Bitcoin has attracted investors from all around the globe. But many question whether or not investing in cryptocurrency makes sense.
Answering this question depends entirely upon your financial circumstances and risk tolerance. As a rule of thumb, however, we advise diversifying your portfolio with bitcoin investments.
1. It’s a decentralized currency
Bitcoin is a decentralized cryptocurrency used for transactions online. Unlike its centralized counterparts, such as USD or EUR, bitcoin does not receive backing from any government or institution and can be stored safely within digital wallets on the blockchain network.
Before investing in Bitcoin, it is wise to conduct extensive research. While Bitcoin can be highly unpredictable and high-risk investment option, its returns could potentially provide substantial benefits.
Bitcoin investments may be beneficial to anyone looking to diversify their portfolio, although advisors recommend not investing a significant portion in one asset such as this. They suggest instead opting for low-cost index-based mutual and exchange traded funds with proven track records of steady returns instead.
2. It’s a form of investment
As with any investment, Bitcoin success depends heavily on your risk tolerance and financial goals. It has potential for high returns if purchased and sold at the right times and prices; however, keep in mind that its prices can be highly unpredictable; be wary of potential pump-and-dump schemes where predatory investors capitalize on a market surge by selling at higher than anticipated prices.
Bitcoin can offer an alternative investment option that’s safer than fiat currencies like the US dollar due to lower transfer fees than many international banks and its verifiability on a public ledger. Plus, its less susceptible to government and corporate manipulation than US currency which is subject to Quantitative Easing measures.
3. It’s a store of value
Store of value refers to any asset that maintains its value over time, like Bitcoin hasn’t done so just yet, though more interest is growing surrounding this virtual asset.
Gold has long been one of the go-to stores of value. But it is important to keep in mind that gold supplies have always been finite while Bitcoin’s supply has no limits.
Considerations should also be given to the fact that cryptocurrency investments in the UK are unregulated, unlike company stocks, meaning you could potentially lose money if its value falls. Because of this, before making any decisions involving cryptocurrency purchases it would be prudent to consult a qualified financial adviser who can assist with weighing up both advantages and disadvantages.
4. It’s a medium of exchange
Bitcoin is an international payments solution that enables people to make international transactions easily, but its investment risks include rapid value decline due to being an illiquid asset; making selling it at the right price difficult.
Bitcoin differs from traditional investments by not producing revenue or paying dividends; rather, its price is determined solely by speculation; hence the price may increase or decrease depending on investor sentiment.
Bitcoin investment can be an excellent way to diversify your portfolio. But be mindful only to allocate a small portion – no more than 10% of total assets should go toward it – since too much risk exposure could ensue from too large of an allocation.
5. It’s a store of value
Store of value assets are defined as assets which maintain or even increase in value over time, while remaining safe and easily liquid – meaning they’re easy to buy or sell.
Bitcoin has become a store of value due to its scarcity, decentralised nature and inability to be inflated like traditional currencies. Furthermore, its supply is capped at 21 million and operates independently from central banks.
However, Bitcoin remains a new asset and could be volatile over time. Furthermore, protecting investments against fraud may be difficult given its highly unregulated status; should you lose money through Bitcoin it may not be possible for you to lodge a case at Financial Ombudsman Service.