For quite a long time period it was a common practice among some investors considered to invest some of their holdings in gold or other valuable commodities. It is right to some extent as gold is a good option to save your portfolios from inflation and stock market drops. And what is an interesting thing to notice is that the same idea is being emerged about Bitcoin.
It is not at all wrong to invest in Bitcoin a ratio of your holdings as you invest in gold believing it to be a valuable commodity. The thing to consider is the amount that you should invest in Bitcoin as you invest in gold thinking it to be a rather best safe asset.
Bitcoin Is Also Volatile in Nature like Gold
The economic crisis due to pandemic has erupted the fears of immense inflation among some investors. Many central banks, including the U.S. Federal Reserve and the Bank of Canada, have started to put more money in circulation to keep economic activity at its pace. It seems the same economic crisis situation as was seen during the global financial crisis of 2007-08.
And obviously, this rush of money would lead to more inflation as feared by many investors. So in this situation, the investors who are concerned about rising inflation rely on gold as a hedge against it. While we see that the central banks can step forward to increase the amount of money resulting in a limited quantity of gold available in the world.
Can Bitcoin Fight Inflation?
Bitcoin could not be inflated as you have to mine it to get more coins. It is a digital token that is specifically designed as an alternative to inflationary national currencies. Also, it has a maximum cap of 21 million coins. There are also some new coins but they are created only as a reward for “miners”. These miners use their computing power to record and validate crypto transactions. 88 percent of the whole amount of Bitcoin has been mined up till now.
But in the case of gold, we see it is of little use in the real world. It could be used to make jewelry designs, for decorations, or as a collectible. While we can use Bitcoin to pay for a number of goods and services to a crypto user seller. Both of these two assets are worthy in payment methods if you get willing buyers for them.
As an investment, there are many people who buy Bitcoin like gold not caring for the performance of the stock market. Gold is an exalted asset and generally thought to be a safe commodity but still, it gets affected during times of market turbulence. Both gold and Bitcoins are volatile assets and are also used as a hedge against inflation.
Optimal Portfolio to Include at Least 6% BTC
A research study by Yale economist Aleh Tsyvinski and a report by Bitcoinist reveals that You should hold only around 6% BTC in your portfolio to get optimal construction. And even if you are an experienced crypto trader, you should maintain at least 4% BTC allocation The study also shows that the most experienced crypto traders dare to invest only 1% of their assets in this space.
Higher Potential Return?
Tsyvinski a crityic stated in this report that itis true that cryptocurrencies are volatile in nature but they are still considered as an asset with higher potential returns. This study covered only Bitcoin, Ethereum, and Ripple.
Dragan Boscovic of Arizona State University also forwarded the same opinion. He is of the view that the institutional investors are particularly taking an interest to invest in this new asset as they are considering it to be a valued investment opportunity; this will encourage individual investors. This would also help in developing an interest in small shop owners and consumers to start trading in cryptocurrency. On the other hand, Tsyvinski’s study is opposed to Nobel laureate Robert Shiller, who named Bitcoin to be a failed experiment “another example of faddish human behavior.”
Understanding risk
So you can make a little investment in Bitcoin in the beginning. .The experts say that you should do thorough research and homework beforwe you plunge into bigger investments. Do understand in depth the underlying blockchain technology and the nature of digital assets. If you do invest mindlessly, you would be spending not investing.
The serious investors planning to invest in cryptocurrency should approach it with a long-term mentality and also should be prepared to face hard and volatile times which might bring you a possibility of 100% loss from that digital currency.
Featured image: DanielsTrading
