The extreme volatility in Bitcoin prices makes many investors wary of investing in the cryptocurrency. Yet others view it as owning a venture capital-backed asset since the digital coins have received more acceptance as an alternative asset.
The bitcoin market is the world’s largest digital currency in terms of capitalization and reached a record high of 63 63,558 in April. Ethereum is the second largest digital asset in terms of market cap. When the bitcoin fell below $ 50,000 on April 23, it also dragged down the prices of Ethereum and other digital coins, resulting in a 200 billion loss in the value of the cryptocurrency market in one day.
The lack of regulation and continued volatility makes investing in virtual assets risky, which is why the majority of institutional investors – such as hedge funds, pension funds and retirement companies – are reluctant to put money into them.
Here are some things to remember if you’re thinking about investing in Bitcoin:
- Bitcoin can help diversify your portfolio.
- Risks in owning cryptocurrencies.
- How to invest in Bitcoin.
Bitcoin Can Help Diversify Your Portfolio
Judy Ginsberg, chief corporate investment strategist at Morgan Stanley Wealth Management, says some investors have turned to bitcoin because it has little to do with profitability in the stock market. “Bitcoin can diversify a portfolio because it has almost zero three-year correlation with other assets, which is important given the growing and positive correlation that many asset segments have with megacap tech stocks.”
There is a growing number of pension funds along with foundations and endowments that have added Bitcoin over the past two years to their portfolios, including the largest asset manager BlackRock and Massachusetts Mutual Life Insurance Co. Two pension funds in Fairfax, Virginia – the Fairfax County Employees’ Retirement System and Fairfax County Police Officers Retirement System – made their initial investments in blockchain technology and Bitcoin through investments in two Morgan Creek Digital funds in 2018 and 2019.
Various family offices, pension and hedge funds, asset managers, endowments and foundations hold bitcoins through fidelity digital assets in Boston.
Retail investors should limit their holdings in bitcoin to 1% to 3% of their portfolio as it could “lose a lot of value in a short time,” said Alex Chelikian, of Lake Avenue Financial in Pasadena, California. Says the CEO.
Risks in Owning Cryptocurrencies
Investors can only speculate on the future price of Bitcoin since it has no intrinsic value, says Robert Johnson, a finance professor at Creighton University.
“I can think of absolutely no pros to adding BTC to a portfolio,” he says. “One cannot invest in BTC. Unlike a stock or a bond, it promises no cash flows to the holder. This is the biggest bubble I have witnessed.”
Billions of dollars of market cap have been lost in the cryptocurrency market due to massive fluctuations and hacking since the Great Depression began in January 2009.
Bank of America echoes a similar sentiment. In a March 17 analyst report, the bank says there’s “no good reason to own BTC unless you see prices going up. It is not tied to inflation and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism.” The bank adds that the main argument for holding it is “sheer price appreciation.”
Hacking of cybercriminals in cryptocurrency accounts is on the rise as this act can be extremely lucrative. Tracing footprints is almost impossible because their handiwork is digitally eliminated, and investors have no legal recourse because virtual assets are not regulated by the central bank or the government. ۔
How to Invest in Bitcoin
Some investors prefer to own Bitcoin directly, while others invest in blockchain funds.
“As of now, the best way to invest in Bitcoin is to own it directly,” Chalekian says. “There are a number of good platforms that allow you to purchase BTC.”
Digital payments companies like PayPal Holdings (ticker: PYPL) and a handful of brokerage companies such as Robinhood and Webull have entered the retail market and allow investors to buy Bitcoin, Ethereum, Litecoin and Bitcoin Cash.
Ginsberg says family offices and high-value investors may choose to invest in registered fund products.
Austin Merritt, a cybersecurity intelligence analyst at San Francisco-based provider Digital Shadow, says investors should store their digital assets in physical or offline wallets, or cryptocurrency wallets, exchanges to avoid being hacked. , Use brokerages and mobile apps that are popular. Digital Risk Protection Solutions.