There is a recent craze that is taking over the investment world and it’s called cryptocurrency. Since the Bitcoin.com domain name was registered in 2008, the world has seen Bitcoin (CRYPTO: BTC) They rise and fall, reaching just under $ 50,000 per token on February 15, 2021.
While many people are optimistic about the prospects for Bitcoin, many others feel that it is too risky for an average investor to keep in their portfolio. What side are you on? We asked three Motley Fool contributors if they plan to add it to their portfolios and why or why not.
The best cryptocurrency to buy
Jon Quast: When building a portfolio, investors should focus more on stocks than cryptocurrencies. Shares represent ownership interests in real companies with intrinsic value. By contrast, cryptocurrencies are just zeros and ones – they own nothing, generate no income, or have visions to create shareholder value. Some have a practical utility, which is great. But the lack of intrinsic value makes cryptocurrency investments risky; it’s a key difference between them and stocks.
That being said, I would invest in a cryptocurrency, but Bitcoin is the only one I would buy right now. Cryptocurrency prices are determined by supply and demand. The supply side of the Bitcoin equation is extremely simple. New tokens are continually “unlocked” and put into circulation through mining. There are already 18.6 million in circulation, according to Blockchain.com, and there is only a trickle of around 900 new tokens per day as Bitcoin heads towards its ceiling. Its source code limits the total number of tokens to 21 million.
Other cryptocurrencies also have limited supplies. However, the demand for Bitcoin sets it apart – this is the one that people want to have. Many other cryptocurrencies have been launched, addressing the various shortcomings of Bitcoin. However, Bitcoin is still the cryptocurrency with the highest brand recognition. So it’s still the one that people consider buying first, and I don’t see that changing anytime soon.
The growing adoption creates a kind of network effect. After all, it is not so scary to buy some Bitcoin once someone you know or trust has bought it. I think we have seen this trend with individual investors in recent years. But in the last few months, I think we started to see it on Wall Street as well. Tesla It wasn’t the first public company to buy Bitcoin, but its $ 1.5 billion purchase could be a watershed moment.
Tesla management indicated that it bought Bitcoin as a small hedge against inflation. What if more companies followed Tesla’s lead, taking just 1% of the value of their assets and putting it in Bitcoin? If only a fraction of public companies did this, demand would easily exceed new supply for much of 2021, leading to higher prices. If adoption by institutions and businesses grows like this, I wouldn’t be surprised to see Bitcoin hit $ 100,000 per token this year.
However, to be clear, I personally am not buying Bitcoin at the moment because I already bought some in 2018. And its recent surge in price has elevated the cryptocurrency to a significant position in my portfolio. With a winning action, I would be tempted to “double down” and add my winner. But I don’t plan on doing that with a cryptocurrency like Bitcoin. I want to entrust the majority of my investment dollars to companies that create shareholder value in the real world.
In short, I think there is a good case for owning some Bitcoin, but not at the expense of owning stakes in major companies that are changing our world for the better.
Bitcoin for a retirement port?
Barbara Eisner Bayer: About seven or eight years ago, a friend in his twenties introduced me to a new type of coin that he believed was going to take over the world. It was Bitcoin, and he had bought quite a bit, although he had no investment experience. He wanted my opinion, and as a buy-and-hold investor, I felt the cryptocurrency was too speculative and there was no way I would buy it.
Fast forward to today, and Bitcoin has come a long way. He made his television debut on The good wife in 2012. Large companies such as Microsoft, Burger King and House deposit started accepting it as 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 has gone mainstream. In fact, it recently traded for close to $ 50,000 per token, with venture capitalist Jeremy Liew claiming it could be worth $ 500,000 per token by 2030.
I have been equally impressed and baffled by the growth of Bitcoin in the real world, and sometimes a bit disgusted that I didn’t buy some when my friend first mentioned it to me. But just a little annoying, because my portfolio is on a focused path to fund my retirement, and I don’t think Bitcoin has a place there.
First of all, it is extremely volatile. It has reached great highs, but once lost 80% of its value. For a retirement portfolio, that kind of fluctuation causes too much ulcers, especially since as I get closer to living off my savings, I want to preserve my assets. With Bitcoin, the risks are too high.
Also, there is no guarantee that it will eventually succeed as a monetary medium, even though more companies are starting to embrace it. But you never know. At this point, I see investing in Bitcoin as similar to gambling, and I am not willing to take that risk at the moment.
Call me chicken, call me shortsighted, call me old-fashioned – I stay away from cryptocurrencies. As Bill Gates told Bloomberg, “if you have less money than Elon [Musk], you should probably be careful. “Since my fortune is nowhere near Musk’s, I will take the advice of the Microsoft founder and stand by.
Bypassing the hottest investment of the last decade
Sean Williams: I will not beat around the bush: I have no intention of adding Bitcoin to my wallet. While I believe there is a future for blockchain technology and I understand that Bitcoin is benefiting from its advantage of being the first to move in the crypto space, there are a handful of reasons why I choose not to invest in the world’s largest digital currency. world.
Perhaps the biggest problem with Bitcoin is its usefulness. Although a greater number of companies are willing to accept Bitcoin as a form of payment, or have even added it to their balance sheets, Fundera’s research indicates that only 2,300 companies in the US accept Bitcoin. That’s from more than 30 million registered companies in the US, 7.7 million of which are large enough to have at least one employee.
To take advantage of this point, about 2% of all accounts that own Bitcoin have more than 95% of the circulating supply, according to Flipside Crypto. Although tokens are divisible to up to eight decimal places (1 / 100,000,000 of a Bitcoin token is a “satoshi”), there are not enough tokens for Bitcoin to offer a game-changing utility.
I am also concerned that Bitcoin lacks staying power. There is no doubt that it is the most popular cryptocurrency right now. But among the blockchains focused on the financial industry, it is not even the best option. For example, transactions in Stellar‘s (CRYPTO: XLM) The Lumen Coin (XLM) network can be validated and settled in seconds. Meanwhile, the average Bitcoin transaction takes more than 10 minutes to validate and settle.
That’s a huge improvement over traditional banking networks, but it’s nowhere near the best among blockchain projects focused on the financial industry. In my opinion, this makes Bitcoin replaceable, especially considering the virtually non-existent barrier to entering the crypto space.
History provides my last reason to stay out of it. I’ve seen many large investments rise to the skies: the internet, business-to-business commerce, genomics, 3D printing, marijuana, and blockchain, and the one constant is that all bubbles burst. This is not to say that the winners will not eventually emerge from these trends, but investors almost always overestimate the speed of their uptake and their near-term potential.
Instead of adding Bitcoin to my portfolio, I am perfectly content buying and holding ancillary cryptocurrency stocks that will benefit no matter what happens to Bitcoin. For example, I bought fintech stocks Square (New York Stock Exchange: SQ) during the March 2020 coronavirus crash, and would consider adding more in sizeable setbacks. Cash App, Square’s peer-to-peer payment platform, has seen a huge rally in Bitcoin exchange over the past year, which is providing a huge boost to revenue. And Cash App can continue to be a major growth engine no matter what happens to the price of Bitcoin.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position for a premium Motley Fool consulting service. We are variegated! Questioning an investment thesis, even one of our own, helps all of us think critically about investing and make decisions that help us be smarter, happier, and wealthier.