Spotlight Cryptocurrencies Promise and Peril Crypto has the potential for durable growth, but treat any purchase of it as a sunk cost. CRYPTO Madeline Hume and Jeremy Pagan At $1.4 trillion in total market capitalization as of May 2022, cryptocurrencies' stunning growth augurs as much promise as it does peril for those who are interested in their astonishing rise. Even though prices have dropped 50% this year, digital currencies have lured followers intrigued by their jaw-dropping performance and their potential to displace legacy financial stakeholders and establish digital scarcity. Previously trivial sums of money have altered the trajectory of people's lives. By the same token, centralized governments across the globe have raised fair questions, such as how to protect and guide investors while cracking down on illicit activities and regulatory arbitrage within the crypto ecosystem. These high-octane securities with a spotty past lack academically substantiated valuation methodologies and warrant extreme caution as investments. Until more methods for valuing them become available, the absence of intrinsic valuations disqualifies crypto as a fundamental investment, in our view, and investors should treat any purchase as a sunk cost. Cryptocurrency returns have no parallels to traditional risk factors across stocks and bonds, and the contours of the market's returns in aggregate fly in the face of normal dynamics. morningstar.com/products/magazine 31https://www.morningstar.com/authors/2213/madeline-hume https://www.morningstar.com/authors/2554/jeremy-pagan http://www.morningstar.com/products/magazine