I teach cryptocurrency at UC Berkeley. 3 things crypto investors should know

Kristen Parlor

It’s hard to escape the hype surrounding cryptocurrency, with Elon Musk saying “there is a good chance that cryptocurrency will be the future currency of the earth” to addresses like this, predicting that Bitcoin will reach $100,000 by 2023. Whether any of these things happen, Or crypto takes a turn for the worse, and that remains to be seen, but one thing is clear: There is a lot going on around cryptocurrency: cryptocurrency payment gateway Triple A estimates that as of this year, there are more than 300 million crypto users worldwide. The world and more than 18,000 companies accept crypto payments. For their part, many colleges and universities — like Stanford, MIT, Duke, and Penn — are working to keep their students up to date with this fast-moving world by adding cryptocurrency courses to their curricula.

So we asked Professor Kristin A. Parlor, Principal of Sylvain C. Coleman at UC Berkeley’s Haas School of Business — who has taught investing courses for years and recently started introducing cryptocurrencies into her curricula — what new crypto investors should know. “Over time, with the increasing importance of cryptocurrencies, the content of the FinTech MBA course has increasingly shifted to cryptography,” she says. Here are her thoughts:

  1. Don’t assume you’re investing in a safe place…
    “We are very used to investing in a safe environment,” Parlor says. Various regulatory agencies ensure that traditional stock markets are transparent, and there are specific rules governing the trading process. This regulatory system is not fully implemented for cryptocurrencies, either on the company side or on the commercial side. “Everyone involved should be aware of this,” Parlor says. In fact, as MarketWatch recently reported, although “in 2021, US regulators made several payments for new rules in crypto… Doubts remain, as the market questions whether crypto lending products are securities.” How stablecoins and decentralized finance should be regulated, and whether the SEC will approve an instant Bitcoin ETF.”

  2. … Because of that, be careful. “Investors should be very careful and make sure they do their homework carefully,” Parlor says. As MarketWatch Picks recently reported, experts differ on recommendations regarding how much, if any, your nest egg should be. Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, told us: “We recommend people set aside 1% to 5% [of a portfolio to crypto]. It’s a very high risk, so it has to be a long-term investment and people need to look at it as a small scale technology stock.” Certified financial planner Brad Ledwith said you should look at it as if you were a gambler going into a casino. The casino sets a budget for the amount they want to lose. Are you willing to lose 1-2% of your entire portfolio? If so, this could be a good allotment, but it’s all up to you to take the risks of gambling.

  3. Don’t buy hype on every crypto innovation that comes up
    Parlor says it’s important to understand how certain innovations add value. “By this I mean that innovation for the sake of innovation is not a product.” Many of the business models are new and untested and “because of this, some projects backed by cryptocurrency will fail,” says Parlor. This does not mean that there are no great innovations, you just have to know where to look. “There are huge benefits for everyone if we can identify inefficiencies and build a better system,” Parlor says.