Bitcoin as an Investment
Table of Contents
- Investing in Bitcoin can provide increased portfolio diversification.
- Bitcoin is an investment opportunity for both short and long term investors.
- Investing in Bitcoin now can put investors in a good position to take advantage of its increasing use-value.
Since Bitcoin was first created in 2008, it has been the subject of intense discourse across the investment, policy, and technology communities. Although there are diverse conceptions about Bitcoin, there are also practical reasons why an increasing number of institutional investors, technology firms, governments, and individuals are investing in and trading Bitcoin.
Bitcoin can support the investment goals of a wide variety of investors, including short and long-term investors, as well as retirement investing. Overall, the support for investing in Bitcoin lies in its growth potential, investment flexibility, network security, and low correlation with other assets.
Bitcoin’s Growth Potential
Although Bitcoin’s growth potential is one of the most controversial topics in related discourse, Bitcoin is actually one of the best performing assets of the last decade, surpassing notable stocks such as Apple, Tesla, and Google.
In addition to the growth potential of Bitcoin as an investment, the use cases for Bitcoin as a currency are growing. Major transaction systems like PayPal are now accepting Bitcoin as payment, and an increasing number of smaller retailers are looking to roll out systems that can allow customers to utilize their bitcoin for everyday purchases.
Bitcoin in a Diversified Portfolio
In addition to being an asset with high return potential, Bitcoin is recognized for being the most inherently stable and protected digital system in the world. The Bitcoin blockchain becomes increasingly secure as more users participate in mining, selling, or trading, an increasingly important feature in a world that sees more and more attacks against digital financial infrastructure. Because of its digitized nature, Bitcoin is considered by many to be a more secure investment than gold. Bitcoin is well-balanced in its security and personal flexibility; it can be traded short-term or held long-term, suiting the goals of almost any investor.
In addition to providing diversification through system stability, Bitcoin has also historically had a low-correlation with the market fluctuations of traditional investment assets. Many traditional asset types are highly correlated, so having a portfolio made up entirely of these assets is very risky and goes against portfolio theory. Portfolio theory is a mathematical way of assembling a portfolio so that the expected return is maximized for the risk level of the portfolio. A key takeaway from portfolio theory is that asset diversification is essential to mitigating risk. Therefore, supporters of bitcoin recommend including bitcoin in an investment portfolio in need of further diversification and risk mitigation.
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