Cryptocurrency

What is Crypto?

Cryptocurrencies are digital assets designed to function as a medium of exchange, store of value, or a way to access decentralized applications and services. Unlike traditional money issued by governments, cryptocurrencies operate on decentralized computer networks called blockchains.

A blockchain is a shared digital ledger that records transactions in a secure, transparent, and permanent way. Transactions are grouped into “blocks” and verified using cryptographic techniques before being added to the chain. Because of this process, no single party controls the network, and participants can agree on the validity of transactions without relying on a central authority such as a bank.

How it works

Cryptocurrencies operate through decentralization, meaning they are maintained by a global network of computers rather than controlled by a single organization. Their supply and issuance are typically governed by rules built into the software, which determine how new units are created and the maximum number that can ever exist; for example, Bitcoin has a fixed supply of 21 million coins.

Transactions take place directly between participants on the network and are verified by miners or validators, who contribute computing power or stake their own tokens to help secure the system. Beyond serving as a form of payment, cryptocurrencies can also provide broader utility, such as powering decentralized finance (DeFi) platforms, enabling digital collectibles (NFTs), or supporting smart contracts that automatically execute when predefined conditions are met.

Considerations

Cryptocurrencies are digital assets that use blockchain technology to record transactions on decentralized networks. They are not issued or guaranteed by any government or central authority. Cryptocurrencies may be used for various purposes, including peer-to-peer payments, access to blockchain-based applications, or as a means of transferring value.

Because cryptocurrencies operate outside of traditional financial systems, they can be subject to significant price volatility, operational risks, and evolving regulatory frameworks. Investors should also be aware that cryptocurrencies are generally not backed by tangible assets and may lack the investor protections available in more traditional financial products.

Investment Advisory Services are offered through Haddonfield Financial Planning, L.L.C. (“HFP”), an SEC registered investment adviser. Information presented is for educational purposes only and should not be rendered as providing investment advice. Past performance is no indication of future results. Investing in digital currency comes with significant risk of loss that a client should be prepared to bear, including, but not limited to, volatile market price swings or flash crashes, market manipulation, economic, regulatory, technical, and cybersecurity risks. In addition, digital currency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

Volatility Risk

Digital currency is a speculative and volatile investment asset. Investors should be prepared for volatile market swings and prolonged bear markets. Digital currency can have higher volatility than other traditional investments such as stocks and bonds and market movements can be difficult to predict.

Economic Risk

The economic risk associated with digital currency is in the lack of widespread or continuing digital currency adoption. The market and investors could decide that digital currency should not be valued at the current market capitalization due to a variety of factors.

Regulatory Risk

Digital currency could be banned or highly regulated by governments that would deter investors from buying or holding digital currency.

Technical Risk

Digital currency is a dynamic network with a codebase that is updated to add new security and functionality features. The updated code that is merged by the core developers could potentially have an error that threatens the security or functionality of the digital currency network.

Cybersecurity Risk

Digital currency exchanges and wallets have been hacked and digital currency has been stolen in the past. This is a potential risk that clients must be comfortable with when investing and holding digital currency. Theft is less likely when holding digital currency at a qualified custodian in offline systems (cold storage) with institutional security and controls.

Digital Asset Service Providers

Several companies and financial institutions provide services related to the buying, selling, payment processing and storing of virtual currency (i.e., banks, accountants, exchanges, digital wallet providers, and payment processors). However, there is no assurance that the virtual currency market, or the service providers necessary to accommodate it, will continue to support Digital Assets, continue in existence or grow. Further, there is no assurance that the availability of and access to virtual currency service providers will not be negatively affected by government regulation or supply and demand of Digital Assets. Accordingly, companies or financial institutions that currently support virtual currency may not do so in the future.

Custody of Digital Assets

Under the Advisers Act, SEC registered investment advisers are required to hold securities with “qualified custodians,” among other requirements. Certain Digital Assets may be deemed to be securities. Currently, many of the companies providing Digital Assets custodial services fall outside of the SEC’s definition of “qualified custodian”, and many long-standing, prominent qualified custodians do not provide custodial services for Digital Assets or otherwise provide such services only with respect to a limited number of actively traded Digital Assets. Accordingly, clients may use nonqualified custodians to hold all or a portion of their Digital Assets.

Government Oversight of Digital Assets

The regulatory schemes - both foreign and domestic - possibly affecting Digital Assets or a Digital Asset network may not be fully developed and subject to change. It is possible that any jurisdiction may, in the near or distant future, adopt laws, regulations, policies or rules directly or indirectly affecting a Digital Asset network, generally, or restricting the right to acquire, own, hold, sell, convert, trade, or use Digital Assets, or to exchange Digital Assets for either fiat currency or other virtual currency. It is also possible that government authorities may take direct or indirect investigative or prosecutorial action related to, among other things, the use, ownership, or transfer of Digital Assets, resulting in a change to its value or to the development of a Digital Asset.