Cryptocurrencies have crashed in recent weeks, with prices on Bitcoin and Ethereum – the two most widely used cryptos – plummeting.
Bitcoin has lost around 50% of its value in the past two months and Ethereum has been doing worse lately, falling from $4,800 in November 2021 to $985 in June 2022.
Simultaneously, a new study shows that American parents continue to pour cryptocurrency assets into household savings accounts.
According Smart, 87% of parents have invested in crypto to pay for kids’ college expenses, while 41% have $10,000 or more in crypto investments in their college funds.
There is more . . .
-80% say they have made money from these accounts, despite recent outages.
– More than 50% believe that these funds will cover at least half of their children’s school fees.
– 68% of respondents say they think it will be a more reliable long-term investment.
– 59% say they think they can make more money with crypto than with traditional investments.
– 34% say they feel pressure not to miss a potential opportunity.
With cryptocurrency prices plummeting in 2022, isn’t relying on cryptos for what amounts to a long-term investment account a risky proposition?
“If you’re thinking of investing in crypto, you need to have a strong stomach,” said Ksenia Yudina, founder of UNest, a mobile app-based investment services company in Los Angeles, California. “It is very volatile compared to other asset classes. If you look back, in 2014 it dropped 89% and in 2017 it dropped 83% from its all-time high.
Yudina thinks this bearish cycle is temporary.
“If you have a time horizon of five years or more, crypto can be a great way to diversify a portfolio and help fund your child’s college education,” she said. “Over the past decade it has been one of the best performing asset classes, which is not necessarily indicative of future returns, but it has the potential to be a transformative wealth creation tool. .”
Not for the short term
Even cryptocurrency investment pros say bitcoin-happy parents need to be careful with their college funds.
“For those with shorter investment horizons or who will need to rely on their funds within a specified time frame, such as for a college fund or to make mortgage payments, Bitcoin and other cryptocurrencies probably shouldn’t only be considered for a modest portion of a diversified portfolio,” he said. Jake Weiner, co-founder and CEO of Uncommon.com, an actively managed cryptocurrency hedge fund based in Beverly Hills, California. “Crypto is still an immature and highly volatile asset class, and as such, although it can increase significantly in value, it cannot be relied upon in the short term to maintain some value by the time you you will need it.”
For parents with discretionary income and long-term investment horizons, cryptocurrencies can be an attractive asset class to consider as part of a diversified portfolio, according to investment experts.
“The reason that an increasing number of people, including parents, have invested in crypto is mainly because they have seen the long-term price appreciations of many of the major cryptocurrencies and are hopeful. for the future,” Weiner said. “Bitcoin is the best performing asset of the past decade and still has the potential for dramatically outsized returns in the future.”
“However, while I am cautiously optimistic about the potential of bitcoin and other cryptocurrencies, there is no guaranteed return,” he added. “Nothing, especially in crypto, is certain.”
Fundamentals Cabinet?
Despite the asset’s recent drop in value, the underlying fundamentals of crypto remain, according to investment professionals.
Michael Chauliac, chairman of StableHouse, an Ireland-based cryptocurrency platform, offers three reasons why parents know what they’re doing by wrapping their college funds with crypto.
– Increase in adoption. “We are seeing growing adoption by traditional financial institutional investors, traders and even countries,” Chauliac said.
– Regulatory guidance: As with any emerging and growing industry, regulation is the genesis for mainstream adoption. “Once the regulatory framework and foundations are in place, adoption could accelerate further,” Chauliac said.
– Use case: Beyond their value as an investment, cryptocurrencies provide access to many financial services and other applications that are not generally available to many investors. “As its use cases grow, so will its adoption,” he added.
Still, Chauliac urges caution for parents who may have a tendency to go overboard with crypto-heavy college savings strategies,
“Recent market conditions have demonstrated the importance of having the same rigorous risk management as traditional finance,” he said. “They are universal across all asset classes, especially crypto which is inherently volatile. We believe that only with proper risk management can one truly reap the rewards of crypto.
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