Why Jim Cramer invests in crypto
Jim Cramer, host of CNBC’s “Mad Money” and Investing Club, is a “believer” in cryptocurrencies, but only as a speculative investment that is a small part of your portfolio – less than 5%.
“I can not tell you not to own crypto; I own ethereum,” Cramer told CNBC Make It.
Cramer originally purchased it to bid on an NFT, or non-fungible token, at a charity event. “They would not let me make dollars,” he says. “I had to buy it in the ethereum, so I researched it, and it has some qualities I like.”
Cramer argues that crypto’s long-term value “is its topicality” as a decentralized, peer-to-peer currency that can be widely used over time. He recommends bitcoin and ethereum, which have the largest followers and “seem like the most legitimate”.
Owning a crypto can also be a good short-term effort that takes advantage of the momentum from price fluctuations, especially since there are many enthusiastic investors in the room who are willing to “buy high”, he says.
However, there is a catch: “You have to admit that it is speculative” and know that your efforts may not pay off. As with any investment, past performance is no guarantee of future returns.
The recent decline in the crypto market underlines this risk, as it is not possible to know how much crypto may fall in value. This is why experts usually advise investors to only deposit as much money as they are comfortable losing.
Because of these risks, Cramer says you should never borrow money to own a crypto: “Borrow for your house, borrow for your car – but not a loan for a crypto.”
Crypto should also be treated differently than safer long-term investments, such as blue-chip stocks. “Do not put it in the Procter & Gamble class. It is not Coca-Cola, it is not Apple,” he says.
Cramer recommends not allocating more than 5% of your investments to crypto, as well as up to 5% in gold, another speculative investment.
Despite the inherent risk of owning crypto, Cramer says he would never dissuade anyone from investing because of “all the wealth that has been earned in it.” He also believes it is possible for a whole new group of people to continue to make a fortune on it as well.
“I want it to be you,” he says.
To learn more about investing, you can join CNBC Investing Club with Jim Cramer at a reduced price.
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