Cryptocurrencies continue to gain in number and popularity. There are well over 10,000 cryptocurrencies, and that number is increasing daily. They are slowly being embraced by financial advisors and financial institutions. The problem with all this cryptocurrency activity and growth begs is: What is the legitimate expectation for crypto going forward?

Many purchasers of crypto believe they are investing into a hot new market. There’s a lot of FOMO involved. And many sales pitches are based on FOMO. 

For context, crypto is not the first new thing to ever hit the market. Many new introductions, especially technological ones, have changed the business and investing landscape. Like automobiles and airplanes, for example — and, of course, the internet.

From the standpoint of placing our money into an emerging and potentially disruptive technology, we need to consider where that fits into our portfolio.

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Matching Objectives

When we consider adding an asset to a portfolio, we look to see if the asset fits into one of three objectives.


We need cash investments. We often describe these as savings. These provide us liquidity. Their primary attribute is stability; we know — with a great deal of certainty — that they will be worth tomorrow, in gross amount, what they are worth today. 

If a cryptocurrency is a good cash investment, then it is a good store of value, with little or no volatility. There are some stable cryptocurrencies, but these aren’t the big names where people are chasing big price changes.

The single word that describes what we seek in savings is stability. The problem is that most cryptocurrencies are not good savings vehicles.


We invest for future needs. We look for a couple of things in potential investments. Their overriding characteristic is that we feel they have a degree of predictability in the long term.

We may have little confidence that we can say what they will do in the next days or weeks, but we select them because we are confident that a few years out they will be worth a good deal more than we paid for them.

We invest to grow our purchasing power. Our purchasing power grows across time to the extent that we exceed the rate of inflation during that time. 

The tools and techniques of investing, such as asset allocation and asset selection, are used to improve the predictability of our outcomes. The key word for investing is predictability

Most cryptocurrencies are not predictable — not in the sense that stock portfolios are. We don’t have the history to say that we can reasonably expect they will be of greater value in the future. 

To the extent that a cryptocurrency does continuously rise in value, it is not effective as a currency.

This is a problem of cryptocurrency’s legitimacy issue: If it serves its purpose as a currency, if it does a good job as a store of value, it will be a poor investment. If, on the other hand, crypto is a good investment, it will be a poor store of value and a failure as a medium of exchange, which is the purpose of a currency. 

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Though portfolios are primarily constructed of cash assets and investments, there is some room for speculative holdings. 

Where savings is characterized by stability and investing by predictability, a speculative bet is characterized by possibility. And there are always two sides to every coin: what can dramatically go up can also dramatically go down.

People have had success speculating with technological advancements in the past; some people accumulated a great deal of wealth with early internet investment, for example. Many others rode an internet bubble and saw their assets in free fall when the bubble burst. 

There is no underlying hard asset behind crypto investments. Crypto assets are digital assets; if they go bust, there is nothing to liquidate and sell to recoup investments. There is not a multimillion-dollar corporation with plants and buildings that can be liquidated if the operation fails. It’s worth something or it’s worthless. 

But crypto has a future, and it has a role in finance.

The Crypto Use Case

Cryptocurrencies may bring several advantages to finance. Once they — inevitably — become mainstream, there is a likelihood of reduced transaction costs. Merchants presently pay significant fees for credit processing, and crypto is viewed by many as potentially reducing those costs. 

Crypto can also facilitate cross-border transactions and reduce, and in some cases eliminate, exchange fees. 

Crypto is available in unrestricted quantities at any time. There is no need to get a certified check or to sign for a wire transfer. You can use crypto for anything at any time. The restrictions and complications of large-dollar volume transactions may well disappear.

If a cryptocurrency is either a good investment or a speculative investment, it is of less value as a currency; we wouldn’t buy disposable items with funds we expect to become worth far more in the future. Crypto can be a good currency or it can be a good investment but it can’t be both.

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Crypto’s Uncertain Future

I don’t think the future of crypto is uncertain, I think we will continue to see crypto grow into its own and grow in acceptance and become a part of the worldwide financial ecosystem. I don’t think that many doubt that anymore.

I do think crypto faces a legitimacy problem. In order to be all it can be as a currency, crypto needs to be a poor investment and have no speculative value. Its future as a widely used medium of exchange necessitates that it become a boring and stodgy investment that fails as a grower of future value.

Then it can be a good store of value, a good medium of exchange. Cryptos that are good currencies may come from existing coins or may come from coins not yet introduced.

The problem is that cryptocurrency’s speculative value is based on others seeking that speculative value. Its sole source of value is its scarcity.

If a crypto, or a handful of cryptos, become widely accepted mediums of exchange, and stable holders of value, what will become of those cryptos whose sole source of value is scarcity? I can’t say for certain, but I wouldn’t want to own any when that day comes. 

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