I'm not a fan of Bitcoin for my own investments. But that doesn't mean I think nobody should invest in it.
Let me explain.
In a year of weirdness, Bitcoin has had a pretty good 2020. In fact, many cryptocurrencies have seen their values shoot up.
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My personal suspicion is that, with the world turning upside down, a certain breed of investor thought "stuff it, what more can go wrong?" and decided to try something brand new.
Which means I've been getting lots of questions from people about whether they should be investing in Bitcoin or other digital currencies.
Here is how I weigh it up.
My biggest problem with Bitcoin is that it's a speculative investment. That just means that you're relying on its price going up, instead of it doing something for you. It's also pretty high risk.
Property investments, on the other hand, make money when you collect rent. Or when you invest in stocks, you're buying a piece of a business, and you get a share of the profits from what it makes and sells.
Bitcoin? Well, you buy a coin, and hope that even more people will want to buy one, pushing the value up until you can sell for a profit.
There are other coins and cryptocurrencies around as well, and you're hoping that yours is the one that receives the popularity boost, and sticks around long enough to make you some money.
The digital currencies aren't used in a mainstream way yet. The only place I've seen them used is for investment trading, or dark web purchases (I was only on there for work, I promise).
Bitcoin has a value because we all say it does. It doesn't do anything.
But then, so does gold. So do any other currencies. The difference is that those have been around long enough to be more officially recognised.
This is where cryptocurrency fans are hoping to make their money.
If you get in at the ground floor, the hope is that you're along for the ride when the new tech is finally legitimised. When it does cross into the mainstream, values will surely shoot up even further.
A disclaimer; I do believe that cryptocurrency has huge potential. Some of the coins will surely survive, and become used in a mainstream way.
Many banks already use the blockchain technology behind cryptocurrency in their own transactions.
But how can you know which coin will be the survivor? Or will you be left holding a $10,000 piece of data that just collapsed into nothing?
When it comes to risky investments like this, that's where you can see the value of strategies like the Core-Satellite method.
This method puts a strong core of your investing money (say, 80 per cent) into reliable wealth-building assets like stocks and property.
They're known entities, with known investing strategies, and somewhat predictable outcomes. You're making sure you still have a financial future if your gamble doesn't pay off.
The smaller satellite investments (of say, 20 per cent) are for your "spicier" or high-risk moments. Cryptocurrency, high-risk individual stocks, gold, brand new business start-ups.
Some of these will undoubtedly fail. That's why they're a smaller proportion of your investments.
But keeping them in the mix in a limited way gives you the chance for that moonshot that some are so keen for.
So will I be investing in Bitcoin any time soon? No. It still doesn't fit the criteria of what I want from my investments.
But there can certainly be a place for these high-risk investments for those who have the appetite, and are willing to be realistic about the risks involved.
This article is general information only, not financial advice.
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