Having a diverse investment portfolio is advised to increase the opportunity for success and reduce the overall portfolio risk. Adding Bitcoin to an investment as part of a well-rounded portfolio is a great way to hedge against traditional market volatility and inflation.
While some see Bitcoin as a speculative investment with volatility risk, it is also seen as an alternative asset like gold or commodities.
Reasons to Add Bitcoin to your Investment Portfolio
There are several reasons why adding Bitcoin to your general investment portfolio is a great idea.
Because Bitcoin is not a traditional asset, its price is not directly tied to the stock market or other traditional investment assets. This means it helps diversify an investor’s holdings and potentially reduce overall portfolio risk so that if the traditional market turns, Bitcoin is safe from similar price swings.
Potential for High Returns
Bitcoin has a history of high price volatility and has delivered strong returns over both short and long-term periods. The past performance of any asset is never a sure indication of how it might perform in the future, but historically, the price trajectory of Bitcoin is set to be a worthwhile asset considering.
Bitcoin operates independently of central banks and governments. It’s decentralised from any national authority or control which makes it a global and borderless currency. This makes Bitcoin an appealing investment if you’re looking to hold a global asset with the potential for stability during times of geopolitical or economic uncertainty.
In the field of digital currencies that are not associated with any particular fiat tender, Bitcoin is a pioneer. Since the launch of Bitcoin, there has been a sparked development of many new blockchain-based projects, companies, currencies and innovative financial technologies. As a result, many see Bitcoin, the original cryptocurrency, as an innovative technology with the potential for growth and long-term success.
Bitcoin as an Investment Hedge Against Inflation
Bitcoin is often considered a hedge because of its low correlation with traditional assets like stocks and bonds. When the stock market or traditional financial markets experience a downturn, the price of Bitcoin doesn’t always follow the same trend. This offers diversification benefits for a portfolio because it maintains stability amongst uncertainty in other financial instruments.
Diversifying Your Cryptocurrency Portfolio
Another way to diversify your investment portfolio is to add more than Bitcoin to your crypto basket. Investing in different types of cryptocurrencies, such as Ethereum, Litecoin, Ripple, and others helps expand the diversity of your portfolio. This way, you can reduce the risk of investing in a single cryptocurrency, as the performance of different cryptocurrencies may not be correlated.
Other alternative ways to invest in the cryptocurrency space is by investing in different types of cryptocurrency-related assets rather than directly buying cryptocurrencies, such as exchange-traded funds (ETFs) and derivatives, to further diversify your portfolio.