but haven’t regained their former tops. Plenty of money has been lost on that wild ride.

Most crypto is still used for speculation, not as a medium of exchange, which was its original purpose. Few people buy things with crypto, and few businesses accept it as a payment option. For most users, it’s more like digital gold, a new asset that offers an alternative to traditional investments and the hope of getting rich fast.

Yet, scams still abound, and regulation remains patchy at best. In the U.S., crypto is generally regulated under existing regulations for other products and commodities. There is no overarching, crypto-specific set of rules to create a level playing field and give investors the confidence that they truly understand how the market works.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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The bounceback of Bitcoin and its fellow digital assets was a major storyline in 2023, leading many to wonder: Is the crypto winter over?

Indeed, the trial of former FTX CEO and co-founder Sam Bankman-Fried, the head of the collapsed cryptocurrency exchange, drew plenty of attention to the digital asset space. 

At one point, FTX had a value of more than $32 billion. However, by November 2022, FTX had collapsed, and a month later, Bankman-Fried was arrested in the Bahamas, charged with seven counts of wire fraud, securities fraud, and money laundering, and extradited to the U.S. to face his charges. 

On November 2, 2023, a federal jury in a Manhattan courthouse found Bankman-Fried guilty on all seven counts. The former crypto icon faces up to 110 years in prison. His sentencing is scheduled for March 28, 2024. 

"It's a warning, this case, to every single fraudster out there who thinks that they're untouchable or that their crimes are too complex for us to catch or that they're too powerful for us to prosecute or that they could try to talk their way out of it when they get caught," said Damian Williams, the U.S. attorney for the Southern District of New York, as reported by NBC News. "Those folks should think again."

In the lead-up to FTX's collapse, cryptocurrencies were in high demand on Wall Street, with Bitcoin hitting an all-time high of $68,569 in November 2021. Shortly after that, demand fell off a cliff and prices plummeted. And in late 2021 or early 2022, what is described as a "crypto winter" began.  

What is a crypto winter?

A crypto winter is loosely defined as an extended period when cryptocurrency prices move lower, combined with a decrease in overall trading volume. They can last months or even years. In that regard, they're not unlike bear markets for stocks. 

Unlike a recession, customarily defined by economists as two consecutive quarters of negative GDP (gross domestic product), cryptocurrencies have no specific definition. Therefore, every person's idea of when and what constitutes a crypto winter differs. 

The first crypto winter began in February 2011 when Bitcoin dropped by 40% from $1.06 to 67 cents. The next one didn't happen until 2014, when the price of Bitcoin dropped from a high of more than $1,200 entering the year to a low of $180 by January 2015. 

However, the term crypto winter only came into common usage in 2018, after 2017's big run from $900 to $20,000, a 2,122% gain over 12 months, to fall back to $3,180 by December 2018.      

During 2017's irrational exuberance, publicly traded mainstream companies were changing their names to include the words blockchain or crypto, while others completely pivoted their business models to catch the crypto craze, similar to what occurred during the dot-com bubble in late 1999 and early 2000.

The most recent crypto winter occurred over 13 months, from the all-time Bitcoin high of $68,569 in November 2021 to a December 2022 bottom of below $17,000, a 75% decline.  

What causes a crypto winter?

In the most recent crypto winter in 2022, rampant inflation from a post-pandemic world required the Federal Reserve to raise interest rates to dampen the economy, slowing demand and lowering prices. 

It began raising the federal funds rate in March 2022, ultimately boosting the federal funds rate 11 times through July 2023, from 0.25%-0.50% to 5.25% to 5.5%%, the highest level in 22 years. 

As a result, investors sold their risk-on assets such as crypto and stock, sending prices of both much lower by the end of 2022. It didn't help crypto prices that two cryptocurrencies, Luna and TerraUSD, collapsed in May 2022, followed by bankruptcies by crypto lenders Voyager Digital and Celsius Network. And FTX's bankruptcy in November 2022 put the nail in the proverbial coffin. 

Like stocks, crypto winters are often (but not always) caused by bad news, whether self-inflicted wounds such as a security breach or hack, reduced interest from institutional investors, unsettling economic news such as what happened in 2022, or increased regulatory overview. 

Over the long haul, these are all signs of a healthy marketplace that adjusts to current market, economic, and regulatory conditions.  

How to tell if the crypto winter is over?

With Bankman-Fried set to go to prison for a long time in the first half of 2024, the industry can finally look ahead rather than in the rearview mirror. 

Positive signs that the latest crypto winter could be over include Bitcoin gaining roughly 150% in 2023, higher weekly inflows of crypto investment funds – much like how you'd look at mutual fund and ETF net inflows and outflows – and institutional money getting back into the crypto space by offering mainstream digital assets from the likes of BlackRock, Mastercard, etc.

However, some crypto industry professionals suggest that the latest crypto winter won't be over until spot Bitcoin ETFs and spot Ethereum ETFs are approved for sale in the U.S. markets. 

"That's the floodgate for large portfolios to allocate 50 basis points of their holdings to Bitcoin," said Greg Magadini, director of derivatives at Amberdata, as reported by Decrypt. "To me, that would be the catalyst to essentially open up ... the end of crypto winter."

Just as there is no specific definition of a crypto winter, there is no rule to indicate when one has ended. As a relatively new asset class, that comes with the territory.

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Bitcoin hit a 2023 high at the end of a week that saw chaos at other cryptocurrencies. 

The price of Bitcoin briefly went over $38,000 on Friday, the first time it's done so this year. This is the first time the cryptocurrency saw those numbers since last summer, and it's been rallying since a dip in the back half of 2022. 

Coinbase, too, reached a 2023 high at the end of the week, at its highest level since spring 2022. But while it's a promising time for some investors, the crypto world has had shakeups this week. 

Two cryptocurrency platforms were hacked, according to CNBC, with a possible $115 million stolen. The affected platforms are the HTX digital currency exchange, which used to be known as Huobi, and the blockchain bridge Heco Chain. Both are linked to entrepreneur Justin Sun. 

HTX said it would "fully compensate for any losses incurred due to the hot wallet attack," according to CNBC, and is working on finding the source of the hack. 

Meanwhile, Binance and its CEO, Changpeng Zhao (CZ), pleaded guilty to federal charges related to money laundering, the Department of Justice announced Tuesday. The plea came with an agreement to pay more than $4 billion.

"Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed – now it is paying one of the largest corporate penalties in U.S. history," Attorney General Merrick Garland said in a statement. 

The DOJ's statement also included apparent warnings to other crypto platforms, highlighting the work the department has done to crack down on the industry. 

"The message here should be clear: using new technology to break the law does not make you a disruptor, it makes you a criminal," Garland continued. 

"Any institution, wherever located, that wants to reap the benefits of the U.S. financial system must also play by the rules that keep us all safe from terrorists, foreign adversaries, and crime or face the consequences," Secretary of the Treasury Janet L. Yellen said in the same announcement. 

Binance users pulled over $1 billion off the exchange since the news came out, CNBC reported. 

Of course, this all comes in the wake of FTX founder Sam Bankman-Fried being found guilty of fraud earlier this month, making it a largely chaotic month for the crypto world. 

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My family traveled overseas about a month ago. Unfortunately, my daughter came down with quite the bug upon arrival, so we went to a pharmacy as quickly as we could. The European pharmacy experience was night-and-day different from what I’m used to. The pharmacist asked a series of questions, made a diagnosis, scanned my card and handed us the medicine we needed. Six euros and 24 hours later, voilà! A happy, healthy child.

I’m used to our medical system, which aside from all the amazing practitioners comes with a lot of “it depends” and a never-ending cycle of referrals, which almost never ends with a straightforward answer. My apologies if this article feels like the latter. Your adviser really has to assess the fit of digital assets in your portfolio. While my firm manages investments for all of our clients, I almost never write about them for general audiences because of the disclosures I must give. So, here we go.

This is not investment advice. If you want investment advice, speak to your adviser. For the purposes of this article, we are going to talk about Bitcoin (BTC). The crypto world is vast, but we are going to talk only about the most mature, biggest cryptocurrency to make this as widely applicable as possible. My firm works mostly with retirees with between $2 million and $10 million, so this article will apply to that group more than anyone else. I think the best way to determine whether you should buy cryptocurrency is by answering the questions that follow the next paragraph.

Do my clients own crypto? Not through me. I am not naïve enough to say that they don’t own some and have even offered my advice on where it would fit. However, I think we are getting closer to a point where we can access it, in a more direct, liquid manner where I would likely use it in very specific situations. The federal court’s recent ruling in Grayscale v. SEC should bring many more investment options to market.

If you’re retired with between $2 million and $10 million, you are probably asking yourself these questions: Do I have enough money to cover my retirement years, and will it last? How do I make sure I don’t leave a mess for my heirs?

I am going to reference these questions below as a framework for decision-making around owning crypto. This will once again highlight my bias as a financial planner, as I am looking at it more from a planning perspective than for the quality of the investment.

1. Do I have enough? BTC has minted many a millionaire. That’s the opposite side of the volatility coin. If you have owned BTC for five-plus years, you have made A LOT of money. So, it is possible that you have enough because of crypto. It’s not all that different from those whose companies went public, suddenly creating enough wealth to allow them to walk away. In that case, concentration got you there, diversification keeps you there.

I highly doubt that if you made enough in crypto to retire, you’re going to drop it all tomorrow. However, I am thinking about this from a planner’s perspective. How do we structure a plan that allows you to do what’s important to you, while still being able to sleep at night? The existing asset class that digital assets fall into, or the new one they will create, is a point of debate. This makes assigning an appropriate portfolio allocation difficult. However, many experts agree that they should not represent more than 5% of your overall portfolio.

That 5% may be elusive because of the tax consequences necessary to get you there. In the case of a client who has a concentrated stock position, we may write call options to get them down to that amount over time and to protect the gain in the investment. This is easier to do in highly liquid large-cap companies or exchange-traded funds (ETFs) than it is in BTC. Therefore, if you are still planning to get rich in BTC and haven’t already done it, consider holding it in a tax-deferred vehicle where you won’t have to pay capital gains taxes.

2. Will it last? When you are retired and drawing off of your investment portfolio, volatility is your enemy. To the extent possible, you want to strip out as much volatility as possible while maintaining the necessary upside to ensure that you don’t run out of money. If you’ve been considering adding BTC to your portfolio, it’s likely that the horror stories have kept you from it so far. BTC lost 83% of its value between December 2017 and December 2018 and 64% of its value in 2022. So, if the S&P 500 drop in 2022 knotted your stomach, this may make you throw up.

Volatility is primarily a risk to the “will it last” question. Taking a serious hit in any given year, while you continue to draw from your portfolio, creates a situation you may not come back from. Imagine walking into a Bed Bath & Beyond liquidation sale and walking out with a new $2,500 Jura coffee machine for $1,000. Big win! That is what it’s like to buy into a volatile asset class in your accumulation years. Being Bed Bath & Beyond and having to sell something at 60% less than what you bought it for is what it’s like for a retiree.

This is the reason to reduce your exposure to 5% or less. The global investment manager VanEck studied the correlation between BTC and the S&P 500 and found it to be much lower than for more common asset classes. Therefore, if you add slight exposure to BTC, it will create a more diversified portfolio, which makes it more likely your money will outlast you.

3. How do I make sure I don’t leave a mess? Given the fact that my firm specializes in working with Baby Boomers, the estate planning component of crypto is a sticking point for me. I have done a lot of due diligence and spoken to a lot of estate planning attorneys to try to fully understand the implications of owning digital assets at death. The reality is that the rules are in their infancy, and there is a lot of inconsistent information and interpretation of how these assets will flow to heirs.

We often recommend an estate plan review every five years and an update when you move, sell a business, have a change in goals, etc. I am now adding the purchase or ownership of BTC (or any crypto) to that list of reasons for updating your plan.

There are different ways to store BTC: custodial and non-custodial. Hot and cold storage options in each of those categories. The differences are beyond the scope of this article. The main thing to understand is that even BTC owned in the most traditional manner will not be as easy for beneficiaries to uncover as, say, an IRA at Fidelity. Your estate plan is where you need to lay out where everything is.

The way you store your BTC is key. One benefit of BTC is the security. That security can work against a beneficiary. If you own what’s known as “cold” BTC, you need a key to access your virtual wallet. Unlike losing a key to your house, there’s no locksmith. It would be like losing your house because you lost your key. This is just one risk of owning BTC at death and one of the reasons we would recommend inter vivos gifts of your digital assets.

If you’re looking for a way to reduce your taxable estate, gifts to kids of BTC may be a good option. The price volatility allows you to give when the price is low and use a lower amount of your lifetime gift tax exemption. Future appreciation will occur outside of your estate.

If you’re charitably inclined, you’d want to use that price appreciation in the opposite way. When the price is high, you would donate directly to a charity, receiving a deduction for the full fair market value and skipping out on the capital gains tax on the appreciation.

Zooming out …

Typically, your financial plan dictates a necessary rate of return and an associated risk level to make your financial goals a reality. The main unknown to me at this point, in that regard, is that I don’t know how to assess BTC’s risk or return. I do not want to be in the position of telling a client that they cannot afford their family vacation this year because they had too much exposure to BTC.

I am optimistic that the future will bring purchase, storage and estate simplicity, along with more predictable investment results. At that point, BTC may play a bigger role in my clients’ plans.

This is provided for informational purposes only. As with any investment, past performance doesn’t indicate future results. Buying, selling, and transacting in Bitcoin or other digital assets, and related funds and products is highly speculative and may result in a loss of the entire investment. For additional information regarding risks, consult with your financial advisor.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

 Sam Bankman-Fried (SBF) took the stand in court on Friday, October 27, facing several fraud charges for his role in the collapse of FTX, once one of the world’s leading cryptocurrency exchanges. 

SBF acknowledged that mistakes were made at FTX including “significant oversights” but said he did not intend to defraud anyone, according to a New York Times live report of the trial. His attorneys painted a picture of “an overwhelmed founder, working impossible hours, who let risk management slip by the wayside,” the report noted.

The collapse of the FTX exchange, which was once valued at $32 billion according to Forbes, began after a shortfall of assets on its balance sheet amid rumors that it might have been insufficiently liquid. This led to the revelation that FTX was tapping into customer accounts to fund risky bets by its sister company, crypto hedge fund Alameda Research. FTX held just $900 million in easily sellable assets against $9 billion in liabilities the day before it collapsed.

After more than two weeks of a trial that aimed to paint SBF as a liar who committed fraud by using FTX for personal gain, SBF took the stand to clear his name in the highly anticipated case. His defense team has argued that he is not a criminal but is an entrepreneur caught up in the sharp downturn of crypto valuations, according to the NYT report. SBF said that he truly believed that Alameda had the right to borrow money from FTX’s accounts, the report added.

In response to allegations of reckless spending, SBF said that money spent by FTX and Alameda on venture investments and marketing deals was money that the company was entitled to spend and that he did not direct anyone to break any laws, the NYT reported.

Cultivating an image

Donning a gray suit and purple tie with short hair in court on Friday, SBF looked professional – but this is not the image he carried during the rise and fall of FTX. His personal style choices — typically shorts and a t-shirt with untamed curly hair  — during his tenure at FTX were discussed after earlier testimonies called the style choices “a calculated PR strategy,” according to a CNN report.

SBF’s attorney pushed back on those allegations by asking his client why he chose to wear shorts and t-shirts and why he didn’t style his hair.

“I found them comfortable,” SBF replied, adding, “I was kind of busy and lazy and didn’t bother getting a haircut for long periods of time.”

SBF said he did not intend to be the public face of the company and that his time in the public’s spotlight was essentially “an accident,” according to the CNN report.

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Bitcoin prices have been soaring amid reports that spot bitcoin ETFs (exchange-traded funds) could soon hit the market.

The price of the largest cryptocurrency by market value climbed as high as $47,900 Tuesday evening after a tweet on the Securities and Exchange Commission's (SEC) suggested the regulatory agency approved a spot bitcoin ETF. However, the SEC immediately issued a follow-up tweet that indicated its X page was hacked and that the tweet was fake. Bitcoin prices quickly turned tail.

Still, Bitcoin has more than doubled over the past 12 months – effectively ending the crypto winter from 2022 – and is now trading at levels not seen in nearly two years. "Bitcoin has stormed higher again … on the back of more ETF chat," says Craig Erlam, senior market analyst at OANDA. "There's clearly a lot of excitement about the prospect of a bitcoin spot ETF, as is evident by such a surge on speculation of something that was already expected to eventually get over the line."

Bitcoin was little changed late Wednesday after the SEC actually did approve rule changes that will allow for spot bitcoin ETFs to begin trading in U.S. markets, paving the way for institutional investors and retail traders to more easily access exposure to the cryptocurrency. 

This follows a major ruling last summer from a federal appeals court that overturned the SEC's attempt to block Grayscale Investments' application for a spot bitcoin ETF. Judge Neomi Rao said the SEC's decision to approve two bitcoin future ETFs but reject the application for the spot market fund was "arbitrary and capricious." This effectively paved the way for today's decision.

What's the difference between a spot vs futures ETF? 

In 2021, cryptocurrency traders scored a win when the SEC approved the ProShares Bitcoin Strategy ETF (BITO) – the first crypto ETF on the market that was not tied to stocks. The fund was so popular it accumulated more than $1 billion in assets under management by its second day.

There are plenty of other Bitcoin and crypto ETFs on the market, but none that are tied to a digital asset's spot price – or where it is trading at right now so that it can be bought for immediate delivery. This differs from futures prices, which are where the cryptocurrency is expected to be trading in the future. Futures traders buy contracts that lock in this price for a delivery of the asset at a later date.

The SEC had previously rejected approving a spot bitcoin ETF, citing risks such as market manipulation and fraud.

Spot bitcoin ETFs will drive demand by investment advisors and wealth and private banking integrated products, as well as provide easier access to ETFs in direct broker accounts, says Gautam Chhugani, senior analyst of Global Digital Assets at Bernstein. The analyst thinks total managed crypto assets will reach $500 billion to $600 billion over the next five years, up from the current $45 billion to $50 billion.

What happens next?

The ruling likely won't have a negative impact on the crypto industry, says Julius de Kempenaer, senior technical analyst at Stockcharts.com. "It opens up access to a broader group of participants which means more turnover, more adaptation and very likely in-flow from investors who so far have not taken the plunge to allocate to crypto for various reasons."

As for any negatives, "the only thing I can come up with is when there would be very strict regulations, restrictions and policies attached to buying and selling the bitcoin ETFs," de Kempenaer adds. 

Following today's decision, spot bitcoin ETFs could start trading as soon as tomorrow, January 11. A number of firms including Grayscale, Ark Invest and Fidelity have already submitted paperwork to launch their own funds. 

The high demand among asset managers is good news for investors as many issuers are cutting their fees on the bitcoin funds. Invesco, for instance, is waiving the 0.59% fee for its Galaxy Bitcoin ETF (BTCO) for the six months on the first $5 billion in assets.

Should I buy a bitcoin ETF?

"Bitcoin ETFs give investors a sense of security – there's a layer of protection," says Karim Nurani, chief strategy officer at private investing firm Linqto. "Most people still regard cryptocurrency as a wildly volatile and unsafe asset class and they're discouraged by the complexity of self-custody and the ever-present danger of cryptocurrency hacks, scams and exploits. Having trusted financial entities provide spot bitcoin ETF mitigates these risks and responsibilities."

Investors may not want to rush out and scoop up shares of these new ETFs, though. At the moment, cryptocurrencies remain highly speculative and should be approached with extreme caution. For market participants interested in dipping their toes into the crypto space, it is crucial that they do their research and only use money they can afford to lose.

One benefit of buying exchange-traded funds is that they spread risk across a basket of assets. However, when it comes to crypto ETFs, this is likely more true for funds that are made up of stocks vs those that are tied to futures or spot prices of a digital currency.

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Investor interest in cryptocurrency picked up again in November 2024 after Donald Trump won the U.S. presidential election.

Bitcoin, the world's first and still its largest cryptocurrency, crossed the $100,000 milestone on December 4 and traded as high as $108,265 on December 16.

Momentum ebbed in late winter, though, and the world's first cryptocurrency bottomed along with stocks and other risk assets on April 7, within days of Trump's Liberation Day tariff announcement.

Six months into the second Trump administration, though, Congress has passed the first meaningful federal cryptocurrency legislation.

In August, Trump signed an executive order that will make it possible for investors to own bitcoin as well as real estate and private equity in their 401(k) accounts.

Bitcoin has traded above $100,000 since early May and reached an all-time high around $123,000 in July.

Interest in cryptocurrency continues to grow more than a year after the U.S. Securities and Exchange Commission approved the first bitcoin exchange-traded fund.

Trump is helping create an even friendlier regulatory environment.

All that makes it easy to forget bitcoin was trading in the $40,000s in January 2024 and sank below $16,000 during a crypto winter in November 2022.

If you're new to investing or you're simply attracted by exciting price action, now is an ideal time to get familiar with cryptocurrency and the industry behind it before you put your hard-earned money into the space.

What is cryptocurrency and how does it work? 

Vanguard is one of the most prominent asset managers in the world. Its website's investor resources section provides a good definition of cryptocurrency.

"A cryptocurrency is a digital asset stored on blockchain technology that serves as a type of currency or store of value. Unlike traditional currencies, cryptocurrencies aren't backed by major governments or developed economies," states the Vanguard website.

In other words, blockchain technology enables cryptocurrencies such as bitcoin to view and verify transactions between two parties through a decentralized network of users known as nodes. These nodes validate and record these transactions rather than through a single authority or middleman.

The bitcoin blockchain, for example, contains every bitcoin transaction that's ever taken place, divided into blocks. When stacked on each other, these blocks create a chain of blocks, or a blockchain.

"Finding and publishing new blocks is what bitcoin miners do to earn bitcoins," states a Coinbase help page explaining the bitcoin blockchain.

"Whenever a new block is broadcast, approximately every 10 minutes, a quantity of bitcoins is received by the miner who solved that block. Bitcoin miners keep the network secure, and this is how they are rewarded. This system ensures that all transactions are valid and keeps the bitcoin network secure from fraud."

Why own cryptocurrency?

Investors have been asking themselves "Why own cryptocurrency?" since bitcoin was created in 2009.

Proponents of the digital asset argue that decentralized finance takes the power of money creation away from central banks and bankers, democratizing the global financial system.

Cryptocurrencies are especially effective for transferring funds across borders quickly and efficiently to people living in countries with volatile currencies or significant cross-border restrictions, etc.

The other reason to own cryptocurrencies such as bitcoin is as an investment. There is a school of thought that cryptos provide a hedge against inflation.

To be such a beast, they must provide a store of value into the future, meaning they're worth the same or more with time. Further, they must be exchangeable for things such as gold, U.S. dollars, etc. Lastly, they must have limited supply increases over time.

Bitcoin, for example, has a capped limit of 21 million. There are currently around 19.9 million bitcoins. Every 10 minutes, approximately 6.25 bitcoins are mined and put into circulation. The limit is not expected to be reached until 2140.

This scarcity might make bitcoin more expensive as the limit draws closer, but that's purely hypothetical.

Advantages of cryptocurrency

Three of the most significant advantages of cryptocurrency are accessibility, transaction speed and transparency.

Market hours for cryptocurrency are 24 hours a day, seven days a week. Whether you're in your living room at 3 am in the U.S. or traveling overseas, you can buy and sell digital assets without any concern your crypto exchange will be closed. It's always open.

The benefits of this accessibility to crypto beginners are debatable. However, cryptocurrencies have always been about democratizing finance.

Anyone, anywhere, at any time can make a trade. That's what makes it appealing to investors. Market participants have always been interested in faster and, where humanly possible, cheaper transactions.

In the case of cryptocurrencies, faster transaction speeds are critical because they influence the overall adoption of cryptocurrencies.

"For example, if it takes 10 minutes for a bitcoin transaction to be confirmed, it may not be practical for buying a cup of coffee," wrote The Baltic Times in an April 2023 article about cryptocurrency scalability and transaction speeds.

Transparency is a critical benefit of cryptocurrencies, too. According to Bitcoin.org, all bitcoin transactions are public, traceable and permanently stored in the bitcoin network. Bitcoin addresses are the only information used to define where bitcoins are allocated and where they are sent.

Open-source code provides real-time, accurate results for auditors. That's essential for regulators seizing cryptocurrency used in criminal activities.

"According to the Financial Action Task Force (FATF), seizure rates of illicit funds within the traditional financial system are around 0.1% – meaning regulators have recaptured about one-thousandth of the funds known to have been used for criminal activity. The seizure rate for crypto: 27%, according to [Uniswap Legal Chief Salman] Banaei," Consensus magazine deputy managing director Daniel Kuhn wrote in April 2023.

Disadvantages of cryptocurrency

Anything that purports to decentralize finance is going to attract scrutiny in countries with well-developed financial systems based on the rule of law and incumbents who enjoy the stability such systems provide.

Crypto and bitcoin and the exchanges that enable their transfer have come to the attention of regulators.

In early June 2023, the SEC sued Binance and Coinbase Global (COIN), the world's two largest cryptocurrency exchanges.

The Trump administration has dropped both lawsuits.

If you're new to cryptocurrency, it's crucial to understand that the industry is still relatively young, and it remains in transition. Even amid favorable broad trends and with a friend in the White House, there remain legitimate regulatory challenges.

This makes any investment — including in diversified crypto ETFs — potentially volatile and marked by above-average risk.

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Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…

A man asking a court to rule on the taxation of staking rewards got bad news. A federal appeals court tosses his case. He filed a refund claim alleging that token rewards he got from staking cryptocurrency are created property that is not taxed on receipt but on disposition. The IRS first disallowed his refund claim. But after he filed a lawsuit, seeking a return of his money, the IRS sent him a refund check. 

Last year, a trial court dismissed the case without ruling on the merits. The Sixth Circuit Court of Appeals has now affirmed the lower court’s decision. The man filed a refund suit, and the IRS later paid him in full. That makes the case moot. It doesn’t matter that the taxpayer didn’t cash the refund check (Jarrett, 6th Cir.). 

Meanwhile, while the above court case was going on, the IRS issued guidance on the taxation of staking rewards in July. When one stakes crypto native to a proof-of-stake blockchain and receives additional crypto units or tokens as validation rewards, the fair market value of those token awards is gross income in the year the taxpayer has dominion and control over the tokens (Rev. Rul. 2023-14). 

In other cryptocurrency tax news, brokers get guidance on how to comply with reporting rules on digital assets. A 2021 law requires brokers to report the sales price, tax basis and other information on digital asset trades. The rules were scheduled to first take effect for digital assets acquired on or after Jan. 1, 2023, but the IRS previously delayed the reporting obligation. Proposed regulations issued by the IRS address a multitude of topics:

• Reportable digital assets
• Brokers required to report under the rules (the definition of broker for this purpose is broad)
• Types of sales subject to reporting
• Information to be reported to the IRS and the taxpayer
• Gross proceeds in digital asset transactions
• And much more

Brokers will use the new IRS Form 1099-DA to report this information. Brokers have a couple of years to prepare for this. Under the proposed regulations, brokers must report gross proceeds from digital asset sales taking place in 2025 or later. That means you won’t receive a 1099-DA from your broker until early 2026. Reporting of tax basis and character of gain begins with 1099-DAs sent out in 2027.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

Video game retailer GameStop says it will end support of its crypto wallet offering on Nov. 1, citing “regulatory uncertainty of the crypto space.”

The company, which posted notification of the move on its GameStop Wallet homepage, said it will remove its iOS and Chrome Extension wallets from the market and advised customers to access their Secret Passphrase, a security feature, by Oct. 1. Customers with access to the feature have the ability to recover their account in any compatible wallet, GameStop said.

Currently, only MetaMask and WalletConnect are supported wallet providers.

In December 2022, GameStop hinted in a conference call on its third-quarter results that it plans to distance itself from the crypto space.

Minimizing risk

On that call, GameStop’s then-CEO Matt Furlong said the company “has proactively minimized exposure to cryptocurrency risk throughout the year and does not currently hold a material balance of any token. Although we continue to believe there is long-term potential for digital assets in the gaming world, we have not and will not risk meaningful stockholder capital in the space.”

The company launched the crypto wallet offering in May 2022 “to allow gamers and others to store, send, receive and use cryptocurrencies and non-fungible tokens (NFTs) across decentralized apps without having to leave their web browsers.”

GameStop did not immediately respond to Kiplinger's request for comment.

The move comes as the SEC has increased scrutiny of the crypto space. The agency recently sued Coinbase and Binance, charging the world’s two largest crypto exchanges with violations of U.S. securities laws.

In a June 6 interview with CNBC, SEC Chairman Gary Gensler weighed in on the crypto market.

“Look, we don’t need more digital currency,” he said. “We already have digital currency. It’s called the U.S. dollar. It’s called the euro or it’s called the yen; they’re all digital right now.”

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As the crypto industry continues to grow, financial regulators are struggling to keep up. To help you understand what is going on and what we expect to happen in the future, our highly-experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest...

Financial regulators are cracking down on the crypto industry. The collapse of FTX has alerted regulators to the dangers of letting the industry grow without any checks and balances. Recently, the Securities and Exchange Comm. (SEC) sued Coinbase, the largest U.S. crypto exchange, for operating as a broker-dealer, exchange and clearing agency without registering with Uncle Sam. The SEC also sued Binance, the largest global crypto exchange, for mishandling the funds of customers, misleading investors and regulators, and breaking securities rules.

Officials are still figuring out how to regulate cryptocurrencies. One issue under discussion is how to classify different cryptocurrencies. While bitcoin is considered a commodity by all regulatory agencies, the SEC views the tokens of other major blockchains as securities. The agency recently designated 19 tokens as securities as part of the lawsuit against crypto exchanges Coinbase and Binance, imposing steeper regulatory requirements on both token issuers and exchanges.

Crypto is increasingly becoming a partisan issue in Congress. Not long ago, Democrats and Republicans were able to find some common ground on how to regulate the industry. But in recent months, disagreement among lawmakers has stalled work on legislation. Republicans increasingly support the industry and are more likely to back measures favored by crypto firms. At the same time, Democrats want to tighten the leash to assist the Biden administration in its crackdown. As a result, don’t expect any major crypto moves from Congress.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

When most people think about investing, their mind goes to the most common types of investments, like stocks or bonds, or their investment accounts, like their 401(k) or traditional or Roth IRA. 

However, there is a wide array of investment options that can help you diversify your holdings so you are better prepared in the event of a major market meltdown. Essentially, alternative investments are supplements to traditional long-only positions in stocks, bonds and cash.

Who can invest in alternative assets?

Before diving into the types of alternative assets, it's important to know who is qualified to invest in these asset classes. They're considered alternatives because they aren't included in any of the asset classes that would be considered conventional, which are stocks, bonds and cash. These alternative assets are more complex and may be riskier than conventional ones because they usually aren't registered with regulators. 

As a result, most alternative investments are open only to accredited investors. Accredited investors are those who have a net worth of over $1 million, excluding their primary residence, or earned income of more than $200,000 (or $300,000 for married couples) in each of the last two calendar years. 

Financial professionals can also qualify as accredited investors without satisfying one of those two requirements, but until just recently, they must have had a Series 7, 65, or 82 license to do so. Recently, the House of Representatives passed a new bill that allows people with "professional knowledge through educational or professional experience" to qualify as accredited investors without holding any of those licenses. 

The same day, the House also passed a new bill updating the official definition of an accredited investor. This bill gave the Securities and Exchange Commission discretion to decide which credentials are needed to be considered accredited. It also requires an SEC review every five years with amendments as needed. 

What are the different types of alternative investments?

Broadly speaking, most alternative investments can be separated into two groups: public and private.

Public alternative investments definition

Public investments are those that report their holdings publicly. For example, hedge funds may be considered public investments because they must abide by certain reporting regulations with the SEC. In a hedge fund, your investment is pooled together with others' to be managed by a professional portfolio manager who uses many tools, including some more complex and high-risk methods, with the goal of earning above-average returns. 

Hedge funds are considered public because they must file quarterly reports on their holdings, especially those in publicly traded stocks. Most hedge funds also send monthly or quarterly letters to their investors to share details on their views of the markets and sometimes additional details on their holdings, like what they think about the companies they invest in. 

Hedge funds use an array of strategies to achieve risk-adjusted returns for their investors. Long/short equity funds often get most of the attention. Other strategies include global macro, commodities, risk arbitrage, event-driven, fixed-income arbitrage, relative value, and distressed securities. Today, multi-strategy and multi-manager firms are becoming particularly popular, as are hybrid funds that combine a traditional hedge fund structure with that of a private equity firm.

In some cases, exchange-traded funds (ETFs) might be considered public alternatives because they list their holdings publicly and are traded on exchanges like stocks. This is particularly true of ETFs that utilize structures similar to those of hedge funds, aiming for similar risk-adjusted returns.

Private alternative investments definition

Private alternatives include private equity (PE), which includes venture capital (VC), private credit, and infrastructure. PE and VC are similar to hedge funds in that they buy pieces of businesses, but they are privately held businesses rather than publicly traded ones. 

Private equity and venture capital have become exceedingly popular in recent years because these funds have generated significantly better returns at a time when generating alpha, or excess returns on top of what a benchmark has earned, in the publicly traded markets has been extremely difficult.  

Other types of alternative investments

Finally, some alternative investments aren't really public or private. These include commodities like gold, silver, grains, or oil, real estate, and cryptocurrencies. Non-accredited investors can invest in some of these other asset classes, like cryptocurrencies and real estate. Moving out to the far fringes of alternatives, some other options include art and collectibles, wine, farmland, and peer-to-peer lending.

In some cases, investors can invest in a fund that covers multiple individual assets within one of these other classes. For example, a growing number of crypto funds are providing easier access to multiple cryptocurrencies in one fund for investors who don't want to learn to navigate crypto exchanges. Real estate funds can also bundle multiple properties into one fund. 

However, such funds often require investors to be accredited to invest in them.

The pros and cons of alternative investments

Like anything, there are pros and cons of investing in alternatives. On one hand, they provide diversification for your portfolio and the potential to generate returns or alpha in one area of the market when other areas are falling. On the other hand, alternatives are more complex than conventional assets and usually require investors to be accredited. 

Investors are always advised to consult with an adviser and do their due diligence before investing in anything.

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Update, June 12, 2023: Binance announced on Twitter that Binance.US customers will no longer be able to use U.S. dollars in crypto transactions on the platform as early as June 13, as its domestic banking partners sever ties. Binance has previously engaged with U.S. banking partners including Axos Bank, Cross River Bank and the failed Silicon Valley, Silvergate, and Signature Banks. The move will severely limit the exchange's ability to do business in the U.S.

Leading cryptocurrency exchanges Coinbase and Binance are no strangers to controversy, as they tower over the battered crypto sector.

Coinbase leadership was recently accused of insider-trading $1 billion of company stock, according to Bloomberg News, on top of the company's previous receipt of an SEC "Wells Notice" for potential securities law violations, as reported by Forbes.

Binance's lengthy string of eyebrow-raising episodes, catalogued by Axios, include a market manipulation warning from the NY attorney general and a leaked document allegedly detailing an elaborate plan to deceive regulators. 

Despite all the smoke, U.S. authorities have been slow or hesitant to respond. That hesitance ended this week, when the SEC cracked down hard on the two crypto giants for varying, alleged violations of U.S. securities law.

SEC hits Coinbase, Binance on multiple fronts

On Tuesday morning, the SEC charged Coinbase with several violations of securities law, in a complaint alleging the company made billions of dollars since at least 2019 illegally handling crypto "asset securities" transactions.

The charges include:

• Operating an unregistered securities exchange, broker or clearing agency, which skirts federally-mandated investor protections including record keeping requirements, SEC inspections and conflict of interest rules.
• Failing to register the offer and sale of it separate staking-as-a-service program, which allegedly commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions that are required to be kept separate.

On Monday morning, the SEC charged Binance with a more extensive list of 13 securities law violations. The affected entities include Binance Holdings Ltd., its U.S.-based affiliate BAM Trading Services Inc., and their founder and CEO, Changpeng Zhao. 

The charges include: 

• Acting as an unregistered exchange, broker, and clearing agency while earning $11.6 billion in revenue that included fees from U.S.-based Binance users.
• Unregistered offer and sale of crypto tokens including BNB and BUSD, crypto-lending products “Simple Earn” and “BNB Vault,” and Binance.US’ staking-as-a-service program, through which the company maintains secret control of user funds.
• Failure to restrict U.S. users from accessing Binance.com, by facilitating and concealing the exchange activity of wealthy U.S. crypto investors. 
• Misleading exchange users and company investors about the strength of surveillance and controls to stop token price manipulation on the Binance.US platform, while secretly engaging in "wash trading" to pump trading volumes. 

Coinbase and Binance defend their operations

Following the SEC's Tuesday announcement, Coinbase chief legal officer Paul Grewal remarked "it's disappointing but not surprising that the SEC has decided to bring legal action against Coinbase today," according to Yahoo Finance. 

Meanwhile, Coinbase CEO Brian Armstrong hit back on Twitter, writing, "Regarding the SEC complaint against us today, we're proud to represent the industry in court to finally get some clarity around crypto rules...Instead of publishing a clear rulebook, the SEC has taken a regulation by enforcement approach that is hurting America. So if we need to avail ourselves of the courts to get clarity, so be it."

Binance responded to its own charges in a company blog post just after the SEC's
announcement on Monday. The company stated, "From the start, we have actively cooperated... Recently, we engaged in extensive good-faith discussions to reach a negotiated settlement." It also noted, "We are disappointed" in the SEC's actions to "act unilaterally and litigate."

Binance pledged to defend itself and criticized the SEC as "misguided" in its "refusal to provide much-needed clarity and guidance to the digital asset industry." The company then went further, contending, "The SEC’s actions undermine America’s role as a global hub for financial innovation and leadership." 

The company ultimately promised to continue cooperating with regulators around the globe "because that is the right thing to do."

Bottom line for crypto firms and customers

Both Binance and Coinbase are experiencing a hugely consequential reckoning with federal regulators. Axios reports depositors have withdrawn hundreds of millions of dollars worth of cryptocurrencies from both exchanges since 9 a.m. Monday.

Still, despite the threat of regulatory crackdowns, Axios also reports that very few crypto firms have registered with the SEC as securities brokers. Crypto industry leaders have often stated their intention to disrupt or even supplant the global financial system, so it's natural they would attempt to play by their own set of rules. 

However, it's also unclear what benefits these exchanges get from registering, as federal agencies take longer and longer to promulgate concrete regulations covering the crypto space. The chief counsel of Ripple, a crypto firm locked in a lengthy battle with the SEC, told Blockworks that his advice for emerging crypto companies is, "Don’t launch [crypto projects] in the U.S...It's not a level playing field."

This episode is a reminder for individual investors that the cryptocurrency industry is still the Wild West, where even the biggest global players allegedly ignore the few concrete rules that govern the sector. And there's no easy way for crypto owners to get back their assets if they get scammed or a major exchange goes bust, unlike customers of the heavily regulated, FDIC-backed U.S. banking system.

Here are a few ways to protect your crypto assets:

• Don't keep your crypto on an exchange unless you plan to actively trade it. Major and minor crypto exchanges stretching from FTX back to Mt. Gox have proven themselves unusually prone to hacks and corporate mismanagement.
• Keep your crypto in your own physical “cold wallet” offline. Hardware wallets that look similar to USB drives, such as Ledger and Trezor, can store multiple cryptocurrencies and cut your risk of losing your funds.
• Carefully guard your “seed phrase,” a series of words that give a user access to all currency and data held in a crypto wallet, including funds and private keys.
• When making a transaction, double-check that you’re sending it to the right wallet. 
• Use a Virtual Private Network to shield your payment data when making transactions.

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• Is Investing in Bitcoin and Other Cryptocurrencies Really Just Gambling?

If you buy cryptocurrency, are you just taking a punt on it performing well, or is it a genuine investment like buying shares and commodities? 

Many people have asked that question as Bitcoin, Ethereum and other cryptocurrencies have boomed in popularity over the past few years, which has brought riches to some but financial catastrophe to others. 

I’ve previously written about my experience of buying and selling Bitcoin as being more akin to gambling than investing.  

Is Bitcoin and other cryptocurrencies just gambling?

A prominent group of politicians in the UK have now called for buying crypto to be treated as gambling when considering regulation of the sector. 

In their view, crypto is such a high risk sector that it is more akin to gambling than investing, while they say the currencies themselves have no underlying value and their price is purely based on what the market is prepared to pay for them. 

The Treasury Committee, a group of UK MPs who hold the financial services sector to account, said in a report last week that crypto has “no intrinsic value and serves no useful social purpose and these characteristics more closely resemble gambling than a financial service.” 

Our friends at MoneyWeek in the UK also reported the committee saying: “The events of 2022 have highlighted the risks posed to consumers by the crypto asset industry, large parts of which remain a wild west.” 

A look at the fortunes of Bitcoin shows wild swings over the years, which have created millionaires but have also led some to lose everything. 

Over the past five years, the price of a Bitcoin has swung from about $3,500 to $65,000, and as I write this, it currently sits at about $27,000. 

A closer look at the charts shows in a short time, prices have plunged dramatically at times. For example, in May 2021 the price plunged from close to $60,000 to just under $35,000 in just three weeks. Of course, prices have risen at a similar speed too. 

What’s more, as UK MPs have said, there is little substance to crypto other than the price others are prepared to pay for it. 

When you buy shares in a company, you could argue that ultimately the same principle applies, but you at least have a myriad of factors that influence demand for that stock that are based on tangible components such as its recent performance, quality of its management team and its strategic aims. 

When you buy a commodity such as gold or art, you often physically hold that item and it may bring you or a future buyer pleasure such as in the quality of the art. 

Many people do not understand crypto 

Then there is the fact that crypto is such a mystery to so many people, which leans into my point that it is difficult to conduct the due diligence you need to do when investing. What’s more, it’s much harder to find a financial adviser who specializes in crypto as it is with standard investments. 

I got a lot of stick from crypto experts when I wrote my article on my experiences with Bitcoin, with some saying I didn’t understand what I had bought and that it is indeed a long-term investment and not a gamble. 

They’re correct that I didn’t understand all the ins and outs of exactly what goes into a Bitcoin like I would a standard investment or other areas of personal finance as I have not researched it to the level I have analyzed other personal finance topics. Don’t get me wrong, I know what crypto is and how it works, but as you peel back more of the details, l I will come unstuck versus someone who works for a crypto firm. 

Yet the fact I have some gaps in my knowledge, with the experience I have in personal finance, makes me question if anyone who doesn’t devote a huge amount of time to the subject will fully understand crypto to the level required to pump lots of money into it, as it is complex. 

So should you buy Bitcoin or other cryptocurrencies?

In simple terms, if you know the crypto markets inside out and consider yourself an expert, then, of course, you are in a good position to decide for yourselves when and what to buy and sell. 

If you don’t know the markets inside out, there is nothing wrong with investing… ahem, gambling… with crypto as long as you know the risks and can afford to lose whatever you put in. 

I’m not suggesting people shy away from crypto, more that I hope my words can help them understand what exactly they are getting themselves into. Hopefully it is a venture that makes them a lot of money, but none of us have a crystal ball to know if that will be the case. 

The dollar is one of the centerpieces of not just the U.S. economy but the world economy too, and our highly-experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe) for the dollar. You will get all the latest news first by subscribing, but we will publish many of the forecasts a few days afterward online. Here’s the latest…

Talk of challenging the buck is growing. Countries hit by U.S. financial sanctions in relation to the war in Ukraine see those efforts as the “weaponization of the dollar,” and are trying to promote alternatives to the dollar as the currency used in most trade and as the global reserve currency.

Cryptocurrency fans argue crypto is better than any government-backed money since crypto can’t be manipulated by governments or central banks.

The dollar still reigns despite challenges

These sorts of warnings are nothing new. In the 1990s, the Japanese yen was talked about as a replacement for the dollar. Then it was the euro. We expect the dollar to retain its supremacy.

But that doesn’t mean changes aren’t afoot in the international payments system. It’s important to know what’s coming as the dollar faces new rivals.

First, consider what’s at stake. The U.S. enjoys several major economic advantages by virtue of issuing the most widely used currency in the world.

Worldwide demand for dollars helps keep interest rates lower for borrowers here. The ubiquity of the dollar in global commerce reduces transaction costs across borders and also lowers the price of imported goods. Borrowers in the U.S. don’t have to worry about fluctuations in the currency they borrow in, either.

Which currencies pose the biggest challenge to the dollar?

Now, several emerging-market countries want to dethrone the dollar by creating their own shared currency, somewhat akin to the euro. They resent the role of the dollar in commerce. But banding together to launch a new currency is very hard.

The more likely challenger: China’s yuan. Beijing wants China to be insulated from any future financial sanctions like the ones Washington slapped on Russia. It has already built its own international payments system as an alternative to SWIFT, long the dominant system, from which Russia has been cut off. It’s also succeeding in getting the yuan used in more cross-border transactions. Russia in particular has embraced China’s currency to help it keep selling its energy and other exports.

China wants to supplant the dollar in its bid to be the new world superpower. While the yuan is sure to gain wider usage, it’s unlikely to replace the dollar. China won’t liberalize its finances to give the yuan the dollar’s advantages, its ease of use, convertibility, freedom to float in value as the economy warrants, etc.

The challenge from within the U.S.

The most immediate threat to the dollar’s reserve status may be domestic: The risk that the U.S. may breach its debt ceiling and miss interest payments on Treasury bonds is the sort of thing that undermines global confidence in the dollar.

We still think Congress and the president will avert that danger. But our fiscal strains aren’t going away, a hard political reality that both parties will have to grapple with.

This forecast first appeared in The Kiplinger Letter. Since 1923, the Letter has helped millions of business executives and investors profit by providing reliable forecasts on business and the economy, as well as what to expect from Washington.  Get a free issue of The Kiplinger Letter or subscribe. 

Read more

• The White House Touts A Digital Dollar: What Does That Mean?
• Kiplinger Economic Outlooks
• Debt Ceiling Will be Averted: Kiplinger Economic Forecasts
• Funds That Profit From a Falling Dollar
• Crypto vs. Forex Trading: What You Need to Know

Should you invest in Bitcoin is a common question posed by many who have witnessed the cryptocurrency’s rollercoaster ride over recent years. 

Each Bitcoin is now worth about $30,000 after a year of gains for the cryptocurrency, but the last five years have seen it swing from $3,000 to $65,000, which shows the seesaw it’s been on. That has led not just to a surge in Bitcoin investing but also in Bitcoin mining. 

I have tried my luck at it, albeit with rather small sums compared to some, but it taught me that seeing it as an investment is the wrong course of action for most. Unless you really, really know what you are doing, then it’s a gamble, akin to playing the tables in Vegas. 

That means it really should be viewed as something only to dabble in if you can afford to lose that cash, so something to have fun with rather than truly invest in. That’s my view, and you may disagree, but here’s why I think so. 

Why Bitcoin is closer to gambling than investing

When you invest in the stock market or in commodities you can at least do some research to help inform your decision. How has this fund manager performed? What is this company’s growth plans? Or, what do experts think will happen to the price of gold?

These are all questions you can answer using research to help inform you of potential outcomes. You can also get financial advice from experts who know the markets and the system. 

Of course, most investors know that there is always the risk of their investment tanking due to big world events such as COVID-19, or due to more localized or company-specific issues. 

Yet few stocks or commodities have experienced the white-knuckle ride of Bitcoin, and that propensity for it to move suddenly, sometimes seemingly with no warning, is why it is so much harder to predict, and why it is closer to gambling than investing in my view. 

One reason Bitcoin is hard to predict is because the mechanics behind it are so complex that most people don’t understand them and therefore don’t have the same knowledge they have of more traditional investments. 

I suspect die-hard crypto experts who do nothing but study Bitcoin and other similar currencies such as Ethereum will disagree with me, but this article isn’t aimed at them, but at the less-well-informed majority. 

My Bitcoin loss

A few years ago when everyone seemed to be talking Bitcoin up during one of its highs, I bought $300 of it.  I saw it rise to about $500, then drop suddenly, only to go back up again. 

After a few months later, I withdrew it all at a loss of $50. I could swallow a $50 hit and I saw the experience as a bit of fun to see what would happen to the $300.

The problem is, I had no idea why it was going up or down and saw no way to even remotely forecast which way it would go. I didn’t like the feeling that I had no control at all.

Don’t get into Bitcoin unless you understand the risks 

Bitcoin is having a good 2023, with its value up 75% year-to-date. That may encourage some people to try their luck. 

I say go for it if you want to have some fun, but only with money you can afford to lose, unless you really consider yourself a cryptocurrency expert. 

But please beware the many companies out there trying to sell you a Bitcoin “investment” as a sure-fire way to make money. You may get lucky but you may as easily get burnt. 

Whether you agree or disagree, feel free to tweet me @guyanker.

Bitcoin has been one of the hottest topics of conversation in the world of investing over recent years with many desperate to understand what it is all about and whether you can make money from Bitcoin. However, it’s not just about investing in the cryptocurrency - there’s also the option of mining Bitcoin. 

Money.com recently published a helpful article on whether mining Bitcoin is profitable and, here, we summarize it for you. Before we get into it, please note that investing in Bitcoin and mining Bitcoin both come with big risks, so only try your hand if you’re sure of what you are doing and you are comfortable with the risks. For more help, you can also listen to me and other prominent journalists describe the pros and cons of Bitcoin mining in last week’s episode of The Week Unwrapped podcast. 

What is Bitcoin?

It’s worth first establishing what Bitcoin actually is, given it is a highly complex type of currency. I have been in the world of personal finance journalism for almost 20 years and I must say it’s the most complex issue I have written or spoken about. 

Bitcoin, like Ethereum and Dogecoin, is a type of cryptocurrency, which is digital money held in the cloud run on a type of technology called blockchain. According to the Economist, “a blockchain is a database made up of a string of blocks of information that build on top of one another in an immutable chain. It stores data on transactions, providing proof of who owns what at any time.”

Bitcoin is a decentralized currency, meaning it is not under the control of any state or central bank. 

As you may know, the value of Bitcoin can be very volatile. While one coin is worth about $30,000 at time of writing, in the past three years or so it’s swung between $5,000 and $65,000. In addition, there have been some safety concerns, as crypto hackers have stolen billions of dollars in the past. Meanwhile, recent bankruptcies in the industry have also raised questions for investors. 

What is Bitcoin mining?

In its simplest terms, Bitcoin mining is when you create new Bitcoins, though how you get there is fairly complex. 

According to Bankrate, “Bitcoin mining is the process of creating new Bitcoins by solving extremely complicated math problems that verify transactions in the currency. When a Bitcoin is successfully mined, the miner receives a predetermined amount of Bitcoin.”

Money.com goes into even more detail: “Miners are competing to guess a complex 64-digit number known as a hash. To guess the hash, miners use powerful computers to generate guesses quickly. Think of it this way: each digit in the hash has 16 possibilities (the digits 1 through 10 plus letters A through F). So, to generate a guess, you could roll a 16-sided die 64 times. That would give you one guess — the problem is, there are trillions of possible answers.

“Using tons of processing power and a whole lot of energy, miners’ computers basically roll that die at super speeds. The miner who arrives at the correct hash first and adds a bitcoin block to the blockchain receives the reward.”

How do you actually set up a Bitcoin mine?

The first thing to note is that it is legal in the U.S., even though some other countries have placed restrictions on Bitcoin mining. 

To mine Bitcoin, you need giant computers capable of processing the huge amount of data required, and that can cost you thousands of dollars to set up. The enormous amount of hardware required has led some people to join mining pools to share computing power, though it also means they share any gains.

A friend of mine has taken up Bitcoin mining, and when I went to his house a few weeks ago, I saw about four giant computers, each about the size of an old-fashioned hi-fi system. They gave off a tremendous amount of heat - so much so that he installed solar panels to cover the electricity cost of mining, though it means he hardly had to turn on the heating in winter, he said. 

Importantly, the huge energy consumption required is one reason Bitcoin mining is controversial, because of the environmental impact. 

How much money can you make from Bitcoin mining?

This is where we return to the article run by Money.com to summarize its advice. 

It points out that every time a miner adds a new block of transactions to the blockchain, they earn 6.25 Bitcoin, but this will drop to 3.125 next year. It is paid into a crypto wallet.

That equates to a lot of money given the value of Bitcoin at time of writing was about $30,000 per coin. That may sound like easy money, but remember: you are competing against other miners. 

Let’s also remember that Bitcoin is an incredibly volatile currency, so who knows what the value will be tomorrow, let alone the distant future. There have been some days where Bitcoin investors have woken up to giant falls and rises in its value.

Is it profitable, then? Here is how Money.com summarizes that answer: “The bottom line is that there is no set amount bitcoin miners earn. Mining requires significant investment, and the results are unpredictable.”

As you can see, it takes a lot of investment to set up, you are using a lot of energy to mine and the returns are unknown. Of course, some make huge sums from Bitcoin mining, but before you take the plunge, consider the risks, the environmental impact and the effort involved.

Silvergate Capital (SI) tumbled Thursday after the financial firm said it will shut down operations and liquidate assets at its crypto-friendly subsidiary, Silvergate Bank. The decision, which was made voluntarily, was announced on Wednesday, March 8, with SI citing "recent industry and regulatory developments." The firm added that all deposits will be fully repaid.

The announcement follows last Friday's news from Silvergate that it had made a "risk-based decision" to discontinue its Silvergate Exchange Network (SEN), a real-time payments system that investors and cryptocurrency exchanges used to transfer U.S. dollars 24 hours a day. 

Last week, SI also requested more time to file its annual financial report, saying there were a variety of factors – including potential restrictions placed on the company due to "various litigation (including private litigation) and regulatory and other inquiries and investigations'' –  that could affect its ability to continue with operations. SI's move prompted cryptocurrency exchange operators Coinbase Global (COIN) and Galaxy Digital (BRPHF) to stop using Silvergate as banking partners.

What is Silvergate Bank? 

California-based Silvergate Bank began as a regional savings and loan business back in 1988, but shifted its focus toward Bitcoin and cryptocurrency in 2013. The financial firm created its Silvergate Exchange Network in order to help cryptocurrency clients exchange fiat currencies such as the U.S. dollar. 

The company held an initial public offering (IPO) in November 2019, pricing its shares at $13 apiece. By November 2021, skyrocketing cryptocurrency prices had SI stock trading in excess of $220 a share. 

At one point Silvergate explored plans to launch its own stablecoin. In early 2022, it bought Diem Association, a cryptocurrency platform formerly known as Libra that was initially backed by Facebook parent Meta Platforms (META).

Although those stablecoin efforts never got off the ground, Silvergate Bank was still showing growth in the third quarter of 2022. In its quarterly report, the company said digital asset customers were up more than 28% year-over-year to 1,677. Additionally, Q3 earnings per share rose 45% to $1.28.  

But the company couldn't escape the chaos enveloping the industry over the past few months, including a broad selloff in digital assets amid concerns around the collapse of crypto exchange FTX. By late 2022, SI shares had plummeted below the $20 mark, and the stock was last seen trading in single-digit territory. For the year-to-date, Silvergate stock is down more than 96%.

If anyone welcomed the collapse of SI, it was short sellers. More than 60% of the firm's shares outstanding were sold short as of the end of February. Short sellers profit when the price of a stock drops. 

Silvergate stock price chart

What Wall Street is saying about Silvergate 

"The fight for survival did not last long for Silvergate Capital. After the close, Silvergate Capital announced their intent to wind down operations and voluntarily liquidate the Bank in an orderly manner and in accordance with applicable regulatory processes. The crypto banking problem still remains as the cryptoverse now tries to find a new services company to help make payments and other deposit-related services.Bitcoin is lower and getting very close to the February lows. This remains a tough environment for crypto given the fallout from Silvergate Capital, so Bitcoin could see further selling pressure test the $20,000 level." – Edward Moya, senior market analyst at OANDA

"The crypto landscape for banks just got lonelier with SI winding down operations. With the demise of SI, Signature Bank (SBNY) is the only larger bank remaining with a functional on-ramp for institutional crypto investors; while SBNY has self-limited their exposure to the space, this could provide some incremental pricing power; additionally, SBNY could use this as a catalyst to move away from in-kind deposits for service to a fee-for-service model, which may be more regulatory and capital friendly." – Jared Shaw, analyst at Wells Fargo

"Last night, Silvergate Capital (SI) announced that it was winding down operations and voluntarily liquidating their bank. Recall, Silvergate was a major player in the crypto banking space. In fact, it was their primary line of business. Since Signature Bank's Signet platform also had many crypto clients, the two banks were often mentioned together. As a result, we have no doubt that Signature's stock will continue to be under some pressure in the short-term." – Mark Fitzgibbon, head of FSG Research at Piper Sandler

"Last night (3/8), Silvergate Capital announced its intent to wind down operations and voluntarily liquidate Silvergate Bank in an orderly manner including the full repayment of all deposits. We believe this decision was made, at least in part, to help mitigate Silvergate Bank's legal liability related to FTX's bankruptcy as we believe the banking entity may be dissolved following the liquidation and the return of remaining capital to Silvergate Capital. Importantly, Silvergate Capital, the holding company, is now tasked with maximizing residual value of its assets, including the disposition of its proprietary technology and tax assets, and then the company may seek to return capital to shareholders, including both preferred and common holders, in our view. Another potential outcome could be the sale of the holding company to a third party to harvest its tax assets." – David Chiaverini, analyst at Wedbush Securities

2022 was a brutal year for crypto investors. Hackers from around the world had a banner year for stealing cryptocurrency from crypto-oriented businesses, as reported by blockchain analysis firm Chainalysis. On top of that, most cryptocurrencies experienced massive wipeouts, with Bitcoin alone — once touted by some crypto-enthusiasts as a "store of value — falling over 60% in a year, per CNN. Lastly, several major exchanges and investment firms, including Sam Bankman-Fried's FTX exchange, collapsed resulting in the loss of massive amounts of stored consumer wealth.

So after a year of misery, who was behind the crypto hacks, who was affected, and what can you do to protect your digital assets going forward?

2022 crypto hackers' big year

Chainalysis identified $3.8 billion in cryptocurrency hacks last year, which is 15% up on 2021 ($3.3 billion) and dramatically up on the $0.5 billion stolen in 2020. The past few years have seen a massive escalation in exposure to crypto among the general public, and so their increased online holdings have become larger (and easier) targets. Here’s the year-over-year hacking breakdown since crypto burst into the larger public eye in 2016. 

Each of the surges in hacking roughly corresponds to surges in public interest and investment in cryptocurrencies, as represented in this historical Bitcoin price chart from CoinDesk. As public interest and prices spiked to new levels in 2018 and 2021/2022, a rise in hacking followed soon after.

Chainalysis identified “Decentralized finance (De-Fi) protocols” — critical codes supporting the operation of major crypto exchanges and businesses — as the biggest targets of hackers, both in 2023 and 2022. De-Fi protocols accounted for 82% of all hacking last year, up from 73% the year before. 

For the uninitiated, decentralized finance and the associated protocols are intended to replace traditional financial institutions with software that allows users to transact directly with each other via the blockchain, the digital ledger that underpins cryptocurrencies. As the report shows, smart-contract hacks via these De-Fi protocols are a major investor risk, short only to losing your money through price speculation. Once a smart contract is hacked, it’s generally impossible to recover funds. 

NK hackers led the globe... again

North Korea (NK) stands alone in its dedication to crypto hacking. Chainalysis estimates that NK government-linked cybercrime outfits like the Lazarus Group stole $1.7 billion in 2022, nearly half the global yearly total. A new United Nations cyberattack report reaches the same conclusion that NK stole more cryptocurrency in 2022 than any other previous year, though their estimate of the total value of stolen funds differs.

The Conversation reports that NK uses stolen crypto to fund its sanctioned nuclear program, so its dedication to hacking isn’t likely to abate anytime soon. Chainalysis broke down the trend year by year, showing a huge increase in hacking activity in 2022 over any previous year. 

Biggest crypto hacks of 2022

NordVPN ranked the largest crypto hacks of the past year, headlined by a few major names in the crypto industry. Were your crypto accounts among those affected?

• Ronin bridge hack — $600M+
  Ronin is an Ethereum network built to handle crypto transactions for “Axie Infinity”, an online game based around winning NFTs (non-fungible tokens). The game’s developers said hackers gained access to internal “validator” systems and stole over $600 million in user funds. The U.S. Treasury Department acknowledged the likelihood that North Korea’s Lazarus Group was behind the bridge’s exploit. The Ronin bridge hack is the largest cryptocurrency hack to date.
• FTX wallet hack - $477M
  During the implosion of the FTX cryptocurrency exchange, an unknown perpetrator performed a series of unauthorized transactions and stole $477 million worth of users’ crypto funds. Indicted FTX founder Sam Bankman-Fried said he believed it was “either an ex-employee or somewhere someone installed malware on an ex-employee’s computer.”
• Wormhole bridge exploit - $320M+
  Wormhole allows users to send and receive crypto between multiple blockchains. An attacker found a vulnerability in the protocol’s smart contract and stole 120,000 tokens worth $321 million.

How to protect your crypto assets

After another year of crypto investors losing their shirts to hackers, if you are determined to stay in the game (although it doesn't seem that much fun) you could consider our list of tips to safeguard your digital currency.

• Don't keep your crypto on an exchange unless you plan to actively trade it. The only thing standing between a hacker and your funds is your basic password. Major and minor online crypto exchanges like FTX seem to be major targets for hacks and malfeasance, with little in the way of consistent regulation or security.
• Keep your crypto in your own physical “cold wallet” offline. Cold wallets (specifically hardware wallets) are physical devices that store your crypto offline and can only be connected to the blockchain using your private key. For no more than $150, hardware wallets that look similar to USB drives such as Ledger and Trezor can store multiple cryptocurrencies and significantly reduce your risk of getting hacked. Always have two-factor authentication (2FA) on all wallets and exchanges that allow it. Never give out your private key.
• Carefully guard your “seed phrase,” a series of words that give a user access to all currency and data held in a crypto wallet, including funds and private keys. Beginners often are scammed by entering their seed phrase into a site they think is legitimate or secure, but is actually a duplicate phishing landing page.
• When making a crypto transaction, double-check that you’re sending it to the right wallet. A wallet address is a mixed string of letters and numbers generally ranging from 20 to 42 characters, depending on the cryptocurrency. When sending money from an exchange to your personal wallet or vice versa, always use the "Copy Address" feature or copy and paste the address into the "Recipient" field. The same applies when sending payment to a friend or family member. Do not try to type in each character one at a time, as this leaves a significant margin for error. Once you're ready to send your cryptocurrency, check the address one more time. Then check it again.
• Use a Virtual Private Network (VPN) to shield your payment data when making crypto transactions.

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A wave of bankruptcies in the cryptocurrency industry have raised concerns about the future of digital assets in general, and whether the industry will make it through this market crash. 

First, consider the breadth of the carnage: The list of bankruptcies in the cryptocurrency market related to liquidity problems has grown substantially this year. To date, Three Arrows Capital, Alameda Research, Voyager Digital, FTX, Genesis BlockFi and Celsius Network have paused customer withdrawals or filed for bankruptcy after being unable to continue operations.

FTX, once among the world’s largest crypto exchanges, collapsed after a shortfall of assets in its balance sheet. Rumors that the exchange might have been insufficiently liquid led to customers pulling out $650 million in assets on November 7. This led to the revelation that FTX was tapping into customer accounts to fund risky bets by affiliated trading firm Alameda Research. The exchange held just $900 million in easily sellable assets against $9 billion in liabilities the day before it collapsed. FTX was a leader in crypto markets and its collapse came as a major surprise that has dented the confidence in digital assets.

Holders of crypto have taken huge losses: More than $2 trillion in market cap have disappeared – the toll when you add up the decline in the value of bitcoin, ether and all the other digital currencies since they were at or near their peaks last year.

Most of the recent problems are concentrated around crypto lenders – a corner of the crypto market that boomed over the last couple of years. Just like customers at traditional banks earn interest rates on their savings, crypto users that deposit their digital assets at a crypto lender or digital exchange also earn money. While savings accounts at banks offered meager returns over the past couple of years because of historically low-interest rates, some crypto lenders and exchanges offered much higher returns … often in the double digits, and sometimes as high as 20%.

The realities of unsustainable returns offered by some crypto exchanges and lenders have come to the forefront. Like banks, these crypto firms generate profits from deposits by lending.

Borrowers pay a percentage in fees for the loan, and crypto lenders make a profit on the spread between the interest payments paid to depositors and fees paid by borrowers. Unlike traditional regulated lenders, however, crypto companies aren’t overseen by banking regulators – so there are few rules on the capital they must hold and few restrictions about what they can do with their customers’ digital assets.

The collapse of these crypto lenders so far has also shown how interconnected many of these firms are. FTX lent billions of dollars to affiliated trading arm Alameda Research, money that was used to fund risky bets. BlockFi, a crypto lender, had among its list of borrowers Alameda Research and Three Arrows Capital.

More crypto company failures seem likely. Also, as customers worry about the safety of their digital currency deposits and demand their money back, it may be revealed that other exchanges besides FTX were engaged in sketchy trading using depositors’ funds.

Who is most exposed to the crypto fallout?

Banks appear relatively safe, fortunately. Combined, they hold about $9 billion in crypto. Regulators have been warning them for years now to be careful about investing in the asset class, and it appears that banks listened. A surprising number of retail investors own crypto and face some losses. But that exposure, while widespread, looks fairly shallow. About 10% of households in both the U.S. and Europe own some cryptocurrency. In the U.S., the average holding is worth $1,000. Most European investors own less than $5,000.

The real bag holders are venture capital firms, which have wagered heavily on the crypto industry. Of the roughly 10,000 companies tied to the crypto business, only a couple of hundred of them are publicly traded. Most of the rest have been bankrolled by venture capitalists, who now face sizable (and in some cases near-total) losses.

So, is this the end for a once-booming industry?

Not quite. Some of the major currencies, like bitcoin and ether, look likely to endure. Bitcoin, for example, is down 75% from its November 2021 peak but is still four times higher than it was in December 2018. Ether, the number-two token, is up more than 1,000% over the same period. But a major downsizing is clearly underway. Many tokens won’t survive. Many exchanges and crypto lenders won’t either, as their customers opt to keep their crypto in “digital wallets,” which usually don’t allow holders to earn a return on their crypto, but ensure their assets stay safe. The exchanges that survive will have to work hard to convince users that they aren’t the next FTX waiting to crash — by certifying that customer funds are secure and liquid.

Eventually, more regulation by Washington to end the freewheeling nature of the crypto business seems inevitable. To survive, the industry needs this shakeout, to purge the currencies and companies that are pure hype and to consolidate around the few with potential.

Proving their practical value and utility will be a lot harder now ... no more easy riches.

There is so much to cover on the topic of how cryptocurrency and NFTs, or non-fungible tokens, will affect the next generation of investors that I’m going to devote two articles to it. The second article, How Parents Can Explain to Kids How NFTs Work, published in January. This first article focuses on kids and cryptocurrency, specifically how parents can teach and introduce their offspring to the new world of digital assets … their future.

Before I get into if or when you should start to introduce kids and grandkids to crypto and other digital products, I’ll give you some background.

The New World

Your world is only a click away. Your phone and computer connect you to others and to the world in a way that is now the new normal. We stay in touch with friends; we run our businesses; we network with companies; we play games; we watch goofy videos and share them; we buy and sell every product and service imaginable; we pay bills and transfer money; and we buy and sell art and collectibles.

Smartphones are part of our life. In the U.S., there are 294.2 million smartphone users (the number is 6.6 billion globally). 85% of American adults use smartphones. And what is interesting is that 47% of U.S. users say they couldn’t live without their devices.

Our Next Generation

NPR reports that over half of the children in our country own a smartphone by the age of 11. This does not include smartphone use by children whose parents hand over their devices. Younger kids are playing video games, and older teens are not only gaming, but are also knee-deep in social media, texting, clicking on YouTube, TikTok and other sites. In fact, EdSource.org reported that children 8 years old and younger spend at least 48 minutes per day on a mobile device.

The numbers show us that the digital world is part of the world. Games and social media are one thing to understand, but I think many of the older generations are flummoxed by the thought of digital money and digital art. I recommend that parents try to understand this new world and educate your kids, rather than hide your head in the sand.

Let’s begin with the basics of the evolution of money as a medium of exchange.

Why Money Was Invented

Once upon a time about 10,000 years ago, people lived where they could easily move from place to place to find food. When one group of people met another group, they would sometimes see new things they wanted, which led to bartering among the groups to exchange goods and services.

Bartering quickly got complicated because it became too hard to figure out the value of things. You can only tell the value or worth of something by knowing what people are willing to give you in exchange for what you have or the service you can perform. So people began to use a medium of exchange, or a common measure of value. For instance, if shells were used as a common medium of exchange, the value of everything was measured in shells.

People soon found out that they needed to control the supply of the mediums of exchange to make everything work. Precious metals, like gold and silver, were hard to find and could be controlled by rulers or countries, so these became good mediums of exchange. The value could be stamped on these first coins to let everyone know their value.

Before You Morph into the Digital World

The new digital world is important, but I feel strongly that you need to start your child’s financial education with physical money. Pay little kids in coins and bills when they complete their allowance chores or when you give them money. Then go to the bank and open joint savings and checking accounts with them.

When you get home, show them how their accounts are now online. Their money becomes digital, but they saw that it was real before it became digital. They need to start to understand the difference between “video game money” and real money.

The next step is help kids to learn how they can spend their money with a debit card, which is digital money. This is a great way to put “training wheels” on their first financial vehicle.

The educational process has to continue. I spoke to Johnson Cook, co-founder and president of Greenlight, a family fintech company. (I’m an adviser to Greenlight.) Cook told me, “We recommend that parents start young and actively engage with their kids about money. First, kids should learn the basics of money management — how to earn and save — and then advance to investing from there. It’s important for kids to learn financial responsibility by using real financial tools. Our debit card and banking app are a great way to start a lifetime of money lessons.”

Fast-Forward into the Digital World

Now for the fun part. Remind your kids that a medium of exchange is anything that people agree to use to buy and sell goods or services. Also, explain to them that now when you use a debit card, credit card or PayPal, you are using digital cash. You are not paying for everything you buy with a pile of bills and coins. A few years ago, digital money called cryptocurrency also became a medium of exchange, a new currency for people to buy and sell things only in the digital world.

When people first experimented to see which mediums of exchange would work the best, some of the things they tried were feathers, pinecones, dog teeth, the bristles from wild boars, shells, axes and, my favorite, dead rats! You can imagine that most of these didn’t get the job done.

Similarly, there are lots of different cryptocurrencies. One big difference between the ancient money and crypto today is that the crypto and blockchain worlds aren’t controlled by anyone. In the olden times, as in today, the rulers or governments controlled money. With crypto, everyone can see all of the “money” that is created and bought and sold on a public ledger that people call the blockchain.

Another big difference between cryptocurrency and conventional currency is that the value for the purchase or sale of something goes directly to the person's digital wallet, rather than filtering through the banking system, like it does with credit and debit card purchases.

Also, remember how people long ago had to decide the value of something based on what other people were willing to give them in exchange for their goods or services in the marketplace? Cryptocurrencies work the same way — their value will go up and down based upon different economic and market perceptions, plus supply and demand.

Just like you have a wallet for your bills, coins and cards, with cryptocurrency, you have a digital wallet that requires you to have your own secret password, or private key. You use that digital wallet each time you buy or sell something using cryptocurrency.

Should You Buy Cryptocurrency?

I don’t give investing advice. Cryptocurrency values can fluctuate, just like any asset or currency. For instance, Bitcoin, the most famous cryptocurrency, was introduced about 10 years ago. Its value at release was a fraction of a dollar. By 2011, it reached parity with the dollar, meaning one bitcoin was worth a little more than $1. In November 2021, it soared to an all-time trading high of more than $68,000 per Bitcoin. Today, the price is less than $20,000.

These wild swings create risk. But, if you are young and have time on your side, a small part of your investment portfolio could certainly contain cryptocurrency. My big word of warning is not to become a day trader in crypto or, frankly, in any investment asset. Day traders follow the market and try to outguess the swings. The problem is that it is really hard to time the market and get in front of the swings. The majority of day traders lose money.

Kids and Cryptocurrency

Your financial literacy lessons for your kids should include crypto lessons. Start with the history, letting kids research and explain it back to you. Technically, kids can own cryptocurrency; there is no legal age restriction. However, in practice, some of the cryptocurrency exchanges have a minimum age of 18 to buy it.

Challenge kids to answer such questions as:

• What is crypto?
• How can it be used?
• How do you buy it?
• What is a blockchain?
• What is your digital wallet, and how does it work?

You can think of more questions.

Victor Wang, CEO of Stockpile, told me, “You should think about getting your kids involved in crypto investing, which is why we are offering it as an investment alternative on our platform.” He quipped, “A famous marathoner once said that ‘the hardest part of any run is the trip from the bed to the floor.’ One reason we are offering crypto to kids and parents is that they want it. 55% of kids in a recent survey have an active interest in crypto investing. Financial literacy is one thing; financial experience is quite another.”

The exciting part is that you and your child can put a toe in the water to learn and earn together.

And you may want to keep this Ralph Waldo Emerson quote in mind: “Don’t be too timid and squeamish about your actions. All life is an experiment. The more experiments you make the better.”

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.