Within the last decade, cryptocurrency or “crypto” has become an increasingly popular form of investment. It’s a type of digital currency secured through cryptography and computer networks. Crypto has especially become prevalent among Gen Z and Millennials, with 94% of crypto buyers being 18-40 years old.

Here are some things you should know about investing in cryptocurrency.

What is Cryptocurrency?

Cryptocurrency, also referred to as “crypto,” is an alternative payment method or an investment that uses encryption technology to verify all transactions. This payment system doesn’t rely on banks to verify transactions. Instead, these payments exist purely as digital entries to an online, public database, which aims provide security and safety for investors and customers.

Why Do People Invest in Cryptocurrency?

Ultimately, people invest in cryptocurrency for the same reason they invest in stocks and bonds —to make a profit. Others view crypto as a safe investment primarily because everyone can view money transfer transactions with the blockchain system, which is a data structure that continually updates the growing list of records called ‘blocks’.

However, like any investment, cryptocurrency can also lead to loss. In fact, it was reported that investors lost well over $114 billion in cryptocurrencies in 2022 thanks, in part, to the FTX crash. FTX was the largest digital currency exchange platforms for buying and selling cryptocurrencies. In November 2022, it blocked customers from withdrawing their funds, before it eventually imploded due to funds mismanagement and liquidity problems.

What Are the Main Types of Cryptocurrency?

While there are many different types of cryptocurrencies, a few are considered more valuable due to their scalability, privacy and the scope of functionality they support. There isn’t one “best” cryptocurrency because each has different features built-in based on why it was designed.

Here’s an overview of some of the most popular digital coins and how each are used.

• Bitcoin is the first cryptocurrency that is a decentralized digital currency and not regulated by a central authority. Bitcoin gives full control to users instead of financial institutions.
• Ether is the token used to facilitate transactions on the Ethereum network. It’s a platform for sharing information across the globe.
• Stablecoins such as Tether are a class of cryptocurrencies whose values are designed to stay stable relative to real-world assets such as the dollar.
• Litecoin is an adaptation of Bitcoin intended to make payments easier. It’s a peer-to-peer internet currency that enables instant and near-zero cost payments.

These are just a few of the tens of thousands of types of crypto available. It’s important to do your research to decide which type is best for your investment.

Why is Gen Z Gravitating Toward Cryptocurrency?

To start, Gen Z is known for being the first generation to grow up completely immersed in digital technology. A staggering 82% of Gen Zers began investing before the age of 21, with 25% beginning before they turned 18. One of the main reasons behind their interest in cryptocurrency is the fear of missing out (FOMO). About 41% of Gen Zers in the US and Canada mentioned FOMO as a reason for their investment. In fact, some Gen Zers view investing in crypto as a part of their retirement strategy. According to a survey by Engine Insights, 59% of Gen Z and 46% of millennials believe cryptocurrencies will generate high returns on investment. This generation believes their young age gives them the advantage of time and the value of their cryptocurrencies will increase significantly by the time they retire.

Is Cryptocurrency a Good Investment*?

Like any investment a good rule of thumb is to only invest what you can afford to lose. In other words, don’t bet your rent money on cryptocurrency and hope for a lucrative payout. Aside from the common investment risks, here are two important things you should know about crypto:

• Lack of regulation. Because crypto is unregulated, this currency is especially ripe for fraud and theft. In fact, crypto-related fraud increased 22 percent in 2022, and more than $3.2 billion of cryptocurrency was stolen in 2021, leaving investors no recourse for getting their money back.
• No FDIC insurance. The Federal Deposit Insurance Corporation (FDIC) does not insure assets issued by non-bank entities, like crypto companies.

That said, for investors who understand how to manage risk, cryptocurrency can present great opportunities. According to one advisor, to prevent overexposure, crypto should generally be 1% to 3% of your portfolio.

The bottom line: if you want to invest in cryptocurrency, do your research first. Even though this technology was developed in 2009, there is a lot to learn, and its everyday uses are still being navigated. To learn more about ways to budget, save, and keep your money safe, visit efirstbank.com/education.

*FirstBank is not providing investment advice. Please consult a financial planner or tax advisor.

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