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Crypto is Gen Z’s most common investment. That may be risky, experts said


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Cryptocurrency is the most prevalent investment held by Gen Z investors, a trend likely fueled by the cohort growing up during an age marked by technological change, social media and easier access to investing, according to a new joint report from the CFA Institute and Financial Industry Regulatory Authority’s Investor Education Foundation.

But while young people can afford to take more investment risk relative to older generations, using crypto as the linchpin of an investment portfolio is nonetheless a risky bet due to its volatility, experts said.

The report comes as the Securities and Exchange Commission sued Coinbase, the largest U.S. crypto exchange, on Tuesday. The agency alleged the company was selling investment securities while not being registered to do so. The SEC also sued rival Binance on Monday.

Crypto zeal a concern if investors don’t diversify

Crypto should be a small piece of the portfolio

Gen Z is the first generation to grow up in an age of technology and social media, consuming information like investment advice from platforms like TikTok and Instagram, said Ted Jenkin, a certified financial planner based in Atlanta.

Their enthusiasm for cryptocurrency also coincides with growth of investment apps that let users buy with relatively small sums of money and can therefore offer more investment access to those with less disposable cash. They’ve also generally witnessed the rise of technology giants like Alphabet, Apple and Meta and have a high degree of confidence in the continued growth of tech and the digital economy, said Jenkin, founder of oXYGen Financial and a member of CNBC’s Advisor Council.

Crypto can be a volatile asset class. For example, bitcoin has lost more than half its value since its peak around $69,000 in November 2021. It’s currently trading around $27,000.

Crypto can play a role in investors’ portfolios, especially those with a higher tolerance for risk, said Jenkin. However, they should generally limit their exposure, he said.

“There’s certainly a case for aggressive growth, but I generally wouldn’t recommend more than 1% to 3%” of a portfolio in cryptocurrency, Jenkin said.

SEC actions consider ‘unregistered exchanges’

The SEC’s crypto legal actions against Coinbase and Binance this week hinge partly on “registered” versus “unregistered” exchanges.

An unregistered exchange doesn’t carry the same protections for investors as a registered one (like the New York Stock Exchange) that sells stocks and other securities. Registered exchanges, for example, offer a maximum $500,000 financial backstop for investors if the exchange were to fail.

In a blog post, Binance wrote it was “disappointed” by the SEC action. The company said it has “actively cooperated with the SEC’s investigations” and “engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations.”

Coinbase chief legal officer Paul Grewal told CNBC there’s an “absence of clear rules for the digital asset industry,” which ultimately “hurts companies like Coinbase that have a demonstrated commitment to compliance.”

Source: CNBC