The toughest challenges for cryptocurrency lie ahead, not in the rear-view mirror

With more than $1 trillion in cryptocurrency value wiped out since the 2021 high-water mark, many investors may be tempted to enter the cryptocurrency orbit at a potentially attractive, lower price point. After all, previous dramatic drawdowns in cryptocurrency valuations have been followed by explosive growth — and all this volatility could be justified as the expectedly bumpy price discovery process of an important brand-new asset class. However, the most profound risks to cryptocurrency investing may lie ahead, rather than in the rear-view mirror. Investors contemplating a long-term allocation to cryptocurrencies should remain wary for five primary reasons. After a dazzling first decade, bitcoin has become a somewhat troubled teenager. In its heady early days, bitcoin had near-zero correlation with broad equities and commodities, providing the potential for true portfolio diversification. However, as cryptocurrency investing has become more mainstream, and especially since 2020, bitcoin’s correlation with U.S. equities and bonds has spiked sharply and remained consistently positive.

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