With President-elect Donald Trump promising to support cryptocurrencies, the value of bitcoin reached new heights this week, continuing its post-election boom.
Although wealth advisors and personal financial specialists report that more people are looking at the market from a different angle, they still suggest dipping a toe in rather than diving in headlong.
Samuel Deane, president and CEO of the financial advising business Deane Wealth Management, stated, “My opinion on the advantages and disadvantages of bitcoin hasn’t changed much, if at all.” “I have seen enough politics to know that even though the incoming administration is currently pro-crypto, that could change at any time.”
After breaking above the six-figure barrier for the first time on Wednesday, the price of bitcoin surged above $100,000 late last week as speculators placed bets that the next administration will change the regulations for a sector that regulators have been watching closely.
Trump, who quickly claimed responsibility for the bitcoin milestone, appointed crypto supporter Paul Atkins to head the Securities and Exchange Commission and appointed billionaire investor David Sacks as a White House “crypto czar.” Atkins “recognizes that digital assets & other innovations are crucial to Making America Greater than Ever Before,” the president-elect tweeted on his social media app.
However, Deane stated that the same principles still apply to regular investors. Although he has been an investor in bitcoin for a long time, he stated that customers who have included cryptocurrency in their portfolios are “doing it on their own after we establish the proper guardrails.”
He said, “First, learn the fundamentals of bitcoin as a decentralized digital currency, including assessing its volatility.” Two years ago at this time, the token was only worth $17,000. In January, it was trading at about $43,000, and days before the election, it was hovering around $70,000. According to Deane, investors must determine if they can withstand such significant fluctuations.
According to Lee Baker, founder and president of Claris Financial Advisors, “this is something that has been going on forever as it relates to the cryptoverse.” “You experience these brief surges, followed by some abrupt drops. “Hey, listen, you’ve got to be really careful to do this stuff in small doses,” is what you have to tell clients and other investors.
As bitcoin soared after Trump’s victory, Baker said his business had “multiple queries” from clients who wanted to learn more about it. However, he has also heard increased interest recently in other coins, such XRP, the cryptocurrency of the Ripple blockchain network. According to him, he cautions novice cryptocurrency investors against allocating more than 2% of their portfolios to bitcoin.
According to Baker, exchange-traded funds based on bitcoin are frequently an excellent place to start and may help reduce direct risk. Although these alternatives are new, there are already several well-known ones available, such the Grayscale Bitcoin Trust, which was established last year following the company’s victory in a case against the SEC that paved the way for bitcoin ETFs. Since Trump’s reelection, several of those investment products have skyrocketed.
This week, however, Federal Reserve Chairman Jerome Powell expressed skepticism about bitcoin, stating that it is still commonly regarded “as a speculative asset.”
“Neither as a store of value nor as a means of payment are people using it. “It is extremely volatile,” he stated. He stated at a DealBook conference on Wednesday that “it’s not a competitor for the dollar, it’s really a competitor for gold,” in contrast to what proponents have long maintained.
Amid the current euphoria, Deane also issued a warning: “Not every investment that does well needs to be a part of your portfolio.”
However, cryptocurrency enthusiasts are feeling upbeat. Following SEC Chairman Gary Gensler’s scheduled departure on January 20, industry leaders have attributed the rise of bitcoin to Trump, signaling a new age of less stringent regulation.
President Joe Biden selected Gensler, who has adopted a tough stance on cryptocurrencies, which the FBI claims cost consumers billions of dollars in frauds and cybercrimes last year alone.
In a contentious attempt to exert greater control over the industry, the commission attempted and failed to stop bitcoin ETFs from entering the market under his direction. In recent years, it has filed lawsuits against significant cryptocurrency exchanges.
Isaac Boltansky, a director of policy research at the financial firm BTIG, stated that Gensler’s resignation was a good for the crypto business. “The commission and the government as a whole will undergo a radical ideological shift,” he forecast.
Atkins is anticipated to adopt a similarly tough attitude — only in the opposite direction — if the Senate confirms him to a five-year term to follow Gensler, according to Boltansky. Hester Peirce and Mark Uyeda, two current commissioners who collaborated with Atkins during his previous time at the SEC under the George W. Bush administration, will support him.
Boltansky cautioned that despite the staff changes, there would be “still jurisdictional battles” in the future because the agency and the Commodity Futures Trading Commission have occasionally trodden on each other’s toes when it comes to crypto regulation. He said that there were too many chefs in the kitchen and that they couldn’t agree on what they were making.
He continued by saying that the crucial issue of whether cryptocurrencies need to be categorized as securities is currently being resolved in court and is out of the purview of federal authorities.
Whether they may be regarded as stocks will depend on the response. However, according to Boltansky, the upcoming Congress, which is narrowly Republican, is at least likely to provide greater clarification on stablecoins, which are cryptocurrencies whose value is based on that of another commodity or currency, like the dollar.
Kevin Mahoney, a qualified financial advisor and the creator of the millennial-focused company Illumint, advised potential investors to consider how and whether cryptocurrency fits into their current work on other financial goals in the meantime.
If you put in too much, you can end yourself “in a much less stable financial situation, or you’ve missed out on some of the other longer-term investments that you wanted to make,” he said.
“I’d rather have my clients focus on what we know to be true, or what historical stock market data, for example, tells us is likely to be true,” he added, rather than placing bets on what the government may or might not do. “They will frequently feel much more empowered and have a higher chance of success as a result.”
