Does Bitcoin Belong in My Investment Portfolio?

Why is bitcoin so popular?

One of the reasons bitcoin and cryptocurrencies came to be such a hot topic was because of the sentiment that an asset should exist that resists the inflation that regular fiat currencies face and that can be traded without a middleman like a bank. Nowadays, many popular trading professionals and websites have begun to discuss how cryptocurrency can fit into your portfolio. As cryptocurrency becomes more prevalent in our daily lives, it’s important to stay up to date with how to safely invest in crypto, and to understand that there are multiple approaches to choosing what types and how much crypto to invest in. In this post, we’ll discuss how and where crypto may be able to fit into the modern portfolio. It’s important to remember that there are no right answers, and we encourage you to do your own research regarding cryptocurrency and all types of investing so that you can make the choice that’s right for you.

The Evolution of the Modern Portfolio  

Traditional client portfolios have evolved throughout the past century.  In the early days, portfolios mostly consisted of stocks and bonds, with the intent of a diverse portfolio to reduce risk and generate sustainable returns. As the century progressed, we saw the addition of more complex and volatile asset classes re-structuring the contents of a portfolio.  For example, adding real estate or commodities to a portfolio became more widespread, to increase an investor’s returns in the long run. Apart from it simply being easier to invest in these new kinds of markets simply becoming easier with advances in technology, there are some practical theories at play suggesting why they might be a worthwhile investment. The theory is that when the economy is strong, the stock portion of the portfolio, and presumably commodities, will generate high returns, while the bond and real estate portion will have more pedestrian returns. Alternatively, when the economy goes into recession, the stability of bond coupons and rent payments will provide ballast to a portfolio that would otherwise be particularly volatile due to a declining stock market. 

So, the famous 60%/40% portfolio has morphed into something more like 50% bonds, 30% stocks, 15% real estate, and 5% commodities. Again, the non-correlated nature of those asset classes provided solid, if not sexy, returns while providing protection through diversification from “black swan” events.

And Here Comes Bitcoin…

Over the last decade Bitcoin and cryptocurrency have taken off and are now a hot topic of conversation in the financial space and our broader modern world. These new investment assets can no longer be glossed over or ignored. Bitcoin consistently ranks in the top assets by market cap (as of today ranked 12th at ~$453B, but in the past it has creeped into the top 10, in November 2021 hitting an all-time high of ~$1.27T), beating out many popular stocks, ETFs, and metals.

Our opinion, and the opinion of many professionals, is that cryptocurrency does indeed have a place in the modern portfolio.  If risk tolerance and other factors are considered, and the proper mix of cryptocurrencies are chosen for the individual portfolio, cryptocurrencies could benefit the investor.

Not sure what the best option for investing in crypto is? Check out our post from last week where we discuss common hidden fees to look out for when choosing a trading platform.

…And Now What?

So, you’ve finally purchased some Bitcoin! Great! Should you just let it be?  Would you do the same with a stock? Just as you would diversify each asset class in your portfolio, sans cryptocurrency, you would do the same with Cryptocurrency. Diversifying the crypto coins in your portfolio can lower volatility and increase returns. There are many coins to choose from, but the safest bet is to choose some that have high market caps and high trading volume, so you can make the most confident investment you can.

What About Bitcoin or Crypto Funds?

During your research, you may have heard of Bitcoin or Crypto Funds, Crypto ETFs, or other more unique ways to expose your portfolio to Bitcoin. You may ask yourself, “should I put my money in a crypto fund?” While it may seem like an easy way to get crypto into your portfolio, they may encounter downsides like excessive fees. The fund managers may also make decisions on your behalf that you wouldn’t have made, that end up negatively affecting your return! To avoid these problems, we recommend you stick with making your own investment choices. Consider either researching how to get started investing in cryptocurrency yourself, or even creating your own index fund. These funds let you diversify your portfolio with a range of coins, percentage caps, weighting strategies, and more.

Still not sure if crypto trading is right for you, or need help setting it all up? Check out CryptoFi On-Demand Trading, our premier choice for getting started with investing in Bitcoin. Our US-based agents can help you every step of the way to set up an account and start diversifying your portfolio over the phone. 

CryptoFi does not offer or provide investment advisory services. The information contained is for informational purposes only. The Company is not soliciting any action based upon such statements. The material and information contained is not to be construed as investment advice. Click here to read our disclosure statement.