Why a Market Making Billionaire Has Changed His Mind on Crypto

Citadel's Ken Griffin joins the list of billionaire crypto converts.

The cryptocurrency industry took off in 2021, with more individual investors and institutional investors dipping their toes into the crypto waters. According to Chainalysis, crypto adoption worldwide grew by over 880% in 2021. That said, there are still many unknowns, and cryptocurrency remains a relatively high-risk investment.

Several big names in investing, such as Mark Cuban and Kevin O'Leary, have become crypto evangelists after initially dismissing digital currencies. Most recently, Ken Griffin, the founder of Citadel and market-maker Citadel Securities, joined the list of Bitcoin (BTC) converts. Last year, Griffin said it was a "jihadist call" to not believe in the dollar, but this year he says his company may enter the crypto fray.

Ken Griffin: I haven’t been right on this call

Admitting that he'd been in the "naysayer" camp, Griffin told Bloomberg that crypto has been one of the great financial stories of the last 15 years. "The crypto market today has a market capitalization of about $2 trillion in round numbers, which tells you that I haven’t been right on this call," he said.

While the market-making billionaire has changed his mind, we probably can't call him a Bitcoin believer just yet. "I still have my skepticism, but there are hundreds and millions of people in this world today who disagree with that," he explained. The main reason Griffin has changed his mind on crypto is that the industry has become too big to ignore.

Griffin said his company needs to give serious consideration to crypto if it’s to fulfill its mission of helping institutions and investors solve their portfolio allocation problems. "It’s fair to assume that over the months to come, you will see us engage in making markets in cryptocurrencies," he told Bloomberg's David Rubenstein.

Should you invest in cryptocurrency?

According to Pew Research, about 16% of Americans have invested in, traded, or otherwise used cryptocurrency -- up from 1% in 2015. But you shouldn't buy crypto just because lots of other people are doing it. The decision to buy depends on your own views, investment strategy, and financial situation.

Here are some questions to consider.

Do you believe it's a good long-term investment?

Cryptocurrency investment takes time and research. Before you invest, you need to understand what blockchain technology can do, how cryptos differ from other investments like stocks, and how you think cryptocurrency might perform in the long term. Think about how crypto fits with your overall investment strategy.

READ MORE: Top Cryptocurrency Apps and Exchanges

Some people buy crypto because they've seen the headlines of 5,000% gains and they don't want to miss out. This is understandable, but it is almost impossible to predict which (if any) coins or tokens will generate those types of returns. Rather than looking for enormous short-term gains, try to pick cryptos that will survive and gain value in the coming five to 10 years. Ultimately, if you don't believe cryptocurrencies will perform well in the future, it may be better to look at other investment opportunities.

Are you on top of your other financial goals?

Don't sacrifice other financial goals, such as your retirement fund or paying down debt, so you can buy a high-risk asset like cryptocurrency. Cryptocurrency investments could produce significant returns, but they could also fall to nothing. You don't want to be struggling in your old age because you put money into crypto projects that failed rather than topping up your retirement savings. Make sure crypto only represents a small part of your overall investment portfolio, and you're in a solid financial position before you jump in.

Are you comfortable with the risks?

Cryptocurrency investments can be extremely volatile. Right now, Bitcoin is trading 40% down from its November all-time high, and those kinds of price swings are not unusual. Many analysts believe it will regain its value and eventually go on to reach new highs, but there are no guarantees. Moreover, Bitcoin is by far the biggest crypto by market capitalization. Many smaller cryptocurrencies may not survive a prolonged period of low prices and stagnation.

These high risks are the price you pay for potentially high rewards. As an investor, it's important to understand these risks and take steps to mitigate them. These include only investing money you can afford to lose, and ensuring crypto only makes up a small portion of your investments.

Do you have money to spare?

As we mentioned above, cryptocurrency investment is risky. If you only invest money you can afford to lose, you can benefit from any price gains without facing financial disaster if the market drops.

Having cash to spare also means building a financial cushion. Before you buy cryptocurrency, make sure you have an easily-accessible emergency fund. Ideally, your emergency fund should cover three to six months’ worth of living expenses. That way if you lose your job or have to deal with another financial crisis, you won't have to sell your crypto or other assets to tide you over.

Bottom line

Ken Griffin may have admitted he was wrong about crypto, but he also hasn't done a complete U-turn. He's still skeptical, and that's actually healthy. If you're considering buying cryptocurrency, don't do it just because other people are. Instead, weigh the pros and cons to make sure it's the right decision for you.