What to Know about Bitcoin and Cryptocurrency Before Investing

Justin Tantalo, CFA®, Senior Lead Research Analyst, December 2021

What to Know about Bitcoin and Cryptocurrency Before Investing

While bitcoin and other cryptocurrencies are new to most portfolios, investors increasingly recognize that they represent the next stage of a digital transformation that’s been taking place over the past 30 years. Cryptocurrencies have become a multi-trillion-dollar asset class, and mainstream acceptance of digital assets continues to grow.


“What to know about bitcoin and cryptocurrency before investing” provides an overview of cryptocurrencies, with a focus on:

How bitcoin works: Bitcoin is a decentralized digital currency that is not issued or administered by a government authority such as a central bank. Transactions are conducted on a peer-to-peer network, verified using secure cryptography, and recorded on a distributed ledger called a blockchain.

Bitcoin as an investment asset: Bitcoin’s historical risk-adjusted returns have been attractive while correlations with traditional assets have been low. Unsurprisingly, bitcoin and other digital assets have attracted the attention of a growing investor base that includes digital assets in their investable universe.

Asset allocation sizing and risks: To frame the sizing question, we examine the impact of adding bitcoin to a portfolio composed of traditional assets. Before making an allocation it’s important that an investor has a good understanding of price volatility and a number of other risks involved in cryptocurrencies.

For more information about how cryptocurrency may impact your portfolio, contact your Key Private Bank Advisor.

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About Justin Tantalo

Justin Tantalo has 15 years of experience in investment management, both in Asset Allocation and Fund Management. As a Senior Vice President with Key Private Bank, Justin applies his expertise in Asset Allocation and helps oversee the equities and alternatives third-party manager research effort.

Justin received an MA in Economics from the University of Waterloo (Canada) and BA in Economics from the University of Western Ontario (Canada). Justin is a CFA Charterholder.

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Somewhat confusingly the word Bitcoin refers to two separate but related concepts. It refers to both the blockchain network and the cryptocurrency that trades on that network. A differentiation is sometimes made: “Bitcoin” with an uppercase “B” refers to the blockchain network protocol, while “bitcoin” with a lowercase “b’” refers to the cryptocurrency itself. Think of a railroad analogy: the goods (bitcoin) travel on the rails (Bitcoin).

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Interestingly, multiple sources have estimated anywhere from 2 million to 4 million bitcoins may be lost or permanently inaccessible due to owner death, or loss of wallet password/private keys that control the coins.

This piece is not intended to provide specific tax or legal advice. You should consult with your own advisors about your particular situation.

Any opinions, projections, or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.

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