With stocks, while there are ups and downs and some short-term volatility, there is more historical and long-term support.
“Stock markets are expected to be supported,” Chisholm said. “This expectation does not exist for Bitcoin. Because stocks are more established and expected to perform well, they have been historically supported. Historically, the stock market has delivered annual returns of around 10% (6% to 7% when accounting for inflation). The same cannot be said for Bitcoin.
Bitcoin might make sense if you’re looking for a little more diversity in your portfolio. Cryptocurrencies like Bitcoin offer alternatives to more popular assets. “Bitcoin is useful if you want to have certain assets that are not denominated in dollars or another national currency,” Stein said. “It’s a way to keep certain assets away from the dollar.”
All in all, even if you think Bitcoin is a great fit for your portfolio, Stein and Chisholm both agree that it probably shouldn’t be the main focus of your investment strategy. It’s mainly about the amount of risk you accept and can tolerate as well as the possibility of losing that amount of money in your portfolio.
“If you like the numbers and math behind (Bitcoin), then consider that it could go to $0 or go 20-fold,” Chisholm said. “So, how much of your portfolio are you willing to lose? I think you limit yourself to 1-5% of your portfolio, depending on your risk tolerance.
or most people, stocks are probably suitable for the majority of investment portfolios.
“Stocks should be a major component of most people’s investment portfolios,” Stein said. “You can provide value based on returns, and it’s a more stable investment because of its fundamental characteristics.”
Additionally, Stein said it is reasonable to assume that, even if there is some short-term volatility, most businesses can survive into the future and thus provide stability. By investing in a broad-based index fund or an exchange-traded fund (ETF) composed of stocks, you will most likely profit over the long term. Is it still worth investing in Bitcoin?
Gone are the early days of Bitcoin, where you could buy a coin for under $1,000. With this in mind and the dangers involved, you may be wondering whether it’s too late to invest.
“If you believe in the Bitcoin thesis, there are still good reasons to consider it, but be careful how much you spend on it,” Chisholm said.
Stein said he has about 3% of his portfolio invested in cryptocurrency, so he thinks investing is worthwhile if it aligns with your goals. Additionally, if you think it will gain traction in the future due to its manufacturing and adoption limitations, it could be a worthwhile investment.
What is the danger of Bitcoin? When investing in Bitcoin, one of the biggest dangers is its disappearance, Stein said. It’s easy to replace Bitcoin with an alternative because there are thousands of choices.
Additionally, stock markets have existed in the United States since the late 1700s. Bitcoin, on the other hand, is a relatively new asset that came into existence in the late 2000s. There is no history for Bitcoin if you like long history.
Another danger is that Bitcoin is not subject to the same scrutiny by the Securities and Exchange Commission (SEC) as regulated securities markets, e.g.
Finally, it’s important to remember that Bitcoin prices tend to be more volatile than stocks. The cryptocurrency rose to nearly $20,000 in late 2017, only to fall 82% a year later.1 In contrast, the DJIA’s worst drop in the past 10 years was the roughly 36% drop she experienced. through February to March 2020.9
