Experts recommend approaching cryptocurrency as a high-risk investment and limiting it to—at most—a small portion of a diversified portfolio.

Photo Illustration: Lacey Browne/Consumer Reports, Getty Images

To consumers used to conventional financial products, cryptocurrencies can seem abstract and a little mysterious. They rely on sophisticated technology, operate in a rapidly evolving regulatory framework, and are often subject to wild swings in value. 

What’s more, crypto assets lack what investment pros call fundamentals—the legal share of corporate profits or contracted loan repayments that underlie the value of stocks and bonds, for example. Instead, the value of cryptocurrency depends largely on market demand and investor sentiment.

That’s partly why they’re so volatile, says Lee Reiners, a lecturing fellow at Duke University and a former bank examiner at the Federal Reserve Bank of New York. “In essence, you are investing in computer code,” he says.

Neha Narula, director of the Digital Currency Initiative at the MIT Media Lab, puts it this way: “The reason that something like bitcoin is worth something is because people believe it’s worth something.”

For these and other reasons, every expert we consulted recommends approaching cryptocurrency as a high-risk investment and limiting it to—at most—a small portion of a diversified portfolio.