The more critical issue to be addressed is not whether bitcoin belongs to an investment portfolio, but “how does bitcoin, or cryptocurrency in general, affect the investor’s profile?” It is more of a matter of where to put bitcoins in the portfolio and how much space does it occupy there.
While a lot of fortunate people invested in bitcoin and become billionaires in eight years, there are also a lot of skeptics criticizing it. Famous investors like Warren Buffet say that it’s a bubble. By the time it bursts, it will be no better than any Ponzi scheme. The cryptocurrency enjoyed its last peak on December 11, 2018, at $175,000, but on the very same day, the price plummeted to $7,500. Anyone can imagine the depression behind that $10,000 price drop.
The so-called “crypto-boom” in the previous year drew many inexperienced investors. On the bright side, at least, Bitcoin served as the gateway to the financial world for them. However, many newbies lost a lot after investing in bitcoin. Some even lost their cars, houses, and savings.
Another problem is that other technocrats make cryptocurrencies as well, organizing Initial Coin Offerings (ICO) to gullible gold diggers. Many of these people hoping to win big instead became victims of scams. Such incidents gave cryptocurrencies and bitcoin a bad name.
Most of the times, the fluctuation rates in bitcoin are unpredictable. On account of this character, success in it is no joke. It is a sign that the investor made a critical decision at the right time, entailing much patience and control along the way.
The main thing that makes bitcoin attractive is the blockchain technology. It is a decentralized system of financial transactions, encouraging transparency among investors. In contrast to most financial institutions and stock exchange markets, nobody controls the price in a decentralized command. Thus, the cost can rise and fall depending on the supply and demand, with a fixed number of bitcoins per time mitigating inflation rates. It is like Adam Smith’s invisible hand given form in bitcoin. This technology is revolutionary and potentially change the direction of the financial world in the future.
With the perceived market manipulation by the big boys – primarily banks and big traders – the public have a more level playing field with cryptocurrencies. This newfound hope has given investors the chance to participate in a decentralized market where manipulation is difficult to do.
Another significant benefit that bitcoin gives to the public lies in the digitization of assets. If cryptocurrency becomes the mode of payment genuinely, global trade is more natural since distance and time are smaller in the digital space. Money laundering is immensely difficult, if not downright impossible, due to the blockchain containing all the records of transactions with the whole cryptocurrency.
Diversify your financial portfolio
Since there are conflicting opinions about bitcoins, it is best to diversify your portfolio. A financially mature individual does not put all his or her eggs in a single basket. Invest in other forms of revenues. Save in a bank. Enroll in an insurance premium. Buy properties. Open up a business.
And if you do decide to invest in cryptocurrency, don’t invest in bitcoins alone. There are other virtual coins which show good potentials like Ethereum, Ripple, and Litecoin. It’s up to you if you go for mining, trading, lending or all of the above. Each cryptocurrency-related activity demands different types of investment.
Having a combination of tangible and intangible investments signifies the investor’s knowledge and skill in investing. You will never go wrong with a well-diversified portfolio, but categorize bitcoin among the high-risk investment section. Having bitcoin in the portfolio also means that the investor is open to other opportunities in the future.
Without knowledge about the financial world, bitcoin is not an investment. It’s a gamble. Lastly, always keep in mind the ultimate investment mantra: “Only invest what you can afford to lose.”