Having entered the world of fiduciary financial advising in 2001, among my earliest self-imposed rules involved understanding any and all portfolio assets prior to purchasing. As I state my own rule, “If I can’t explain it to a 12-year old in 5 minutes, it will not be in my portfolios, whether personal or client.”

Since the introduction of Bitcoin in October 2008, I have yet to gain a purchase-worthy understanding of so-called cryptocurrency. Due to my self-imposed rule, I have not and do not own any form of crypto. While not advising others to avoid this space, I do want to share a few of my concerns.

Currency has an actual definition, under which crypto does not qualify. According to Investopedia.com, a currency is tangible. Whether coin or paper, currencies are generally produced by governments and are used as legal mediums of exchange. Crypto does not meet these requirements, so we will move on to the definition of money from the same (trusted) source.

Money is not all tangible but represents a means of facilitating the exchange of goods and services in a time frame convenient to both parties. Money can be a store of value, recognized by people who care to become parties to some intended exchange. All Currency is Money, but not all Money is Currency. Seems to me that a better name for these mystical products would be cryptomoney!

We know that IRS treats currency and money differently than property, but many people do not understand that crypto is deemed property, not money, in the eyes of the IRS. This difference is critical to the tax treatment of crypto. Crypto transactions are reported on Schedule D of Form 1040, the U.S. Individual Income Tax Return.

Early on, many crypto buyers believed that transactions done in crypto would not involve taxation. Also early on, we began warning listeners and clients that the IRS would get involved, and very quickly. And don’t forget State taxing authorities, who demand their revenue from State Sales Tax on transactions, including crypto-based exchanges.

Among the most important (and dead wrong) selling points in the crypto industry was the impeccable safety and security of one’s crypto ownership. In the year 2024 alone, an estimated $3 Billion in crypto equivalent was stolen by hackers. Blockchain technology is obviously not 100% secure.

All this goes against my financial planning and investing brain functions. From literally nothing to about $100,000 per share, Bitcoin has made many holders extremely wealthy. On paper, anyway.

Next week, we will examine the recent media push to own crypto in your IRA. Again, potential investors should be advised to understand the rules regarding non-standard IRA transactions and holdings.