The Cryptocurrency Conundrum
It’s more important than ever to be aware of your risk tolerance.
Provided by Andrew Hoskins
Recently, you may have seen a number of major cryptocurrencies fall thanks to a continuing sell-off that began last week. In fact, over $250 billion was lost in the crypto market alone.1
It may be tempting to view this as another volatile moment in the crypto markets, but there’s more at work here than a temporary trend towards selling.
Prior to this moment, over 50% of the world’s cryptocurrency was mined in China using custom-built computers with a high hashrate. Hashrate, or the rate at which calculations can be performed, is a crucial factor for those who “mine” cryptocurrency. The higher the hashrate, the more calculations that can be completed per second, and the more cryptocurrency that can be mined.2
However, these super-powered machines also require a phenomenal amount of power—enough to overload local infrastructure in some cases.3
This has led to China directing its electric companies to cut power to major crypto-mining operations across the country. The question is, why now? There may be multiple reasons, but the Chinese government has claimed that it’s acting now because of concerns around crypto’s volatile price, concerns over electricity use, and cryptocurrency’s potential use for money laundering and illegal dealings.4
With all of this in mind, it’s more important than ever to be aware of your risk tolerance if you’re thinking about exploring cryptocurrency. Cryptocurrency is not a currency at all. It’s a speculative asset class that is not appropriate for everyone. Only people with a high-risk tolerance should consider cryptocurrency assets.
Like other alternative assets, cryptocurrency can be illiquid at times, and its current values may fluctuate from the purchase price. Cryptocurrency assets can be significantly affected by a variety of forces, including government decisions, economic conditions, and simple supply and demand.
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Andrew Hoskins may be reached at 703-997-9605 or [email protected].
www.shenandoahfa.com
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations
- CNBC.com, May 19, 2021
- Theverge.com, June 23, 2021
- Visualcapitalist.com, 2021
4. Reuters.com, May 21, 2021