Is cryptocurrency a safe investment?

Is crypto safe? I'll check the latest on risks, volatility and regulation before answering.

Generally, no — cryptocurrency is not considered a safe investment in the traditional sense. It is widely classified as a high-risk, highly speculative asset.

Regulators and financial institutions consistently warn about it:

> The ESAs warn consumers that VCs (virtual currencies) are highly risky and unregulated products and are unsuitable as investment, savings or retirement planning products and that investors can “lose a large amount, or even all, of the money invested:”

> “Investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment,”

Whether it is right for you depends entirely on your risk tolerance, time horizon, and portfolio, but experts advise treating it very differently from stocks, bonds, or savings.

Why it is considered unsafe

1. Extreme volatility
Cryptocurrency prices are extremely volatile. Prices can rise or fall by 10–30% in a single day, making crypto one of the riskiest asset classes.

Volatility is often considered the biggest risk in investing in cryptocurrencies. Even Bitcoin, the world's most valuable cryptocurrency, endured 70%-80% peak-to-trough declines during the crypto crashes in 2017-2018 and 2021-2022.

For comparison:

•Cryptocurrencies have historically shown much more volatility than stocks or funds

•Bitcoin has registered an annualized volatility of between 60% and 100% in periods of greater market activity, vs. the S&P 500 which has shown volatility of between 15% and 20% under normal conditions

•JPMorgan forecasts Bitcoin with 55% annualized volatility, which is why it still doesn't include Bitcoin in its core portfolio allocation models and considers the cryptocurrency too volatile for core portfolios.

Any allocation to cryptocurrency is likely to increase a portfolio's volatility. In surveys, 53% of all crypto investors considered it a high-risk venture.

2. Lack of regulation and protection
The U.S. Securities and Exchange Commission (SEC) has warned investors to consider the volatility of Bitcoin and the Bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying Bitcoin market.

More broadly, these risks include potential market manipulation, lack of regulatory oversight, and the absence of standard custodial protections.

3. Scams, fraud, and hacks
The top threats include volatility (30%+ swings), scams ($3.1B losses), phishing (40% surge), and hacks via bridges/smart contracts ($2.5B stolen).

Regulators continue to see growth in fraud. California's DFPI added nearly 200 new crypto-related scams to its nationally recognized Crypto Scam Tracker — a 30 percent increase from the previous year.

The SEC also stressed that once money is sent via cryptocurrency, it is extremely difficult to recover due to the anonymous and irreversible nature of blockchain transactions and that "No crypto account is ever truly 'guaranteed' to be safe from the fraudsters' tricks,".

4. Counterparty and custody risk
Cryptocurrencies are often marketed as "decentralized," but they're actually dependent on layers of centralized platforms, such as exchanges, custodians, lending platforms, and stablecoin issuers. If those platforms fail, you could be locked out of your crypto holdings -- even if the underlying tokens continue trading normally on other exchanges.

That's what happened to investors who put their tokens in FTX, BlockFi, and Celsius Network. These platforms all collapsed because they diverted their customers' funds into other risky investments that ultimately failed.

Can you make it safer if you choose to invest?

Regulators and advisors do not recommend putting essential savings or retirement funds into crypto. If you do decide to get exposure, common risk-reduction strategies include:

•Only invest what you can afford to lose completely

•Keep allocation small - e.g., 1-5% of a diversified portfolio, so overall volatility stays manageable

•Diversify and don't concentrate everything in a single asset class

•Use self-custody best practices: To avoid exchange bankruptcy/hack risks, investors should put their coins in hardware wallets, spread their assets across multiple platforms, and avoid high-yield staking products that sound too good to be true

•Use regulated, reputable exchanges that segregate customer assets, enable two-factor authentication, and avoid promises of "guaranteed" high returns

•Be skeptical of offers promising unusually high returns with minimal risk or referral-based payout systems, which display classic traits of a Ponzi scheme

•Understand taxes and long-term behavior - crypto has no tax-deferral for swaps and past returns and volatility are not indicative of future results

Bottom line

Compared to traditional investments like stocks and bonds, crypto presents a few more stability concerns based on factors such as price volatility, cybersecurity concerns and a general lack of regulations.

It can offer high potential returns, but with the trade-off that it suffers much greater losses during bear markets.

For most investors, especially those seeking safety, capital preservation, or retirement savings, cryptocurrency is not considered a safe investment. For risk-tolerant investors with a long time horizon, a very small, diversified allocation may be appropriate as a speculative part of a portfolio — but it should never replace a diversified core of stocks, bonds, and cash.

This is not financial advice. Consider speaking with a qualified financial advisor to assess your personal risk tolerance before investing.

Citations (3)

1cointelegraph.comNot yet classified
SEC warns investors of the risks with Bitcoin futures
Backs: “The ESAs warn consumers that VCs (virtual currencies) are highly risky and unregulated products and are unsuitable as investment, savings or retirement planning products and that investors can “lose a large amount, or even all, of the money invested:”. “Investors should understand that Bitcoin, including gaining…”
attribution, article, points to no. Claim: Regulators like the ESAs and SEC warn that crypto and Bitcoin futures are highly speculative and risky, and investors can lose all their money.
2fool.comCommercial contentquality 0.84
The Biggest Risk in Crypto That Most Investors Completely Ignore
Backs: “Prices can rise or fall by 10–30% in a single day, making crypto one of the riskiest asset classes. Volatility is often considered the biggest risk in investing in cryptocurrencies. Even Bitcoin, the world's most valuable cryptocurrency, endured 70%-80% peak-to-trough declines during the crypto crashes in 2017-2018…”
evidence, article, points to no. Claim: Volatility is often considered the biggest risk in crypto; Bitcoin endured 70%-80% peak-to-trough declines in the 2017-2018 and 2021-2022 crashes.
3bit2me.comNot yet classified
Crypto vs. traditional investment: taxation and risk compared
Backs: “Even Bitcoin, the world's most valuable cryptocurrency, endured 70%-80% peak-to-trough declines during the crypto crashes in 2017-2018 and 2021-2022. For comparison:”
statistic, article, points to no. Claim: Bitcoin suffered 70-80% drawdowns in past crashes and has much higher volatility than stocks, per a comparison of crypto and traditional investment risk.