Even if you haven’t invested in cryptocurrency, chances are you haven’t been able to escape people talking about it — especially with all its recent volatility. It feels like everyone from celebrities to some of the biggest investors out there have poured money into NFTs and cryptocurrencies. Which might have left you with a bit of crypto FOMO.

So, should you be buying crypto? The answer, as always, is: It really depends. Ellevest has discussed this trend a few times over the past year, but if you’re still on the fence, here’s a breakdown of the debate, along with some key points to consider before you make the call.

In a nutshell …

We have a more detailed explainer you can consult, but just a quick refresher: Cryptocurrency is any digital currency that a) isn’t issued by a central authority (eg, a government) and b) is created using cryptography — the practice of storing and transmitting data for secure communication. It’s made, or “mined,” by computers that solve complex math problems; the “money” itself is just a bundle of data that confirms a computer did that work (imagine receipts being used like dollar bills). That data — the cryptocurrency — is recorded and stored on a blockchain, which is basically a public record, a ledger not owned by any one person or group and thus virtually impossible to hack. In essence, cryptocurrency = the money, and blockchain = the accounting system.

NFTs, or “non-fungible tokens,” are usually digital images or other forms of digital art, but they can be any one-of-a-kind digital object. They’re not cryptocurrency, but they’re purchased with it, and each sale is stored/accounted for on the blockchain, just like Bitcoin, Ethereum, dogecoin, et al. (While fans of NFTs liken them to IRL pieces of art that may appreciate in value over time, critics argue that there are lots of legal questions around what “ownership” really means in a world where these digital assets are so easily reproduced, even if the blockchain can verify that you own it.)

Why people like crypto

People are into cryptocurrency for three main reasons:

1. It’s a decentralized and virtually unregulated currency, which means its value isn’t tied to any one country’s economy and many traditional financial regulations don’t apply, at least for now. This means your crypto-wealth (so to speak) might not be as sensitive to global market movements, in theory — although more on this below. The blockchain is also forever — because it’s decentralized, there’s no risk of those records getting hacked or deleted. (That is, as long as the internet exists.)

2. Its value is known to fluctuate wildly, depending on how much is being traded and how much there is. That means you could get very rich, very quickly — or you could put a ton of money into it and see its value tank overnight.

3. Tech leaders with cult followings are bullish on it — Elon Musk, Gary Vaynerchuk, and the like. Musk, for example, invested $1.5 billion of Tesla capital in it last year, and his tweets about dogecoin once sent that currency’s value through the roof.

The easiest way to put it: People like the idea of their money being virtually unhackable, people like the idea that the big tech prophets will be proved right in the long run, and people like the idea of getting rich quickly.

The downsides of crypto

One could argue that half the reason cryptocurrency has captured so much interest the way it has is the massive amount of backlash it’s received — and not without cause. 

1. Crypto is an extremely risky gambit that requires a lot of maintenance. “Investing in crypto” is a bit of a misnomer — in reality, buying it today is more like speculating, à la the California Gold Rush or “picking a winner” at the racetrack. Rather than a long-term growth strategy, most crypto investors are doing a lot of quick trades and “pick a winner” guesswork; they’ve had to time the markets, as a day trader might with traditional assets, in order to see much profit. While this can be fun for many, these behaviors do tend to lead to over-trading, which can actually lead to underperformance overall. The majority of money managers who employ these tactics actually do worse with their money compared to the larger market.

2. We don’t know how much we don’t know. As an asset class, cryptocurrency is still really new — we simply haven’t had time to study how it might help or hurt as part of an overall investment portfolio. And while people have theorized that crypto won’t be correlated to the stock markets, and that it could help hedge against things like inflation, that’s basically the exact opposite of what happened in the most recent market drop.

3. Lack of regulation = lots of uncertainty … and scams. While decentralizing currency could make it more resilient to global market swings, today cryptocurrency instead lives and dies by public opinion. This can be good for someone who owns cryptocurrency — to go back to our earlier example, when Elon Musk tweeted about dogecoin, that was great for people who had dogecoin. But the fact that it’s confidence-based, combined with the fact that it’s not (yet) regulated like traditional currency, makes it prime hunting grounds for — well, con artists. Because there’s not a lot of oversight, big investors in crypto companies aren’t doing as much due diligence as they might with other types of investments; money laundering and fraud are significant concerns, too. (The way crypto works has been compared to the mortgage-lending practices that caused the 2008 financial crisis.)

4. It’s an environmental nightmare. Some industry players are working to address it, but right now, the crypto industry creates an estimated 22 million metric tons of carbon dioxide emissions every year and consumes more energy than Argentina. How does it do that? Remember all that math computers are doing to create crypto? It’s worth noting that that math isn’t actually accomplishing anything beyond creating the proof of work that makes up what crypto is — many critics have likened this digital “mining” to “busy work for computers.” On top of that, to ensure the money retains its value (ie, to create scarcity), that math keeps getting harder each time a unit of cryptocurrency is “mined,” which means it’s that much harder and more energy-consuming to make the next unit. That kind of work adds up fast. So not only is it environmentally terrible, but, as a supply-and-demand-driven currency, it’s vulnerable to the public’s opinion on that environmental impact. 

Crypto and the gender investing gap

Another part of the conversation that might be fueling your FOMO is the assertion that women are getting left behind. One estimate found that more than two thirds of crypto investors are men (and 60% of them white). It can be hard to read news stories about overnight millionaires and not wonder if involving more women in crypto could help address longstanding gender and racial wealth gaps.

The investing gap is definitely real — it’s why Ellevest was founded in the first place. But as we noted above, trading crypto is much more of a speculative strategy than an investment strategy. Do we want more women to have the chance to build wealth? Yes, definitely — that’s our mission. (We’d also like more women to have the chance to build the financial stability required to “safely” throw money at high-risk gambits like cryptocurrency.) The challenge is that building wealth rarely happens overnight without putting one’s future in jeopardy.

So, on that note … 

The bottom line: Approach with caution

As a fiduciary, Ellevest is legally required to act in our customers’ best financial interests — which is why we don’t try to time the markets, and why you can’t buy and trade cryptocurrencies with Ellevest. We don’t want your financial goals to be subject to the whims of speculation. Statistically speaking, you’ll be earning less and living longer, on average, than those men buying NFTs, and setting you up for long-term success is our number-one goal.

This is also why our main advice on crypto FOMO is this: Build your financial foundation first. Get your emergency fund in order, clear out your high interest–rate debt, and get on track for retirement. That foundation is your #1 priority, and if you’re working on those steps, you are doing things right. Just like with trading individual stocks, we won’t tell you not to buy crypto — you’re free to explore to your heart’s content. But next time you feel that FOMO, just imagine it’s over an upcoming friends-trip to Vegas: If you do tag along, be sure to do it with money you can afford to lose.

Disclosures