With President-elect Donald Trump promising to support cryptocurrencies, the value of bitcoin reached new heights this week, continuing its post-election boom. Wealth advisors and personal finance specialists report that more people are looking at the market from a different angle, but they still suggest dipping a toe in rather than diving in headlong.
Samuel Deane, president and CEO of the financial advising firm Deane Wealth Management, stated that his opinion on the advantages and disadvantages of bitcoin hasn’t altered much, if at all. I’ve seen enough politics to know that even while the current administration is in favor of cryptocurrency, things might change at any time.
After breaking the six-figure mark for the first time on Wednesday, the price of bitcoin surged above $100,000 late last week as speculators placed bets that the incoming administration will change the regulations for a sector that regulators have been watching closely.
Trump, who quickly claimed responsibility for the bitcoin milestone, appointed Paul Atkins, a proponent of cryptocurrency, to head the Securities and Exchange Commission and selected billionaire investor David Sacks as White House crypto commissioner. “Atkins understands that digital assets and other innovations are essential to Making America Greater than Ever Before,” the president-elect posted on his social media app.
However, Deane stated that the same principles still apply to regular investors. Although he has been a longtime bitcoin investor, he stated that after we set up the right safeguards, clients who have included cryptocurrency in their portfolios are doing so independently.
He suggested first learning the fundamentals of bitcoin as a decentralized digital money, which involves assessing its volatility. Two years ago at this time, the token was only worth $17,000, but in January, it was trading at about $43,000 and hovered around $70,000 days before the election. According to Deane, investors must determine whether they can withstand such significant fluctuations.
According to Lee Baker, founder and president of Claris Financial Advisors, this is something that has been happening for a very long time in relation to the cryptoverse. After these brief surges, there are abrupt and severe declines. You need to warn clients and other investors that you must use extreme caution and only do this in limited doses.
Since bitcoin’s rise after Trump’s victory, Baker said his firm has had numerous inquiries from clients who want to learn more about it. However, he has also noticed a recent increase in interest in other coins, including 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 can help reduce direct risk. Although these alternatives are new, there are already many well-liked 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 was re-elected, some of those financial items have taken off.
Nevertheless, this week, Federal Reserve Chairman Jerome Powell expressed skepticism about bitcoin, stating that it is still mostly regarded as a speculative asset.
It isn’t being used as a store of value or as a means of payment. He stated it’s really volatile. He stated at a DealBook conference on Wednesday that, in contrast to what proponents have long maintained, it is a rival for gold rather than the dollar.
Amid the recent euphoria, Deane also issued a warning: Not all successful investments should be included in 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 appointed Gensler, who has adopted a tough stance on cryptocurrencies, which the FBI claims have cost consumers billions of dollars in scams and cybercrimes just in the past year. In a contentious attempt to exert greater control over the industry, the commission attempted—and failed—to stop bitcoin ETFs from entering the market and courted significant cryptocurrency exchanges in recent years.
Isaac Boltansky, a director of policy research at the financial firm BTIG, stated that Gensler’s resignation was a good thing for the crypto business in and of itself. He foresaw a radical ideological shift at the commission and across the administration.
According to Boltansky, Atkins is anticipated to adopt a similarly assertive posture, albeit in the opposite direction, if the Senate confirms him to a five-year term as Gensler’s successor. Two current commissioners, Hester Peirce and Mark Uyeda, 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, jurisdictional disputes would still arise because the agency and the Commodity Futures Trading Commission have occasionally stepped on each other’s toes when it comes to crypto regulation. He claimed that there are too many cooks in the kitchen and that they are unable to agree on what they are 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 regulators. Whether they can be regarded as stocks will depend on the response. The next Congress, which will be narrowly Republican-led, will, according to Boltansky, at least likely provide more clarification on stablecoins, a kind of cryptocurrency 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 interim. Avoid being placed in a less solid financial situation or losing out on some of your other desired longer-term investments because you invested too much, he advised.
“I would 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, rather than placing bets on what the government may or may not do,” he added. They will frequently feel considerably more empowered and have a higher chance of success as a result.
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