There is a mania recently taking over the investment world, and it is called cryptocurrency. Since the domain name Bitcoin.com was registered in 2008, the world has seen it Bitcoin (CRYPTO: BTC) rising and falling, which on February 15, 2021 is just under $ 50,000 per sign.
While many people are concerned about Bitcoin’s prospects, many others feel it’s just too risky for an average investor to hold on to their portfolio. Which side are you on? We asked three Motley Fool contributors if they plan to add it to their portfolios, and why or why not.
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The best cryptocurrency to buy
Jon Quast: When building a portfolio, investors need to be more focused on stocks than cryptocurrencies. Inventories represent ownership interests in real companies with intrinsic value. In contrast, cryptocurrencies are only zeros and units – they own nothing, do not earn income or have visions to create value for shareholders. Some have practical utility, which is great. But lack of intrinsic value makes cryptocurrencies risky investments; this is an important difference between them and stocks.
That said, I would invest in a cryptocurrency, but Bitcoin is the only one I would buy at the moment. The prices of cryptocurrencies are determined by supply and demand. The supply side of the Bitcoin comparison is very simple. New signs are continuously “unlocked” and brought into circulation by mining. According to Blockchain.com, there are already 18.6 million in circulation, and there is only a drop of about 900 new tokens per day when Bitcoin goes to its ceiling. Its source code limits the total number of tokens to 21 million.
Other cryptocurrencies also have limited inventory. However, the demand for Bitcoin distinguishes it – these are the ones that people want to own. Many other cryptocurrencies have been launched, which have addressed the various shortcomings of Bitcoin. Nevertheless, Bitcoin remains the crypto-currency with the most brand recognition. So these are still the ones people are considering buying first, and I don’t see that changing anytime soon.
Growing adoption creates a kind of networking effect. After all, it’s not as scary to buy a little Bitcoin as someone you know or trust has bought a little. I believe we have seen this trend in individual investors over the past few years. But in recent months, I think we’re starting to see it from Wall Street, too. Tesla was not the first public company to buy Bitcoin, but the $ 1.5 billion purchase could be a watershed moment.
Tesla’s management indicated that they bought Bitcoin as a small hedge against inflation. What if more companies follow the lead of Tesla, take only 1% of their asset value and insert it into Bitcoin? If only a fraction of public enterprises would do so, demand for a large part of 2021 would easily outperform the new supply, leading to higher prices. If the adoption of institutions and companies grows like this, I would not be surprised to see Bitcoin fetch $ 100,000 per sign this year.
To be clear, however, I am not currently buying Bitcoin personally, as I already bought it in 2018. And the recent rise in price has raised the cryptocurrency to a large position in my portfolio. With a winning stock, I will be tempted to “double” my winner. But I do not intend to do that with a cryptocurrency like Bitcoin. I want to entrust the majority of my investment dollars to the companies that create shareholder value in the real world.
In short, I believe it is a good thing to own a little bit of Bitcoin, but not at the expense of owning interest in top companies that are changing our world for the better.
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Bitcoin for a retirement port?
Barbara Eisner Bayer: About seven or eight years ago, a 20-year-old friend introduced me to a new kind of currency that he thought was going to take over the world. It was Bitcoin, and he bought some of it, even though he had no investment experience. He wanted my opinion, and as a buy-and-hold investor, I felt that the cryptocurrency was too speculative and that I would never be able to buy it.
Fast forward to today, and Bitcoin has come a long way. It has its TV debut on The good wife in 2012. Major companies such as Microsoft, Burger King, and Home Depot began accepting it for payment, and Elon Musk’s Tesla recently bought a whopping $ 1.5 billion. Even Bill Gates said that “digital money is a good thing.”
In other words, Bitcoin is mainstream. In fact, it recently traded at nearly $ 50,000 per sign, and venture capitalist Jeremy Liew claims that by 2030 it could be worth $ 500,000 per sign.
I was equally impressed and amazed at the growth of Bitcoin in the real world, and sometimes get a little upset that I did not buy something when my friend first mentioned it to me. But just a little upset, because my portfolio is in a focused way to finance my retirement, and I do not believe that Bitcoin has a place there.
In the first place, it is extremely volatile. It reaches a great peak, but once loses 80% of its value. For a retirement portfolio, these kinds of fluctuations are too heavy-producing – especially because I want to get closer to my savings, to preserve my assets. With Bitcoin, the risks are just too high.
There is also no guarantee that it will eventually be successful as a currency, although more businesses are starting to use it. But you just never know. At this point, I see that investing in Bitcoin is similar to gambling, and I am not prepared to take the chance now.
Call me chicken, call me short-sighted, call me old-fashioned: I stay far away from cryptocurrencies. As Bill Gates told Bloomberg: ‘If you have less money than Elon [Musk], you probably need to be careful. ‘Since my fortune is nowhere near Musk’s, I’m going to take the Microsoft founder’s advice and sit on the sidelines.
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To abandon the hottest investment of the past decade
Sean Williams: I will not knock a bit: I do not intend to add Bitcoin to my portfolio. Although I believe that there is a future for blockchain technology and that I understand that Bitcoin benefits from its first advantage in the crypto space, there are some reasons why I prefer not to be in the biggest digital currency ter world to invest.
Perhaps the biggest problem with Bitcoin is its usefulness. Although a larger number of businesses are willing to accept Bitcoin as a means of payment, or have even added it to their balance sheets, research from Fundera shows that only 2,300 businesses in the United States accept Bitcoin. It is out of more than 30 million registered businesses in the US, of which 7.7 million are large enough to have at least one employee.
To continue building at this point, about 2% of all accounts that own Bitcoin own more than 95% of the circulating offering, according to Flipside Crypto. Although tokens can be split to eight decimal places (1 / 100,000,000 of a Bitcoin token is a “satoshi”), there are not enough tokens to make Bitcoin valid to change their game.
I’m also worried that Bitcoin will not remain strong. There is no doubt that this is the most popular cryptocurrency currently. But among the financial industry-oriented blocks, it is not even the best option. For example, transactions on Starssay (CRYPTO: XLM) network with the Lumen Coin (XLM) can be validated and completed within seconds. Meanwhile, the average Bitcoin transaction takes closer to 10 minutes to validate and complete.
This is a huge improvement over traditional banking networks, but not nearly the best among blockchain projects targeting the financial sector. In my opinion, this makes Bitcoin replaceable – especially considering the virtually non-existent barrier to accessing the crypto-space.
History gives me my last reason to stick to the sidelines. I have seen many next big investments soar into the sky – the internet, business-to-business trading, genomics, 3D printing, marijuana and blockchain – and the one constant is that all bubbles are bursting. This is not to say that winners will not eventually emerge from these trends, but investors almost always overestimate the speed of their uptake and their potential in the short term.
Instead of adding Bitcoin to my portfolio, I am completely content to buy and hold additional cryptocurrency stocks that will benefit no matter what happens to Bitcoin. For example, I bought fintech shares Square (NYSE: SQ) during the coronavirus accident in March 2020, and will consider adding more to significant setbacks. Square’s peer-to-peer payment platform Cash App has seen a big increase in the Bitcoin exchange over the past year, offering a big increase in revenue. And Cash App can remain a major growth driver no matter what happens to the price of Bitcoin.
This article represents the opinion of the author, who may not be in agreement with the ‘official’ recommendation position of a Motley Fool premium advisory service. We are furry! When we question an investment thesis – even one of our own – it helps us all to think critically about investing and to make decisions that help us become smarter, happier and richer.