Is it time to put Bitcoin in your investment portfolio? It’s complicated … | The Star

A growing number of advisers and a few major financial firms like Fidelity Investments have begun to include bitcoin as a recognized asset class in mainstream portfolios.

The most that can be said is that buying bitcoin can make sense in certain situations provided you accept the risks and don’t invest too much.

A key investment shortcoming is that bitcoin, and other cryptocurrencies, lack investment fundamentals.

Instead, earning a return on bitcoin is dependent on what future purchasers are willing to pay for it.

Bitcoin’s price Friday morning was close to $50,000, down about 17 per cent year-to-date.

Bitcoin proponents view it as a good diversifier for their portfolios.

The first niche reason for buying bitcoin is to be involved in the digital revolution that is remaking the financial industry based on innovative technologies like blockchain, which provides the secure, distributed database record for bitcoin transactions.

Rather, owning it is an expression of identity and lifestyle — like buying art, says Hallett, citing the writings of portfolio manager and blogger Ben Hunt.

A Bank of Canada study released in April found that only about 40 per cent of bitcoin owners surveyed in 2018 and 2019 owned it primarily for investment purposes.

You need to delve deeply to try to understand the factors that might affect the value of your investment and you generally need to take on a lot of risk.

To stand a chance of speculative gains, you have to thoroughly understand bitcoin’s market dynamics, which isn’t easy.

Timmer, in a 2021 Fidelity white paper, points to the fact that bitcoin is restricted in supply with an ultimate cap of 21 million bitcoins.

As Hallett points out, “you can look at technology investments like Myspace, like Vine, things that had very strong networks but lost them because something better came along.

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