Why invest in Bitcoin at all?

Cryptocurrencies have emerged as assets university endowments are investing in and financial institutions are trying to emulate. Blockchain companies have also emerged as top investments of the most forward-thinking venture capitalists. 2017 was a milestone year for crypto but was followed by the extended 2018 bear market.

To give you an idea as to how quickly Bitcoin has grown, in 2009 the digital currency was worth just a fraction of $0.01. 8 years later? Bitcoin reached all-time highs of just under $20,000 in late 2017. As such, if you invested right at the very beginning of the digital currency’s journey, you would have experienced some highly significant growth levels.

On the other hand, Bitcoin has since lost value, amount to just under $4,000 at the time of writing. As a result, had you invested in 2017 when prices began to rocket, you’d certainly be sitting in the red.

Investment products come in a range of shapes and sizes, each with their own underlying ‘Risk vs Reward’ levels. Bitcoin – the digital currency, is most definitely a highly speculative asset class. As such, whilst the potential rewards are certainly high, as are the risks. Below are two of the major reasons to invest in Crypto:

(1) Your small investment can mean outsized gains: Because of crypto’s historically high payoff, even a 1% allocation would have almost doubled returns of a portfolio invested in the S&P 500 in 2017, from 22% to 42%. On the other hand, if the value of crypto were to go to 0, or face a down year such as 2018, the maximum loss would only be 1%.

(2) Potential for high returns of diversified, actively managed strategies: Prudent investors pay attention to the correlation between their portfolio investments. Whether it is stocks, bonds, gold or real estate, it is important to have diversification so that an adverse economic event does not impact the entire portfolio in the same way.Bitcoin and the crypto space has shown, time and again, that it does not necessarily follow traditional assets in market action. This lack of correlation makes Bitcoin a very attractive alternative investment.

Given the inherent volatility of crypto markets, rebalancing regularly is critical to generating maximum returns. This necessitates active management which takes the market’s up and downsides into consideration. 

For some investors, it may also make sense to opt for an actively managed crypto fund (versus a passive investment such as an index). Again, this is due to the volatility in crypto and the benefits of a fund which actively works to profit off of that volatility.

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