BY SUZANNE HAZLETT, MBA, CIMA®, CFP®
While most investors have never been directly involved with cryptocurrencies, the financial press and social media sites are full of headlines about everything crypto-related. The headlines picked up this year after Congress passed a bill to allow stablecoins, the newest type of cryptocurrency.
The Basics: What is a Cryptocurrency? As we learn in Econ 101, money has three functions: a medium of exchange, a unit of account, and a store of value. In a modern economy, money typically means currency created and managed by a central bank or other governmental authority. The banknote in your wallet is a Federal Reserve Note, and it serves as money because the US government—and, more broadly, society at large—has agreed to use it that way. That point applies regardless of whether we refer to money as cash or electronically. With cryptocurrency, there is no governmental authority of any kind. All transactions are recorded in a blockchain, a digital public ledger that is constantly updated by individual users.
When you buy, sell, or transfer any cryptocurrency to anyone else, it becomes a public online record. If you are tempted to start trading cryptocurrencies, one key dynamic to keep in mind is that this emerging asset class is largely driven by investor sentiment. That means there’s no clear fundamental way, such as valuations based on earnings, dividends, or income, to determine its true value.
The Two Best-Known Cryptocurrencies: Bitcoin and Ethereum
Bitcoin (symbol: BTC)—often recognized as the oldest and best-known cryptocurrency—was launched in 2009. Bitcoin is highly volatile. It surged during the early months of the COVID-19 pandemic, lost more than half its value by 2023, and climbed to record highs following the US presidential election in November 2024.
Another well-known cryptocurrency is Ethereum (symbol: ETH). Although it has a shorter history than Bitcoin, dating back to 2015, it is similarly volatile. In contrast to Bitcoin, Ethereum has not rebounded to its COVID-era highs.
Investor sentiment around any given cryptocurrency can be influenced by high-profile individuals who are associated with it. You can probably think of politicians, business leaders, and celebrities who have endorsed one or even several cryptocurrencies. Sometimes, all it takes is a news headline, a social media post, or even a casual comment to cause prices to swing—often dramatically.
As asset classes go, cryptocurrencies are at the highest end of the risk spectrum. The high-risk attributes of cryptocurrencies result from three aspects: 1. They cannot be valued by traditional metrics and are prone to sentiment-driven volatility; 2. They have a limited trading history as they have not been around long; and 3. There is limited regulation, which adds another layer of risk.
Suzanne Hazlett, MBA, CIMA®, CFP®, is a Certified Investment Management Analyst® and CERTIFIED FINANCIAL PLANNERTM professional. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC.. HAZLETT WEALTH MANAGEMENT, LLC is independent of Raymond James and is not a registered broker/dealer. 675 Sun Valley Road, Suite J1 + J2, Ketchum, Idaho, 83340 208.726.0605 HazlettWealthManagement.com
