Give crypto a small seat

WHENEVER cryptocurrency prices surge, the questions start again.

Have I missed the opportunity? Should I buy now before it goes higher? What if everyone else makes money and I am the one left behind?

The fear of missing out returns. I have been hearing versions of these questions for years.

Back in 2017, when I first wrote about bitcoin in this column, it was a group of young executives who were convinced it represented a once-in-a-lifetime opportunity they could not afford to miss.

Today, the coins have new names. Ethereum, solana, dogecoin – even novelty tokens like $TRUMP and $MELANIA – have entered the conversation.

But the feeling underneath has barely changed. Prices rise, stories of extraordinary gains circulate, and the fear of being left behind becomes louder than the discussion about risk.

So let me offer the question I believe matters far more than “Have I missed out?”

That single question, in my experience, separates a sound financial decision from an expensive one.

Let me be fair to cryptocurrency, because the appeal is easy to understand.

The market never closes. Money can move across borders quickly. Anyone with a smartphone and an Internet connection can participate, without the traditional barriers of a bank account or credit check.

Transaction fees can, in some cases, be lower. And bitcoin’s extraordinary rise over the past decade has made conventional investment returns look painfully slow by comparison.

The technology behind it is real too.

Blockchain is a shared digital ledger that records transactions across a network securely and in a way that is difficult to alter, without depending on a single central authority.

That is a meaningful technological development. But this is where a more serious risk management conversation has to begin.

The usefulness of blockchain and the investment merit of a cryptocurrency are not the same thing.

A powerful technology can change the world without turning every asset attached to it into a sound investment.

The Internet is the clearest example. It transformed how we live, work and do business. Yet many companies swept up in the dotcom boom did not survive.

The technology was real. But that did not make every company attached to it a good investment.

The same distinction matters with cryptocurrency.

Unlike a share in a well-established company with earnings, assets and cash flows, most cryptocurrencies give the holder no claim on earnings, no dividends and no underlying business assets.

Their price is determined largely by what the next buyer is willing to pay. Warren Buffett put the distinction simply: “Price is what you pay; value is what you get.”

With many cryptocurrencies, you can see the price very clearly. What is much harder to establish is an equally clear anchor for the value.

A strong price history should therefore never be mistaken for a strong financial foundation.

Prioritise return on investment

Naturally, investors focus on return on investment.

With crypto, where the possibility of extraordinary gains is so vivid, that focus becomes even stronger.

I would urge investors to ask a more basic question first: What protects the return of my investment?

In other words, before worrying about how much money you might make, consider how confident you are that your original capital can come back to you at all.

This matters because crypto’s risks sit in far more places than the price alone.

Prices can fall 30% to 50% within weeks. Transactions are generally irreversible. Send funds to the wrong address and recovering them may be impossible.

Passwords and private keys can be lost. Exchanges and wallets can be hacked.

The failure of FTX in 2022 demonstrated that investors can suffer losses not only because the price of an asset falls, but because the platform holding their assets fails.

The Terra ecosystem crisis was another reminder of how quickly confidence can disappear when the assumptions supporting a digital asset break down.

The lesson is that crypto risk does not sit only in the asset itself. It also exists in the infrastructure, custody arrangements and assumptions surrounding it.

These are not administrative footnotes. They are part of the investment risk.

In conventional markets, investors often take custody, regulation and legal recourse for granted because much of that protection is built into the financial system.

With crypto, those safeguards cannot simply be assumed. That means the investor is assessing not only the asset, but also the exchange, the wallet, the custody arrangement and the rules governing them.

At Whitman, we draw a firm distinction between assessing a product and selecting an investment for serious, long-term money.

To assess any product, we begin with four questions: What is it? What are its advantages? What are its disadvantages? And what is our advice?

But understanding a product is still different from deciding whether it qualifies as a serious investment for an important financial goal like retirement funding.

For that, I apply a higher standard. We call it SRB.

S: Safe.

A serious investment should be properly regulated, supported by credible third-party custody, have clear underlying assets, avoid dependence on leverage or margin, and carry a level of risk appropriate to the financial objective.

Safety does not mean an investment cannot fluctuate.

It means the investor should understand what he owns, who holds it, what protects it and what happens if something goes wrong.

R: Always rise in the long term.

This does not mean expecting markets to move upwards every year.

It means selecting investments with sound underlying assets for long-term appreciation and constructing globally diversified portfolios so that investors are not dependent on one market, one company, one asset class or one story succeeding.

The secret is diversification, globally and across different asset classes.

B: Best of breed.

Finally, an investment should earn its position by being among the best available choices for the job it has been assigned.

The question is not simply whether an asset has produced an impressive return.

The question is whether it is the most appropriate vehicle for achieving the investor’s objective when compared with the alternatives.

Held against these standards, cryptocurrency becomes very difficult to justify as core retirement money.

Its price may continue to rise. But the valuation anchor is weak, volatility can be extreme and the possibility of significant, even complete, loss of capital remains unusually high.

Reaching this conclusion does not require me to predict that cryptocurrency will collapse.

It only requires recognising that money needed for an essential life goal should not depend heavily on an outcome that is so difficult to assess.

Where crypto may still fit

Does that mean nobody should ever own cryptocurrency? No.

For an investor who understands the risks, can comfortably afford to lose the entire amount and is not depending on that money for an essential financial goal, a small speculative allocation can be acceptable.

My position has not changed: cryptocurrency belongs in the high-risk corner of a portfolio and should not exceed 1% of total investable assets.

To put that into perspective, if you have RM500,000 of investable assets, 1% is RM5,000.

That may be enough to participate and satisfy your curiosity. It is nowhere near enough to derail your future if you are wrong.

Most importantly, never use money that has already been assigned to retirement, your children’s education, emergencies, or the next few years of living expenses.

Those funds already have jobs. Do not give them another one.

Crypto may have a place in a portfolio. But that place should be decided before you buy it: as a small speculation, with a firm limit, never as a substitute for serious long-term investing.

The question, in the end, was never whether you have missed the future.

It is whether your future can afford for crypto to fail.

Give your money a clear job. Then make very sure you have not handed it one it was never built to do.