Factors to Evaluate Before Including Bitcoin in Portfolio

When it comes to investing, there are many asset classes to choose from, each having different fundamental characteristics. These characteristics define the expected return, risk, and volatility of the asset. For instance, an individual who cannot withstand volatility should stick to bonds and avoid equities. Similarly, investors trying to invest in inflationary period have commodities as a much better option than other assets. Cryptocurrency is a relatively new asset class, which is gaining popularity these days. However, investing in Bitcoin or any other cryptocurrency is not everybody’s cup of tea, owing to its extreme volatility, unregulated market and a lack of long-established history.

All of these factors combined makes is difficult to analyse, invest and hold these coins for long term. Cryptocurrency as an asset class is probably the most volatile amongst other cryptos. The extreme volatility of Bitcoin makes it difficult for quite a few investors to invest in it. A recent example of the volatility was witnessed on 19 May 2021, when Bitcoin nosedived by almost 30% in a day, while recovering more than 30% from the loss on the same day. Bitcoin moves quite sharply and has the tendency to change direction quickly. What might seem to be an uptrend might turn to be a downtrend in the next moment.

Cryptocurrency is an unregulated space. That in itself poses a lot of challenges for an investor. For instance, an investor would have a hard time in getting legal authorities on the move in case their Bitcoins are stolen or they fall victim to any other fraudulent activities like a scam.

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