Cryptocurrency – Is it worth including in your portfolio?

Bitcoin’s price is up nearly 16 percent so far in 2021 after being up 122 percent at one point

INCLINATION IN PRICES: OVERVIEW OF PAST 6 MONTHS

In the past six months, cryptocurrencies have seen their prices skyrocket on the back of tweets, comments on social media, and advice from random people some of who barely know anything about how cryptocurrencies work. There are now over 4,000 Cryptocurrencies in circulation in 2021 vs 180 sovereign currencies recognized as legal tender in United Nations (UN) member states.

As the price kept moving up, everyone felt the FUD (fear, uncertainty, doubt), and started pumping even more money in a typical action that every retailer takes, not just in cryptocurrencies but in every asset class. The result is that over the recent past, many retail investors found themselves trapped in a situation they’ve been in before.

In the long run, bitcoin still makes for a unique asset class for portfolio managers seeking growth. While regulatory uncertainties still have a significant role to play, cryptocurrencies over the past decade have proved potent enough to be called an investable asset. Bitcoin is still an emerging asset class and will continue to experience large price swings. It’s here because people in the market want something other than just the traditional currencies that we’ve had and whether that’s right or wrong, it’s something that the market wants.

A key reason bitcoin and the cryptocurrencies that followed it were embraced—they have no central point of failure because the blockchains they are built upon are distributed on thousands of computers spread all around the globe.

CRYPTOCURRENCY FOR MILLENNIALS 

The current generation was too young to catch bitcoin and is now on the hunt for the next big thing that offers more upside on their investing budget. Though dogecoin launched in 2013 based on the “Doge” meme, which portrays a Shiba Inu dog, and its creators didn’t intend for dogecoin to be taken seriously, it is now one of the top 10 cryptocurrencies. Doge is the millennial coin.

More than 60 percent of young students in the US see crypto as a long-term investment, and some 24 percent have an appetite for “moderately aggressive” risk, according to a survey of more than 500 college students and grads published by College Finance, a site that specializes in advising student loan borrowers.

Bitcoin’s price is up nearly 16 percent so far in 2021 after being up 122 percent at one point. The adoption by institutional players to crypto assets from the last quarter of 2020 accelerated the move in their prices. By comparison, gold, bitcoin’s closest traditional rival asset, is down 1 percent in 2021. The recent rise of Bitcoin toward all-time highs is creating millionaires, on paper, at a fairly rapid clip, according to data from BitInfoCharts. There are 78,870 accounts holding bitcoins worth at least $1 million and there are 6,797 that own bitcoins valued at more than $10 million, according to BitInfoCharts.

CRYPTO EXCHANGE NETWORK

Crypto-exchange Coinbase said its more than 56 million users accounted for $335 billion in trading volume in the first quarter: $120 billion retail and $215 billion institutional. That compares to $30 billion in total a year earlier, of which $12 billion was retail.

While cryptocurrencies have caught fancy across the globe, they are recently facing an existential crisis. China’s latest salvo against cryptocurrencies and Elon Musk’s tweets have driven a brutal selloff in bitcoin and other crypto markets. China’s announcement of a tougher ban on banks and payment companies offering crypto-related services furthered a selloff that briefly wiped $1 trillion off crypto market capitalization.

Central Banks are generally wary of giving up their hold over their respective currencies and hence are reluctant to approve/regularise the currency within their jurisdiction. The warnings by ECB and US Fed officials about crypto assets mention that these are no real investment and being highly volatile and that as these pose risks to financial stability, greater regulations may be warranted. The US Treasury Department, meanwhile, flagged its concerns that wealthy individuals could use the largely unregulated sector to avoid tax and said it wanted big crypto-asset transfers reported to authorities.

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