It’s no secret that cryptocurrencies are an extremely popular asset class. They’re also a cultural phenomenon that has changed the way many retail investors save and plan for the future. In the past, big Wall Street firms haven’t paid much mind to cryptocurrencies. The new asset class has been dismissed as a fad, and firms have been wary about investing due to risk and volatility. However, these firms are beginning to change their tune.
Over the past few years, some of the largest and most powerful financial institutions in the country have been working tirelessly to recruit cryptocurrency experts. Firms are becoming bullish on the future of cryptocurrencies, and it’s a good idea to consider if cryptocurrencies have a place in your portfolio. A financial advisor may be able to help you make sense of your investment options as well.
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What Are Cryptocurrencies?
Simply put, cryptocurrencies are digital or virtual currencies that don’t have a physical form. Instead of being backed by governments like fiat currencies, cryptocurrencies typically exist on decentralized networks using blockchain technology. They’re secured by cryptography, which is how one’s cryptocurrency attempts to ensure that no one can hack the networks, replicate currencies or steal from others.
Cryptocurrencies are a polarizing topic. Many laud how secure they are and how they often appreciate more quickly than traditional asset classes. Another main draw of cryptocurrencies is the fact that they aren’t controlled by governments or centralized organizations.
However, not everyone sees cryptocurrencies the same way. Critics of cryptocurrencies see the decentralized aspect as a way for certain players in the market to unfairly manipulate the markets as they see fit. Many also worry that the extreme volatility of many cryptocurrencies make it too risky of an investment.
How Are Banks Entering the Crypto Markets?
As cryptocurrencies have become more of a mainstream investment option, big banks have begun to realize that they’re missing out on an entire sector of the new economy. Nearly all of the biggest banks now have at least a handful of cryptocurrency-focused employees on the payroll. JPMorgan Chase, Wells Fargo and Goldman Sachs are among the banks that are doing the most hiring.
According to Revelio Labs, big banks have added over 1,000 new cryptocurrency-related roles since 2018. For each of the past three years, there has been about a 250% increase in cryptocurrency-expert roles across all Wall Street companies. Most of these employees are coming from the financial services or banking industries.
Why Are Big Banks Diving Into Crypto?
When big banks decide to invest in an industry, it’s because they see an opportunity to earn serious gains. With cryptocurrencies dominating a whole sector of the economy, there’s lots of money to be made by big Wall Street firms.
The potential gains to be earned by investing in cryptocurrencies is certainly driving much of the job growth in the cryptocurrency sector. Cryptocurrencies like Bitcoin, Ethereum and Cardano have proved to be quite stable over the long term. It’s clear that big institutions aren’t going to shy away from the potential gains, despite the volatility risk.
Another reason why big firms are inviting in cryptocurrency experts is the fact that there’s a lot of money to be made in helping people trade cryptocurrencies. Platforms like Coinbase and Gemini are designed specifically around crypto, while platforms like Robinhood let users trade crypto along with other assets. Big banks like JP Morgan don’t yet incorporate cryptocurrency trading beyond crypto ETFs (based on cryptocurrency futures), but with the money to be made from allowing clients to do so, it’s easy to understand why bigger firms want to get a better understanding of how they can make crypto trading a part of their business models.
Should You Be Investing in Crypto?
As is the case with investing in any asset class, whether it makes sense is ultimately up to you. Before deciding to investing in cryptocurrency, it’s important to decide what your tolerance for risk is, as well as your time horizon and any other relevant details about your financial situation.
Crypto is a riskier investment than traditional investments like stocks, exchange-traded funds (ETFs), bonds or even real estate. This is largely due to the volatility of many cryptocurrencies, but the decentralized nature of cryptocurrency networks should also factor into your risk tolerance decision. Cryptocurrencies aren’t FDIC insured, aren’t backed by a government entity and don’t have any intrinsic value like a house or a gold bar.
At this point, many people are making cryptocurrency investments a part of their portfolio. You don’t need to dive in headfirst and pour all your assets into cryptocurrencies if you decide to invest. If you decide that cryptocurrency investments are right for you, consider making smaller investments as you learn the lay of the land.
Bottom Line
Big banks and Wall Street firms are taking a deep dive into the world of cryptocurrency. With quick job growth and thousands of new employees over the past few years, it seems that even the biggest names in finance believe that crypto is more than just a passing fad. While this doesn’t mean you have to invest, it’s a good time to take a look at your portfolio and consider if cryptocurrency investments are right for you. You don’t need to sink all your cash into crypto investments, but it may be a good idea dip your toes into the cryptocurrency market, depending on your risk tolerance and time horizon.
Tips for Investing
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Investing for your future can be a complex process. With so many investment options out there, including cryptocurrencies, it can be useful to have a professional in your corner helping you out. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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If you’re investing on your own, you should be prepared for what the investment markets can throw at you. SmartAsset is here to help you on your investment journey, with a number of free online resources. For example, check out our free investment calculator today.
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