You can ask people “what makes a Bitcoin investment a good one” and likely get different answers depending on the individual, their beliefs, goals, and age. A recent survey conducted by Blockchain Capital indicates that 30% of 18-to-34-year-olds would rather invest $1,000 in Bitcoin than $1,000 in government bonds or stocks. The same study also indicates that 42% of millennials have heard about Bitcoin, compared to a 15% awareness among those age 65 and older.
Older investors typically put more value in the traditional banks and government institutions than millennials but, while their interest in cryptocurrency is keener, they are not the only ones taking an interest. New players are entering the arena and as the supply of Bitcoin decreases and competition to acquire it increases – that is sure to continue.
Deciding what makes an investment a good one is always just one’s best guess, even using various methods to determine an asset’s worth beforehand. Long-term viability, market cap, business stats, and business models can all be examined and assessed to determine if the opportunity has merit. If you don’t see yourself owning an asset for the next ten years, you should probably decline. Comparing the market cap of similar assets is another way to help determine the worth, and you want to invest more in potential good profits, price, and management vs. market hype or branding. A simple business model is likely to mean stability and good growth curve behind an asset.
A simple way to think about bitcoin as a potential investment is to consider its rise against the U.S. dollar and the fact that there will ever only be 21M Bitcoins. This means that it can remain valuable or increase in value relative to other currencies that can be printed on a whim.
Risk and Reward of Bitcoin Investment
Volatility is a reality when investing in Bitcoin, and investors can incur a loss because it can put them in a position of having to sell after a drop in price. However, volatility – how much an asset goes up and down in price – is not the only reason for permanent loss and should not be used interchangeably with risk – what investors worry about and thus demand compensation for enduring. The more risk, the higher the reward and “risk” means more things can happen than will happen. Bitcoin may be volatile, but that in and of itself is not an indication of a market crash.
Evaluating your personal risk tolerance is required, and recent monetary policy has hindered the ability to accurately detect risk in some ways. Central banks have reacted to sharp market drops with easing policy as a way of protecting the economy – so many assume things are under control, somehow, somewhere and trust policy to come to the rescue during market drops.
If one is averse to risk, does that mean they shouldn’t invest in Bitcoin at all? No, not at all – it means that if your risk tolerance is not high you might want to go with a 40% low risk/low reward portfolio, 25% stocks, 25% real estate, and 10% in cryptocurrency such as Bitcoin. Such diversification would mean that 90% of your money is pretty safe and may, in fact, give you a steady income or returns – but 10% of your portfolio can either result in no returns or more than the other 90% combined! The key is to only invest in Bitcoin what you can afford to lose.
If you’re young, haven’t got a family to support, and have very low expenses – a high-risk strategy could really jumpstart your financial life in a significant way.
Future Potential of Bitcoin Investment
While Bitcoin investing is not for the faint of heart, it does represent a technological breakthrough that has the potential to change the way the world banks. So one strategy is just to simply buy some Bitcoin and hold it – not a substantial amount, but a small percentage that could substantially increase in value. Learn about the technology at the very least. If the underlying value is related to the movement of money and creates vast opportunities for investment, you’ll be ahead of the herd. After all, diversification is a core principle of a good portfolio.
While Bitcoin is one of the riskier new assets for investors, many believe it has tons of growth potential and currently represents a fraction of other financial assets. If this is the next great technological innovation of our lifetime, seizing the opportunity now can accelerate retirement goals before everyone else catches on and prices skyrocket.