Crypto Investing

Top 5 Benefits of Managed Crypto Investing Crypto investing is complex. We’re trying to make it simpler.   Our goal is to be here for you, to be your guide on your crypto investing journey. That’s why we created managed crypto portfolios, expertly-curated selections of crypto investments—so you don’t have to navigate the world of crypto alone. Check out the five benefits that we built our managed crypto portfolios around: 1. Diversification With our portfolios, you directly own multiple cryptocurrencies in a diversified way that reflects the crypto landscape. Investing in a diverse set of cryptocurrencies helps lower exposure to any single crypto asset, which may decrease the impact of volatility on your portfolio. 2. Automation You can turn on recurring deposits to invest effortlessly. Plus, automatic rebalancing helps manage risk in your portfolio. The automated rebalancing process is designed to periodically sell some of the highest-performing assets and buy some of the lowest-performing assets to return the basket to its overall desired weighting, reducing overexposure to any single crypto asset. 3. Expert-built Our experts track the industry closely to build and manage crypto portfolios designed to capture the long-term growth of crypto markets overall while mitigating risk through diversification. Our investment team curates portfolios using a set of consistent criteria for each crypto asset including an established historical trading history, an adequate market capitalization, and the ability to trade each individual crypto asset easily. 4. In-depth resources We’re here to help you better understand crypto, with short articles, videos, and our easy-to-read newsletter BetterBlocks. Check out our Crypto Resource Center. 5. Advanced security protocols You can invest comfortably knowing that we use advanced security protocols. We partnered with Gemini Trust Company, LLC as our custodian for crypto assets, and Gemini is a New York registered trust company regulated by the New York State Department of Financial Services (NYDFS) and New York Banking Law.

A Sustainable Approach to Crypto Investing See how our experts have built a Sustainable crypto portfolio. Crypto requires large amounts of computing power for its underlying blockchain technologies to operate. Some critics of cryptocurrency have even suggested that the required computing power could lead to an energy crisis. For example, each year Bitcoin uses more electricity than the entire country of Argentina, a population of around 45 million. Crypto’s sustainability has been a concern of governments and industry critics alike. Leading with Cautious Optimism The sustainability concerns around crypto are worth taking seriously. At Betterment, we see a couple of reasons for cautious optimism. Not all blockchains are the same when it comes to energy consumption. Generally, Proof of Stake blockchains are more sustainable than Proof of Work blockchains. (Proof of Work and Proof of Stake are two of the main methods to validate cryptocurrency transactions.) Some blockchains are working to improve their energy efficiency. One way to do this is by migrating from Proof of Work to Proof of Stake. Building a Sustainable Crypto Portfolio For our Sustainable Crypto portfolio, we look to balance diversification and sustainability, by looking to both cryptocurrencies that transact sustainably, and to those on networks with a path to sustainability. We start with all the crypto assets which meet our overall selection criteria, then factor in the following considerations: We keep assets that currently transact on lower energy intensive blockchains, such as Proof of Stake. We also consider keeping any assets that transact on a Proof of Work blockchain, if there is a credible roadmap to migrate to Proof of Stake. We exclude assets that transact on Proof of Work blockchains, without a credible roadmap to migrate to Proof of Stake. Ethereum: A Path to Sustainability At Betterment, we’re taking a forward-looking approach as we assess the sustainability path of any given cryptocurrency. Ethereum is a great example of a leading cryptocurrency that is moving along a path to sustainability. In September of 2022, Ethereum migrated from Proof of Work towards Proof of Stake in an event dubbed “the Merge.” It is estimated that Ethereum’s total energy use may decrease by 99.95% as a result. Ethereum is a perfect example of a crypto project that is executing on a plan to advance along the sustainability spectrum, thus making its way into our Sustainable Crypto portfolio. We believe that the Merge can be seen as analogous to a net-zero commitment made by a massive global enterprise. We expect more projects to follow in Ethereum’s footsteps, and begin to address the sustainability concerns around their operations. Moreover, as the industry evolves, we expect more projects to make sustainability their core focus.

What is a Crypto Portfolio? To ease the burden of investing in crypto, we’ve created managed crypto portfolios, built by our investing experts.   There are many ways to invest in crypto but we’ll boil this down to two categories for you. Common but not recommended: DIY crypto Most common, but not necessarily recommended, is what we call do-it-yourself crypto—AKA DIY crypto. DIY crypto investing can involve navigating digital wallets, selecting crypto exchanges, and safekeeping keys (so important!). Before you do any of that, don’t forget you need to research which of the 10,000-plus cryptocurrencies you want to invest in. Sound overwhelming? We think there’s a better way. Our better way: Managed crypto portfolios. To ease the burden of investing in crypto, we’ve created managed crypto portfolios. Our managed crypto portfolios provide an experience similar to that of an ETF or mutual fund. Betterment experts build portfolios and take care of the ongoing management, things like rebalancing to reduce your risk of overexposure to a single crypto asset. With a managed crypto portfolio, we also take care of selecting cryptocurrencies and account security. Even with expert-built crypto portfolios, you’re still in control with tools including: Recurring deposits so you can schedule your transfers ahead of time. You can exclude specific cryptocurrencies that you may not want in your portfolio.

Why Invest in Decentralized Finance? Decentralized finance, or DeFi, as it’s commonly known, can be a somewhat mysterious part of crypto. But for investors, it’s worth exploring DeFi and understanding how it could change the financial services landscape.   First, what is decentralized finance? It’s not as confusing as it sounds. Simply put: DeFi platforms offer financial services without the need for banks or other centralized institutions. But how? Well, instead of a bank or financial institution in the middle of a transaction, DeFi uses smart contracts (a computer program on a blockchain) to manage transactions. Some established examples of DeFi are: Lending and borrowing: A technical term for a decentralized lending platform is a “liquidity protocol,” which is a fancy way of saying a place where many people deposit assets so that others may borrow them. Depositors provide liquidity and can earn interest when borrowers take out loans. Trading: There are various trading platforms like exchanges that allow for the simple exchange of crypto assets to more advanced DeFi trading services including derivatives of real-world assets. Staking: You can think of staking sort of like a high-yield savings account or a bank CD but without the consumer protection of a traditional bank account. When crypto is staked–meaning the deposit is locked–for a period of time, it allows users to earn rewards similar to earning interest. Why invest in decentralized finance? There are risks to investing in DeFi as even established platforms are relatively untested compared to the traditional financial system. But we are seeing further adoption of DeFi services including institutional activity from large banks. That may sound surprising but it could be seen as a sign that DeFi is maturing and on its way to a more mainstream audience. Aside from its growth potential, DeFi may be an attractive investment if you believe in its broader purpose. DeFi has the potential to provide wider access to financial services across the globe and decrease transaction times (and hopefully costs) for consumers as it strips away some of the third parties that take profits.

Why Invest in the Metaverse? From digital meetings to virtual field trips, the metaverse could be the next stage of a more digitally connected world.   The term metaverse has had a short but storied history, gaining traction in 2021, when everyone from celebrities to big brands wanted to have a presence in the metaverse. Things went so far that Facebook changed its name to Meta signaling its commitment to creating a metaverse. But through all of the hype, there is real potential for the growth of this digital landscape. First, what is the metaverse? It’s important to note that the metaverse is a growing number of multiple platforms. And these platforms are working to shift the balance of power away from centralized platforms towards users and creators, building: An evolving decentralized network of virtual reality experiences, bringing many aspects of our physical world into the digital world. E-commerce within these new digital worlds includes property, gaming, entertainment, social events, education, and more. (Imagine going to a digital concert of your favorite band, buying digital art, or taking a field trip across the world in a few seconds.) Why invest in the metaverse? The metaverse is very early, so there are risks to consider as it is unknown territory. But the general investing thesis for the metaverse focuses on its ability to reshape how we live our digital lives: From digital meetings to virtual field trips, the metaverse could be the next stage of a more digitally connected world. We are seeing businesses—including social media, entertainment, and clothing companies—testing new ways to engage with consumers in the metaverse. What gives metaverse property its value? The success of a virtual world, and the property within, largely depends on a network effect that drives more participants into that virtual world. Similar to the real world, the value of a property in the metaverse may be driven by what and who the property is located near, but even more specifically, the value may largely be determined by the activities the property is near (think digital concerts, shopping malls, etc).

Making Sense of Crypto Volatility Crypto is a volatile asset class. But there are things you can do to prepare for likely losses that accompany potential gains. We’ll jump straight to the point: Crypto is definitely a volatile asset class, meaning it can have large positive and negative returns. But there are things you can do to prepare for likely losses that accompany potential gains. Your secret power: Being ready for volatility There is no sugar-coating volatility in crypto, but understanding it can help set you up for long-term success. As an investor, having a plan for how you will respond to volatility ahead of time (and sticking to it) can be your secret power. When the market falls and everyone else is panic selling, you’ll know what to do. Let’s cover the basics of volatility in crypto: Volatility refers to how much crypto prices change over time. Generally, the larger the price changes, the more risky an investment tends to be, and the greater chances of both gains and losses. Crypto has been very volatile in its short life, with prices climbing and falling regularly. For example, since 2021, the price of Bitcoin has bounced around with peaks near $70,000 and lows under $20,000—this is volatility in action. 3 steps to help coast through crypto volatility You don’t have to let volatility take you for a ride. Here are three tools that you can use to manage through volatility to help keep your investments on track over the long term: Diversify your investments. If your overall investment portfolio is diversified, crypto doesn’t have to feel as daunting if it’s only a small percent of your net worth. That’s also why we recommend only 5% or less of your investable assets in crypto. Use dollar cost averaging. One method is to use dollar cost averaging to reduce risk and build up your investment over time. Using dollar cost averaging, you would deposit a consistent amount into your crypto portfolio each month. At Betterment, you can set up a scheduled deposit into your crypto portfolio to automate dollar cost averaging. This results in buying more units when prices are low and less when they’re high. You can use this approach with stocks and bonds as well. Be intentional about monitoring your portfolio. It can feel good to log in and see gains, sure. But logging in during a down period will probably just make you feel stressed. And we don’t make good decisions when we’re stressed—like panic selling for a loss. Take a break from frequently checking your performance when markets are down.

Beyond Bitcoin: The Importance of Diversification in Crypto You should invest in more than one cryptocurrency just like you’d invest in multiple stocks and bonds. Sometimes we hear the question: Is diversification important in crypto in the same way it is with traditional investing in stocks and bonds? The short answer is: Yes, diversification is important—you should invest in more than one cryptocurrency just like you’d invest in multiple stocks and bonds. But let’s expand on this thought. Diversification beyond Bitcoin and Ethereum The general goal of diversification is to try and reduce the risk of losses while increasing your expected return. We can do this by making investments in a broad set of assets, limiting exposure to any one holding. With crypto, we recommend investing in multiple tokens, expanding beyond Bitcoin and Ethereum, to help limit exposure to any single asset. Diversification can give you wider exposure to the growing crypto landscape, including tokens in decentralized finance and the metaverse. How to diversify in crypto If you haven’t invested in crypto yet, or have only invested a little in Bitcoin or a small handful of other tokens, we recommend starting small and slow. Here are two tips to get started: Choose your overall crypto allocation Think of crypto as a small part of your larger investment strategy—not a one-off investment. Diversification matters within your crypto investment but also across all of your investments. You need to answer the question: how much of my investable assets do I want in crypto? It seems like a big question, but we try to make it easier on you. Our experts recommend no more than a 5% allocation of your total investable assets. Invest in multiple cryptocurrencies This one is important. We’re so early in the life span of crypto that picking a few winners from thousands of coins is unlikely—that’s why we offer diversified, expert-curated portfolios with multiple coins that can change over time as the crypto markets evolve.