Bitcoin, created in 2009, was a response to financial crisis distrust. With thousands of cryptocurrencies now available, bitcoin remains the most popular. It is decentralized and secured by cryptography on a blockchain. Ether is the second-largest cryptocurrency, tied to the ethereum blockchain, along with other types like stablecoins and altcoins.

Investing in cryptocurrency carries high risk due to extreme volatility. Bitcoin and ether have seen significant drawdowns, with some cryptocurrencies proving to be worthless. Despite this, returns have been strong, attracting investors. Long-term performance shows potential for growth, but also significant risk.

Investing in cryptocurrency can be done through specialized exchanges, or through ETFs and grantor trusts. The SEC approved spot bitcoin ETFs in 2024, offering a better option for investors. Crypto investors can also explore digital-asset ETFs that invest in companies involved in the crypto ecosystem.

Morningstar recommends holding cryptocurrency for at least 10 years due to historical losses and recovery times. While the risk/reward profile of crypto is high, its value as a portfolio diversifier is decreasing as correlations with major asset classes rise. A prudent portfolio weighting of 5% or less is recommended due to pricing bubbles and uncertain underlying value.

Read more at Morningstar: How to Use Bitcoin in Your Portfolio