Take a closer look at cryptocurrency

a line of computer servers stand side by side

The technology could revolutionize the internet, and that deserves investors’ attention.

John LaForge, Senior Lead Wealth Investment Solutions Analyst, Wells Fargo Investment Institute
John LaForge
Senior Lead Wealth Investment Solutions Analyst
Wells Fargo Investment Institute

Cryptocurrencies have been in the news a lot over the years. Yet, despite all that’s been written, it appears there’s a lot of confusion. So let’s try to clear some things up and explain why investors should give them a look.

First, a brief history lesson — my history, that is. Back in college, I spent a lot of time in the computer center, even though my major was in finance. It was there that I first met the internet.

I remember facing a big green screen and a blinking cursor. If you don’t know what I’m talking about, that’s OK. I bring it up only to show that although the internet had at that point been around for several years, it was nothing like it is today. It was confusing, and doing even the simplest tasks was difficult. Extremely so. If I needed to pay a bill in those days, I mailed a check. If I wanted a basketball, I ran to a sporting goods store. So I recall wondering, “Why would anyone go through all this hassle to do things on the internet?”

Of course, what I couldn’t see was that eventually the internet was going to make life easier. Fast forward to today. If you need to pay a bill, a few clicks and done. Want a basketball? Go online, and before you know it, it’s at your door.

We believe cryptocurrencies and the technology behind them are really the building blocks for a new supercharged version of the internet.

When it comes to cryptocurrencies, they are in their own “green screen and blinking curser” stage in some ways. They’ve been around for more than a decade (since 2009) and, like I said, they still confound a lot of people. And as a means of exchange, it continues to be easier to use dollars, either digitally or physically.

The point of the story is to illustrate that we think we are still early in the game, but cryptocurrencies have reached the point that investors may want to give them a good look. We believe their future looks bright because, like with the early internet, eventually they’re likely to make life easier.

It’s more than money

When you consider cryptocurrencies, money is probably the first thing that comes to mind. That makes sense because it’s in the name. But it’s only part of the story.

We believe cryptocurrencies and the technology behind them are really the building blocks for a new supercharged version of the internet — one that’s more secure and, unlike today, will allow us to move things of value, not just information.

Take, for example, the deed to your house. Chances are you keep it locked up at home or in a safe deposit box at the bank. If you sell, you need to rely on a trusted third party, like a title company, to exchange the deed. With cryptocurrency technology, you’ll be able to keep it online where it will be safe and easy to move without turning to an intermediary. We think this is powerful stuff.

To invest or not to invest

So should you go online and buy some, for instance, bitcoin? We don’t recommend it. In fact, we don’t endorse any of the alternatives currently available for the average investor. There are mutual funds and an exchange-traded fund (ETF) tied to cryptocurrency futures but none directly connected to cryptocurrency prices. We have reservations about the available funds.

Instead, our current recommendations depend on whether you’re a qualified investor as defined by the Securities and Exchange Commission (SEC). If you are, we suggest talking with your advisor about private placements as part of a well-diversified portfolio.

If you’re not a qualified investor, we believe you should bide your time and use it to educate yourself. We think the best opportunities for investors lie down the road. Wells Fargo Investment Institute has published a variety of informative content, and more is coming. I advise starting your reading there. We will let you know just as soon as alternatives become available that we find appropriate for the average investor.