There is a recent craze 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 (CRYPT: BTC) rise and fall, reaching just under $ 50,000 per token on February 15, 2021.
While many people are optimistic about Bitcoin’s prospects, many others think it is too risky for an average investor to keep in their portfolio. Which side are you on? We asked three Motley Fool employees if they plan to add it to their portfolios and why or not.
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The best cryptocurrency to buy
Jon Quast: When building a portfolio, investors should be more focused on stocks than on cryptocurrencies. The shares represent equity stakes in real companies with intrinsic value. In contrast, cryptocurrencies are just zeros and ones – they have nothing, do not generate revenue or have visions of creating shareholder value. Some are of practical use, which is excellent. But the lack of intrinsic value makes cryptocurrencies risky investments; it is a fundamental difference between them and the actions.
That said, I would invest in a cryptocurrency, but Bitcoin is the only one I would buy at the moment. 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 what people want to have. Many other cryptocurrencies have been launched, addressing Bitcoin’s various shortcomings. However, Bitcoin remains the most branded cryptocurrency. So it’s still the only 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 after someone you know or trust has bought some. I believe that we have seen this trend with individual investors in recent years. But in the past few months, I think we’ve started to see that on Wall Street too. Tesla it was not the first public company to buy Bitcoin, but its $ 1.5 billion purchase could be a watershed.
Tesla management indicated that it bought Bitcoin as a small protection against inflation. What if more companies follow Tesla’s example, 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 surpass the new supply in much of 2021, leading to higher prices. If adoption by institutions and companies grows this way, I wouldn’t be surprised if Bitcoin reached $ 100,000 per token this year.
However, to be clear, I’m not buying Bitcoin in person right now because I already bought some in 2018. And its recent price increase has raised the cryptocurrency to a large position in my portfolio. With a winning action, I would be tempted to “double up” and increase my winner. But I don’t intend to do that with a cryptocurrency like Bitcoin. I want to entrust most of my investment dollars to companies that create shareholder value in the real world.
In short, I believe there is a good case for owning some Bitcoins – but not at the expense of holding stakes in major companies that are changing our world for the better.
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Bitcoin to a retirement port?
Barbara Eisner Bayer: About seven or eight years ago, a friend in his 20s introduced me to a new type of currency that, in his opinion, would take over the world. It was Bitcoin, and he had bought some, although he had no investment experience. He wanted my opinion and, as an investor who bought and held, I thought the cryptocurrency was very speculative and that I would never buy it.
Advancing to the present day, Bitcoin has come a long way. He made his TV debut in The good wife in 2012. Large companies like Microsoft, Burger King and Home Depot started accepting it for payment, and Elon Musk’s Tesla recently bought a whopping $ 1.5 billion from him. Even Bill Gates said that “digital money is a good thing”.
In other words, Bitcoin has become popular. In fact, it was recently traded for around $ 50,000 per token, and venture capitalist Jeremy Liew says it could be worth $ 500,000 per token in 2030.
I was equally impressed and amazed by the growth of Bitcoin in the real world and sometimes I am a little upset that I didn’t buy it when my friend first mentioned it. But just a little upset, because my portfolio is focused on financing my retirement, and I don’t believe Bitcoin has a place there.
First, it is extremely volatile. It has reached enormous heights, but once lost 80% of its value. For a retirement portfolio, this type of fluctuation is very damaging – especially since, as I get closer to living off my savings, I want to preserve my assets. With Bitcoin, the risks are very high.
In addition, there is no guarantee that it will ultimately succeed as a medium of currency, although more companies are starting to adopt it. But you never know. At this point, I see that investing in Bitcoin is similar to gambling, and I’m not willing to take that risk right now.
Call me chicken, call me short-sighted, call me old-fashioned: I’m getting 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 that of Musk, I will follow the advice of the founder of Microsoft and stay out.
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Leaving aside the hottest investment of the past decade
Sean Williams: I’m not going to beat around the bush: I have no intention of adding Bitcoin to my portfolio. While I believe there is a future for blockchain technology and understand that Bitcoin is benefiting from its pioneer advantage in the cryptographic space, there are a handful of reasons why I choose not to invest in the world’s largest digital currency.
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, a Fundera survey notes that only 2,300 companies in the United States accept Bitcoin. That is among more than 30 million companies registered in the United States, 7.7 million of which are large enough to have at least one employee.
To build on this point, about 2% of all Bitcoin accounts hold more than 95% of the circulating stock, according to Flipside Crypto. Even if the tokens are divisible to eight decimal places (1 / 100,000,000 of a Bitcoin token is a “satoshi”), there are not enough tokens for Bitcoin to offer game-changing utility.
I am also concerned that Bitcoin has no staying power. There is no doubt that it is the most popular cryptocurrency at the moment. But among blockchains focused on the financial sector, this is not even the best option. For example, transactions in Stellarin (CRYPT: XLM) The network with the Lumen currency (XLM) can be validated and resolved in mere seconds. Meanwhile, the average Bitcoin transaction takes about 10 minutes to validate and settle.
This is a big improvement over traditional banking networks, but far from being the best among blockchain projects focusing on the financial sector. In my opinion, this makes Bitcoin replaceable – especially considering the virtually non-existent barrier to entry into the cryptographic space.
History provides me with my last reason to be left out. I’ve seen many important investments soar into the skies – internet, business-to-business commerce, genomics, 3D printing, marijuana and blockchain – and the only constant is that all bubbles burst. This is not to say that winners will not eventually emerge from these trends, but investors often overestimate the speed of their adoption and their short-term potential.
Instead of adding Bitcoin to my portfolio, I’m perfectly happy to buy and hold auxiliary cryptocurrency stocks that will benefit, no matter what happens with Bitcoin. For example, I bought shares in fintech Square (NYSE: SQ) during the coronavirus crash in March 2020, and would consider adding more considerable setbacks. Square’s point-to-point payment platform, Cash App, saw a huge increase in Bitcoin exchange last year, which is providing a huge increase in revenue. And the Cash App can continue to be a major driver of growth, no matter what happens with the price of Bitcoin.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even our own – helps all of us to think critically about investing and making decisions that help us become smarter, happier and richer.