Not at all, if the purpose of your investment is only to secure a pension or to form a safety cushion in case of loss of employment. But there are good reasons to invest in bitcoin or other cryptocurrency, and it is up to you to determine if they are relevant to you. This is roughly what the distribution of cryptocurrency in your portfolio should look like depending on your investment objectives.
The prospect of low risk only adds to your excitement
Investing in bitcoin is a risk. Its course can take off or fall. There are many risky assets, but Bitcoin is particularly attractive because it is a phenomenon of its time that has a great future (most likely) ahead of it. Its presence in your portfolio will bring an element of risk, and it may well pay off, you know.
Some argue that the value of bitcoin is that it is not tied to any stock market, so it is able to diversify and reduce risk. There are reasons to be sceptical about this argument. Reliable evidence of correlation has been collected for decades and bitcoin only appeared in 2009. Since then, it has mostly thrived, but there have been misfortunes as well. We will not be able to determine whether Bitcoin will really help hedge stock market risks until assets begin to fall significantly and sustainably. Investing in crypt currency for the sake of diversification at this stage is for luck only.
Optimal share in your portfolio: 5-10%, depending on how ready you are to take the risk.
You feel uncomfortable in a world where there is no certainty, but there are large computing resources. The value of bitcoin can increase if the dollar collapses or high inflation occurs.
It may indeed make sense to diversify your foreign exchange savings, especially if you plan to move abroad one day. But you can do this with much less risk by buying any other government-supported currency. Of course, nobody has eliminated the risk of the financial apocalypse:
civilisation will collapse and all government-supported currencies will turn into ordinary papers. In this case, Bitcoin could become our main currency. However, the economy provided by Bitcoin will still need a good Internet – and it is not known what will remain of it if we have to survive something like the Hunger Games.
Optimum share in the portfolio: 0%, because we need to save money on medicines and canned food.
You put your privacy first or want to do something illegal.
One of the main advantages of cryptological currency is confidentiality. You can perform completely anonymous transactions (a function that credit cards cannot boast of). For some people confidentiality is really very important.
And if this is your priority, then cryptographic risks are the price you pay for anonymity. But keep in mind: Darknet sellers sometimes complain that bitcoin volatility is about to destroy their business.
Optimal share in your portfolio: 30-40%, depending on the volume of your transactions
Someone is blackmailing you or you want to be ready for this turn of events.
Relative anonymity of bitcoin has its downside. It is what criminals use to do their dark stuff. Hackers often demand a round sum in bitcoins from cyber victims. If you need to pay back, it is a good idea to stock up on bitcoins. It can act as insurance – which is not uncommon in our world.
Optimal share in your portfolio: 1-5%, depending on how likely the threat is