βTo the extent it is used I fear itβs often for illicit finance. Itβs an extremely inefficient way of conducting transactions, and the amount of energy thatβs consumed in processing those transactions is staggering,β the former Fed chairwoman said. Yellenβs comments have been cited as a reason for bitcoinβs recent losses. However, Yellenβs assessment of bitcoin as a inefficient medium of exchange is an important point and one that has already been raised in the past by bitcoin bulls. Using a volatile asset in exchange for goods and services makes little sense if the asset can tumble 10% in a day, or surge 80% over the course of a two months as bitcoin has done in 2021, critics argue. To put a finer point on it, over the past 12 months bitcoin has registered 8 corrections, defined as a decline from a recent peak of at least 10% but not more than 20%, and two bear markets, which are defined as falls of 20% or more, according to Dow Jones Market Data.
Should You Buy Bitcoin?
In general, many financial experts support their clientsβ desire to buy cryptocurrency, but they donβt recommend it unless clients express interest. βThe biggest concern for us is if someone wants to invest in crypto and the investment they choose doesnβt do well, and then all of a sudden they canβt send their kids to college,β says Ian Harvey, a certified financial planner (CFP) in New York City. βThen it wasnβt worth the risk.β The speculative nature of cryptocurrency leads some planners to recommend it for clientsβ βsideβ investments. βSome call it a Vegas account,β says Scott Hammel, a CFP in Dallas. βLetβs keep this away from our real long-term perspective, make sure it doesnβt become too large a portion of your portfolio.β In a very real sense, Bitcoin is like a single stock, and advisors wouldnβt recommend putting a sizable part of your portfolio into any one company. At most, planners suggest putting no more than 1% to 10% into Bitcoin if youβre passionate about it. βIf it was one stock, you would never allocate any significant portion of your portfolio to it,β Hammel says.
