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Bitcoin ETFs: A Guide for Investors

Bitcoin ETFs are officially available on US listed exchanges. This is a significant development in crypto trading. These ETFs providing greater access to the volatile yet potentially rewarding world of cryptocurrencies, particularly Bitcoin.

As with any investment, careful consideration is crucial. Cryptocurrency is still is a tricky asset class for many investors when it comes to deciding if, when, and how much to invest.

Let’s break down some key factors to keep in mind when deciding how much crypto exposure may be right for your investment portfolio.

1. Understanding Risk Tolerance

Cryptocurrency trading has been synonymous with high volatility. Prices can swing dramatically in short periods, making risk tolerance a crucial factor. The past few years have seen high volatility in the price of a single Bitcoin.

The 11 approved Bitcoin ETFs began trading on January 11, 2024. As a group, they’ve already experienced price volatility, losing an average of just over 10% from their launch price. If large fluctuations are too risky for your taste, you may want to allocate a smaller portion of your portfolio to crypto assets.

2. Defining Investment Goals

Clarify your investment goals and the role you envision for crypto assets in your portfolio. Like all investments, consider what you are attempting to accomplish. Are you aiming for long-term capital appreciation, diversification, or seeking a potential hedge against inflation?

A clear understanding of your objectives will help in determining the appropriate allocation to cryptocurrencies in your portfolio.

3. Embracing Portfolio Diversification

An important factor to not overlook when making investment decisions is diversification. We also refer to this as asset allocation. Investing across various asset classes can help reduce risk and potentially boost returns.

Exampleofportfolioassetallocation

By adding a small allocation of cryptocurrencies in your portfolio, you’ll gain exposure to a new and fast-growing asset class. Expect to see more investors adopt crypto as part of their asset allocation over the next few years.

4. Seeking Professional Guidance

Unsure about the right amount of crypto exposure for your unique situation? Consider discussing your investment strategy with a financial professional.

This guidance should provide a recommendation tailored to your specific circumstances, risk tolerance, and larger financial planning objectives.

If you are considering working with a financial advisor for the first time, or feel underserved and looking for a new advisor, use this as a “know before you go” resource.

Best Approach: Navigate with Caution

Crypto assets have garnered a lot of attention and excitement over the past few years. More investment platforms have made investing easier for retail investors. While this availability expands access for investors, it’s essential to approach this opportunity with caution.

Cryptocurrency investments inherently carry risks, and the value of your holdings can fluctuate more than if invested in other asset classes. By considering the key factors listed above, you can confidently navigate the evolving landscape of crypto assets.

Disclosures

Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.  

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Author: Dale Shafer II, CFP®, APMA®, CDFA®

The National Association of Personal Financial Advisors
The Society of Advice

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