The global financial crisis of 2008 disrobed the emperors of Wall Street to show that many highly-paid investment bankers and asset managers don’t really have a clue on how best to help people protect and grow wealth by investing in stocks. The aftermath of the crisis birthed renewed interest in alternative investments such as classic cars, wine, stamps, art, and precious metals.
In the last couple of years, Bitcoin has started to make forays into the consciousness of Wall Street as a dependable alternative investment. Bitcoin recently crossed the $10,000 mark and the cryptocurrency is trading up around $9524. Investors who want to really diversify their wealth away from traditional investments into alternative assets that don’t have a direct correlation the performance of stocks on Wall Street.
In the year-to-date period, Bitcoin has outperformed Wall Street equities as seen in the chart above. Bitcoin has delivered year-to-date gains of 945.2% to beat the measly 17.34% gains in the S&P 500. `This piece provides insight on how Bitcoin could occupy a vantage position for creating a truly diversified portfolio.
What is Bitcoin?
Bitcoin is an alternative form of money, which is created, stored, and spent digitally. Bitcoin is fundamentally different from fiat currencies because it is decentralized and outside the control of any government or its agents. Hence, the dynamics of demand and supply controls the value of Bitcoin in stark contrast whose value can be increased or lowered with monetary policies.
Apart from Bitcoin, there are also other types of cryptocurrencies such as Ethereum, and Ripple among others. Cryptocurrency is fundamentally designed to meet an economic need using digital tokens whose value is influenced by demand.
3 Insights for managing Bitcoin investments
Bitcoin has defied all forms of cynicism, skepticism, and criticism—now it is on its way to $10,000. The voice of reason would caution against putting your retirement funds in Bitcoin. Yet, investors won’t be wrong buy Bitcoin as an investment because of its proven record as a speculative asset that outperforms traditional assets on Wall Street.
Nonetheless, it is important to note that any investments in cryptocurrency should only be a small fraction of your assets. Owning a small portion of your portfolio as Bitcoin won’t land in financial trouble if the market goes south. Below are three insights that you help make smart decisions when buying Bitcoin.
1. Cryptocurrency is not liquid money, yet
An important fact you should consider (and always remember) when you want to invest in cryptocurrency is that Bitcoin and its siblings are not liquid money, yet. Ideally, you shouldn’t add up cryptocurrency with “cash” or “near cash” assets even though they are a means of exchange and you can live on Bitcoin for a week.
Cryptocurrency is currently still in the early adoption phase without the critical mass it needs to the mass market. Hence, emotive sentiments is pushing the demand for cryptocurrency. If you need to get cash out of your investment during a downturn, it is usually hard to get buyers who want to buy from you at a fair price.
2. Don’t forget that cryptocurrency is a speculative investment
Cryptocurrency is still fundamentally a speculative investment. People buy Bitcoin and other cryptocurrencies in the hopes that they will make triple-digit gains that outperforms the stock market. Cryptocurrency is still subject to massive volatility, you can make a great deal of money and the upswing. Nevertheless, you should not forget that you can also lose a great deal of money on the downswing.
3. Make sure you can identify the shit coins
Bitcoin, Ethereum, Bitcoin Cash, and many Litecoin are some of the most popular cryptocurrencies in the market. However, there are hundreds of other cryptocurrencies; in fact, some folks are starting to find ways to day trade the many cryptocurrencies. A cursory glance at the cryptocurrency markets will show you about 900 coins in the market already. Hence, you need to be able to know how to separate the fact from the hype. You also need to know how to identify the worthless coins. You should your money in the cryptocurrencies that have a proven record of rewarding investors with impressive gains.