Since the launch of Bitcoin in 2009, the cryptocurrency market has grown to exceed $2 trillion in value, with the number of active cryptocurrencies surpassing 17,000. Traditionally, the more tech-oriented Millennial or Gen Z generations have been the primary investors, however, the cryptocurrency investor profile is beginning to broaden. Recent data suggests that as of 2026, as much as 30% of U.S. adults own some form of digital asset. Interest in crypto is growing among high-net-worth individuals and Gen X investors, many of whom view crypto as a potential alternative asset class and a mode of diversification.

Within digital assets, cryptocurrency can be broadly divided into the following categories:

• Non-stable cryptocurrencies (ex. Bitcoin): Primarily used as digital currency, storer of value and an alternative to fiat currency. Their prices fluctuate based on market demand and are often viewed as a potential hedge against fiat currency debasement.

• Smart Contract Platforms (ex. Ethereum, Solana): These networks function as the underlying infrastructure of the digital economy, allowing developers to build decentralized applications and programmable financial tools.

• Stablecoins (ex. USDT, USDC): Digital tokens designed to maintain a stable value by being pegged to assets such as the U.S. dollar or gold. They are commonly used for trading and as a bridge between traditional financial systems and blockchain networks.

• Tokens: Assets issued on existing blockchains, including utility tokens, governance tokens, and security/financial tokens.

• Central bank digital currencies (CBDCs): Digital forms of sovereign currency issued by central banks.  CBDCs are centrally controlled and regulated by monetary authorities.

One of the key advantages of blockchain-based markets is that they operate continuously, unlike traditional financial markets. This allows transactions to settle quickly and with fewer intermediaries.

The infrastructure supporting these markets is also becoming more institutionalized, with regulated exchanges, professional custodians, and increasingly active derivatives markets. Additionally, the industry has also seen a shift toward higher-quality infrastructure and clearer regulation following the passage of the GENIUS Act (July 2025) and the establishment of a U.S. Strategic Bitcoin Reserve in 2025. These developments have encouraged many major banks to begin releasing their own stablecoins and have allowed exchanges to explore offering tokenized stocks on their platforms.

Despite these developments, we maintain a cautious outlook. Digital assets can be highly volatile and carry risks, including large cyclical drawdowns and technical complexities. These vulnerabilities are underscored by Bitcoin’s recent performance, which declined nearly 50% since its October 2025 peak. Furthermore, Bitcoin’s efficacy as a non-correlated hedge against the market weakened, evidenced by a 30-day correlation coefficient of 0.74.

It is also important to note that cryptocurrency has not yet proven to be an effective hedge against inflation. Despite early theories that it might act as “digital gold,” its price movements have often remained highly correlated with speculative stocks rather than consumer price trends. In periods of rising inflation and tightening monetary policy, the asset class has frequently experienced significant drawdowns, suggesting that its utility as a store of value during inflationary cycles remains unproven and unreliable.

While we recognize that some investors may be interested in cryptocurrency, we do not view it as a foundational part of most portfolios. Given its significant volatility and complexity, any involvement in this space should be approached with extreme caution. If you are considering an allocation, we strongly encourage you to first consult with your advisor to determine whether the high level of risk associated with crypto is truly appropriate for your broader long-term plan.

The opinions expressed in this post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. It is only intended to provide education about the financial industry. Individual investment positions discussed should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. Please remember that investing involves risk of loss of principal and capital. Nelson Capital Management, LLC is a registered investment adviser with the U.S. Securities and Exchange Commission. No advice may be rendered by Nelson Capital Management, LLC unless a client service agreement is in place. Likes and dislikes are not considered an endorsement for our firm.