Cryptocurrencies have become a bit of a buzzword nowadays, especially over the last few months when Bitcoin, Ethereum and other currencies hit record-breaking highs daily. Because of their spectacular growth, many people are starting to wonder whether cryptocurrencies should play a part in their personal finance – and if so, how?
The fact of the matter is that when you come right down to it the most natural part that cryptocurrencies can play in your personal finances is as a form of investment. More to the point they are an extremely risky investment.
As much as the price of some cryptocurrencies may seem to be constantly on the rise nowadays, it is just the latest in a long trend of volatility. Over the years there have been numerous occasions where Bitcoin and other cryptocurrencies have risen sharply, only to fall just as spectacularly.
In short cryptocurrencies are a high risk, high reward investment – and should be treated as such. At most you would want to invest a small percentage of your personal finances towards cryptocurrencies, but risking even more than that would be unwise.
Cryptocurrency Retirement Funds
Another new trend that has surfaced recently is to build up retirement funds using cryptocurrencies. That has attracted some interest, and it is possible to set up a Bitcoin or Ethereum IRA nowadays.
The main selling point of these accounts is the idea that cryptocurrencies represent the future – and so investing in them now for your retirement will future-proof it. However that isn’t exactly the case as regardless of whether or not cryptocurrencies do end up being the currencies of the future – for now their value is still extremely volatile.
Because of the volatility of cryptocurrencies, their role in retirement funds remains speculative at best. As much as retirement funds in cryptocurrencies may enjoy a massive increase in value, they may also suffer a massive depreciation such as is the case with the recent price correction.
Simply put the same way it is unwise to risk a considerable sum on cryptocurrency investments, putting all your eggs in one basket and relying on a particular cryptocurrency for your retirement fund would be inadvisable. However as a speculative investment for your retirement, there is no harm in saving a small amount in a cryptocurrency IRA.
Prioritize Personal Finance Goals
All said and done, the one thing that should be clear is that the role cryptocurrencies could potentially play in your personal finances depend on their current state as well as your goals. If you are in debt and focusing on paying it off it wouldn’t be a good idea to take on such a risky investment and instead would be better off looking at other options such as on this website.
On the other hand if your personal finances are relatively healthy and your debt is well-managed then it wouldn’t hurt to invest a small amount in cryptocurrencies. If so there are two approaches that you can use, and either invest in one of the big and well-established cryptocurrencies (such as Bitcoin or Ethereum), or try to pick out a newer cryptocurrency that stands to grow in value in the future.
In a nutshell by prioritizing your personal finance goals you can determine exactly what role (if any) cryptocurrencies stand to play in your personal finances. Regardless of the route you choose however, keep in mind that with any risky investments you should only invest if you are prepared to lose the entire value of the investment – as that is what could potentially end up happening.