It’s challenging to talk about Bitcoin; by the time you’ve finished the conversation, its price could be wholly different. The market’s volatility has caused the digital currency to be pronounced a bubble several times. Its price history shows that it went through multiple bull and bear markets, and if you check the present Bitcoin price usd, you’ll definitely notice that it’s in a bear market.
It seems that even if it experienced some drawdowns, it overcame each challenge and became one of the most profitable alternative assets to have in one’s portfolio. When financial experts discuss the appropriate asset allocation for an investment portfolio, they recommend contrasting plans that maximise the expected returns according to an established level of risk. In such instances, investors don’t focus on individual security but on how different asset classes function together. Therefore, can we say Bitcoin has an essential role in an investment portfolio? Should you incorporate it?
The benefits of adding Bitcoin to an investment portfolio
Bitcoin and cryptocurrencies increase diversification
Digital currencies have gained the reputation of non-correlated asset classes, meaning the market functions independently from other assets like commodities, bonds or stocks. Historical data proves that Bitcoin has the potential to diversify a multi-asset portfolio.
To determine if Bitcoin has a place in your investment portfolio, you should revisit the role of traditional assets among your investments and decide your purpose. Suppose you have stocks in your portfolio; they provide you with a residual claim on profits and future growth of the respective organisations. In case you also invest in bonds, you benefit from a promised stream of cash that streams according to the principle of repayment at maturity. When you buy bonds and stocks, you give up some cash in exchange for an uncertain but possibly higher amount of revenue in the future. History shows that both stocks and bonds offer positive returns on investment.
At this point, Bitcoin doesn’t guarantee that it can offer a positive return because it went through several bull and bear markets, but its price volatility makes it an ideal investment if you’re looking for near-term expenditures. Some financial experts state that Bitcoin goes under the definition of speculation when it comes to offering potential investment opportunities.
It’s also important to note that digital currencies have begun to trade in tandem with other assets over the last few years.
Bitcoin is a highly volatile asset
Bitcoin is the oldest digital currency in the sector and has been the best-performing asset since its launch. When it was first introduced in the market in 2009, it lacked value. However, it has quickly gained value because it provided several utilities for its users and reached the present price of thousands of dollars. Suppose you’re looking for gains; its price volatility makes it the ideal asset to add to your portfolio. Gains are among the most searched-for benefits of Bitcoin.
Crypto experts state that Bitcoin is more volatile than other digital currencies because its daily price can change several times. The oldest cryptocurrency experienced three devastating declines in its history, and they all happened after it registered some massive gains or after halving events. Bitcoin miner rewards are halved every four years, and the immediate period succeeding the moment is always marked by a drop in price. The next halving date is somewhere in mid-2024, and experts believe that the weakness in price is the perfect opportunity to add it to an investment portfolio.
Asset trading
Before adding new assets to your investment portfolio, you should decide if you want to buy digital currencies for their price appreciation or because you want to use them as mediums of exchange. Bitcoin and other cryptocurrencies are cash and card substitutes. Nowadays, several companies accept Bitcoin as a payment, and people can use it to purchase products and services. Bitcoin transactions have several benefits, such as:
– They’re usually one-to-one or two-party transactions. Therefore, the blockchain allows no middleman or third party to interfere in the transactions, making their censorship resistant.
– It allows people to complete transactions with as little as a couple of pennies
– Payments are settled in seconds or less.
Low fraud risk
Fraud risks have always been associated with investment portfolios, and, understandably, investors are actively searching for alternative assets to boost their transactions’ security. Cryptocurrencies like Bitcoin allow investors to complete transactions without providing confidential data to sellers. Crypto transactions require no zip code, card numbers, or other similarly sensitive information. The blockchain guarantees that the investor’s identity won’t ever be compromised.
Should you consider Bitcoin a legitimate alternative to traditional assets?
Since its launch, Bitcoin has gained tremendous popularity among the investment community, and over the last few years, it even got significant media coverage, together with other well-known cryptocurrencies like Ethereum and Dogecoin. But what should a beginner investor make of such attention? Everyone familiar with the sector knows that Bitcoin has experienced unprecedented price highs and lows over the years. Sharp decreases recently could be attributed to the bear market. However, the currency managed to hold value in time due to its limited supply and increased security. Generally, crypto supporters hope Bitcoin will hold value better than traditional currencies.
In this context, you may wonder if you should use Bitcoin to diversify your portfolio. It’s normal for the hype surrounding this shiny asset to fall under research and scrutiny. Blockchain technology is exciting and innovative; cryptocurrencies can become independent, efficient, and widely accepted assets. In the present market conditions, Bitcoin’s value could continue to rise, but how much should you expect it to do it? Bitcoin is an attractive asset because it’s different from all the others available in the market, and financial advisors think its prospects are bright. Suppose you’re looking for returns in the long run; adding Bitcoin to your portfolio could benefit you. However, we don’t recommend allocating more than 5% of your portfolio to this project.
