Invest in Bitcoin – 4 reasons why BTC must be in every portfolio. Not financial advice
Bitcoin is most likely the asset of the last decade: no other asset has divided and sparked as many debates as BTC. On the one hand, Bitcoin is frequently portrayed as a creation of enthusiastic nerds, whose primary application is in criminal operations. For many, Bitcoin, on the other hand, is the biggest invention of the last 10 years, serving as a medium for greater justice, less corruption, and therefore a path out of the existing system.
Today, we’d want to look at Bitcoin objectively and rationally, from the standpoint that most people here are presumably interested in: Why is Bitcoin a good investment, and why should BTC be in every portfolio?
Please keep in mind that I am no financial advisor. None of the content in this article is supposed to be financial advice. Trade carefully and be ready to lose all that you put in.
Bitcoin is an essential part of every portfolio
The latest VanEck report from October serves as the foundation for today’s topic. I’d want to explain briefly who or what VanEck is.
VanEck’s name may be familiar to certain readers because it has been mentioned repeatedly in conjunction with the Bitcoin ETF subject. This may convey the idea that VanEck is a startup that was formed in recent years and is now solely committed to Bitcoin and blockchain. This, however, is not the case. The organization has a lengthy history, having been started in 1955 as an asset management firm. VanEck distributes a wide range of financial products, with their specialization obviously in the field of ETFs and funds. So much for the company’s past.
We’ll look at four reasons why Bitcoin should be in everyone’s portfolio below. Many investors are attempting to diversify their portfolios, that is, to spread the risks while maintaining high returns. Particularly good portfolios are distinguished by achieving a higher return than other portfolios with the same risk. A first approach may be to include Bitcoin in your own portfolio as part of diversification if it “does not behave like all other assets.”
Reason 1: Bitcoin is an uncorrelated asset
At this juncture, we recall the economist Markowitz, who popularized the adage “don’t put all your eggs in one basket.” Markowitz is known as the “Father of Portfolio Theory”, and he eventually meant that you should build a diversified portfolio. In this example, wide implies selecting diverse assets and firms from various industries, which are then geographically scattered. The goal is to offset any changes in asset A in the portfolio by enabling another asset B to appreciate in value. An approach like this makes a portfolio more strong and more reliable overall. The first argument to include Bitcoin in your portfolio is that it has a poor correlation to the most commonly traded assets.
Reason 2: BTC optimizes risk/reward ratio
In other words, Bitcoin aids in portfolio diversification because it does not exhibit the same patterns or price swings as, say, oil or the US stock market. As previously said, the purpose of diversity is not just to decrease risk, but also to boost returns. There’s also an intriguing visual from the research firm Morningstar. This is a sort of benchmarking exercise in which the performance of various assets and indexes is compared against the performance of various portfolios.
As a result, this little component of 3% might result in above-average performance. So, clearly, BTC has grown tremendously in recent years. In other words, the price of Bitcoin has climbed faster than the price of any other traditional asset in recent years. This massive rise is due in part to Bitcoin’s limited quantity.
Reason 3: Bitcoin and the stock-to-flow ratio
I don’t want to get too thoroughly into this third issue because we’ve already covered it in depth in several separate pieces, which I’ll also include at the end of this chapter.
However, to summarize briefly: Bitcoin is a limited resource. Unlike money, the maximum amount of bitcoins is fixed and set at 21 million BTC. Because of this feature, BTC is frequently likened to gold. Because, in addition to the restricted supply, the process of mining Bitcoin grows increasingly complex with time. We are seeing the actual effects of this as the quantity of ‘new’ BTC entering the market, similar to gold, is reducing with time.
Furthermore, the mining process is connected with expenses that arise with time, thus we can definitely speak of ‘intrinsic value’ here. However, we can view the bitcoin manufacturing cost for reference. The stock-to-flow ratio is an important term to remember in this context. This crucial figure is obtained by dividing the number of Bitcoins already in existence (=stock) by the number of BTCs added over a specific time period (=flow).
To complete this picture, I would like to show again the impact of past halvings on the price:
Now we come to the last point, which – admittedly – is somewhat softer in measurability than the previous points.
Reason 4: Bitcoin adoption is progressing
As previously stated, measuring the continued BTC acceptance is difficult. On the one hand, we may collect core blockchain data (and thus the network). On the other side, there are soft causes such as firms attempting to establish Bitcoin as a payment method.
For example, in the context of basic facts, we may remark that the hash rate has been steadily growing since Bitcoin’s inception and has regularly achieved new highs. So the miners’ faith is there, and there are certainly enough individuals who invest in mining hardware and so believe in Bitcoin’s long-term good performance. For example, we can observe that Bitcoin handles around 300,000 transactions every day. Even if there are constraints to the maximum number of transactions owing to the architecture of the Bitcoin protocol, the fact that solutions are already being worked on is a good argument for Bitcoin adoption (keyword: Lightning Network).
Along with all of these quantitative criteria, there are also soft influences. For example, more and more smartphone manufacturers (like Apple and Samsung) are incorporating blockchain wallets inside their devices. There are several businesses that provide incentives to pay with Bitcoin and bonuses in the form of Bitcoin. Other firms put up Bitcoin ATMs so that everyone may buy and sell Bitcoin (just like regular ATMs). Yes, there are places and locations around the globe where you can receive payment in Bitcoin.
In short: actions are constantly happening all over the world that ensure that Bitcoin adoption progresses.
Digital gold as part of every portfolio
This leads us to the conclusion of the article. With these four arguments, I hope I was able to convey to you in a clear and obvious manner why everyone should have Bitcoin in their portfolio – at least to some level. If you don’t already have any ‘digital gold’ in your portfolio or want to boost your holdings, you may do so with our partner eToro by clicking the button below. If you want further information, you can also click the ‘compare’ option to view our extensive stock exchange comparison to choose what is best for you.
Advantages of investing in Bitcoin
Bitcoin’s performance as a currency and investment has attracted both traditional and institutional investors. Is Bitcoin a worthwhile investment? To be honest, it has a number of benefits over regular investing.
Liquidity: Because of the global construction of trading platforms, exchanges, and online brokerages, Bitcoin is probably one of the most liquid financial assets. With exceptionally minimal costs, you may instantaneously exchange bitcoin for cash or valuables like gold. Bitcoin’s high liquidity makes it an excellent investment vehicle for those seeking short-term profit. Because of their great market demand, digital currencies may potentially be a long-term investment.
Lower inflation risk: Reduce the danger of inflation. Bitcoin is impervious to inflation, unlike international currencies, which are governed by governments. The total number of Bitcoins is limited. There will never be more than 21 million BTC. However, governments can print as much money as they want.
New possibilities: Bitcoin and cryptocurrency trading are still in their infancy, with new currencies entering the mainstream on a regular basis. This newness comes with it unpredictable price and volatility fluctuations, which may generate possibilities for a big profit. But also big losses. Trade carefully. I am not providing any financial advice.
Disadvantages of Bitcoin Investments
Bitcoin may be the money of the future, but you should be aware of the risks associated with cryptocurrency investing. The following are a few factors that might make Bitcoin a terrible investment. Balancing the benefits and drawbacks is frequently the most critical thing an investor can do.
Volatility: The price of bitcoin is always fluctuating. If you bought bitcoin on December 17, 2017, the price was $20,000 at the time. You couldn’t sell your investment for more than $7,051 weeks later. While you’d be doing well in 2021, holding for years at a time isn’t an option for everyone.
Hacking is a risk: While the Bitcoin blockchain has never been hacked, people may still be hacked if they pass sensitive information, such as their private keys, out. Furthermore, lesser-known exchanges are frequently hacked. Use a crypto wallet, such as the Ledger Nano X, to keep your digital assets off the internet and on an external device for maximum protection.
Can Bitcoin be Exchanged for Real Money?
Bitcoin may be converted to cash in a variety of ways. Bitcoin may be sold on a cryptocurrency exchange such as Binance. The funds will be sent immediately to your bank account. This is an easy way to convert your Bitcoin to cash, however, keep in mind that the price of a Bitcoin is always fluctuating. Yes, you may require cash, but you may be cursing yourself in a few years if the price of Bitcoin continues to climb.
Bitcoin ATMs are pricey, but if one is nearby, you may swap your bitcoin for cash. However, these ATMs sometimes demand exorbitant fees, so you’re probably better off utilizing an exchange. You can also use peer-to-peer which requires no KYC.
Is Bitcoin the Future?
With institutions adding Bitcoin to their balance sheets and El Salvador formally recognizing Bitcoin as legal cash, it appears like Bitcoin could be the currency of the future, or at the very least an acceptable store of value. However, given the market’s volatility, risk-averse investors are still unwilling to purchase Bitcoin, much alone any other cryptocurrency.
Because Bitcoin is not controlled by a single body, its monetary policy is far more sound than that of any government. Cathie Wood, CEO of Ark Invest, views Bitcoin as a “rules-based monetary system,” since the parameters of the code determine Bitcoin’s monetary policy. Investors are seeking for alternative assets to protect against inflation as governments create more money than ever before in response to the epidemic. Many are turning to Bitcoin to do so, encouraging long-term cryptocurrency acceptance.
Is Bitcoin a worthwhile investment? It can be if you do your homework and invest correctly. Investors, on the other hand, may make Bitcoin a disastrous investment if they treat it like any other asset.
I hope that you enjoyed this article about the reasons to invest or not in Bitcoin. Please remember that none in this article is financial advice. Investing in crypto is risky. You can lose all that you put in.