Should You Add Bitcoin to Your Portfolio?
By Eric M. Emer
First, what is Bitcoin and why do I want to own it? Bitcoin is an asset and a currency that is fundamentally uncorrelated to anything else you might own; stocks, bonds, gold, etc. As a currency, Bitcoin doesn’t really add much value, but as a store of value it may be very important to own.
Bitcoin is one of many currencies in the cryptocurrency universe. Others you may have heard of include Ethereum and Ripple. There are literally hundreds of these cryptos out there, but Bitcoin is by far the biggest with a market cap of about $187 billion at this time. (I assure you that by the time you read this, it will be much different.)
Now for the tricky part. Bitcoin and the other cryptocurrencies are unregulated and exist in a decentralized universe. This means there isn’t a central bank to monitor the currency. Unlike the U.S. dollar for example, which our Federal Reserve watches over, cryptocurrencies are created and entrusted by computers and algorithms – not governors of central banks. A key question is, “Who do you trust more to run your currency, politicians or the laws of mathematics and science?” Young people around the planet are choosing mathematics.
Many wealthy immigrants from around the world know the danger of having all your wealth attached to one currency. For example, if Venezuelans had all their wealth in Venezuelan Pesos, they would have lost nearly their entire net worth. Perhaps the best and easiest way to move your wealth from that kind of risk is to buy Bitcoins. The Venezuelan government can depreciate your currency to nonexistence, they can come to your home and take your physical gold, but they cannot get your Bitcoin.
Are we transitioning from a precious metal as the most valuable currently – one that is impractical and seemingly obsolete – to a new, virtual currency? Maybe. If we believe computers and the Internet change just about everything, why won’t it change and develop a new currency and asset class? Gold was great for the Mesopotamians 5,000 years ago, but maybe it’s time for something new and a little more practical. The Internet isn’t going away, neither is Bitcoin.
Many analysts are calling for Bitcoin to reach $50,000 by the end of the year; some are saying it will end in tears. The truth is either of these scenarios could happen. I would never recommend that anyone invest everything into an asset, but in my opinion, it makes sense to have at least some small amount of exposure in this highly volatile asset class that has the potential to have outsize returns, even if that amount is less than 1 percent of one’s portfolio.
About the author:
Eric M. Emer currently runs the cryptocurrency trading desk at Consolidated Trading. This OTC desk is registered as Franklin & Wacker LLC., filling orders for high-net-worth individuals and family offices. If one wishes to purchase large quantities $1M worth of Bitcoin or another coin, they can coordinate it. 847.602.2086 firstname.lastname@example.org