As an investor with a background in corporate finance, my approach to Bitcoin is based on both appreciation for its technology and a keen awareness of associated risks. Despite the different opinions on Bitcoin, I have a small high-risk allocation in both my taxable and non-taxable (IRA) portfolios. Here's a short breakdown of my views on Bitcoin:
Risks Associate with Bitcoin:
Regulatory Ambiguity - The lack of clear regulations and the application of outdated rules to new technologies pose significant risk.
Lack of Understanding - The industry's complexity and misconceptions surrounding Bitcoin contribute to it's risk.
Evolving Ecosystem - The rapidly changing landscape of cryptocurrency, being relatively new introduces uncertainty.
Price Volatility - Bitcoin and other cryptocurrencies exhibit aggressive and rapid price movements which adds to the risk.
Own Worse Enemy - There continues to be a "bro", "hustler", "scammy" personality associated with the industry and some promoters. This is not unique to Bitcoin or other cryptocurrencies and with the involvement in more traditional financial industries this will moderate over time. However, this personality turns away many.
The Way I Invest:
Investing in Bitcoin or cryptocurrencies is not a casual investment. It requires a basic understanding of the asset and your must risk tolerance. I study the industry regularly, use dollar cost averaging, and don't try to time the market when investing. Finally, I have an set percentage allocation specifically for high-risk investments and a portion of this is Bitcoin. I encourage others to do the same if thinking about investing in Bitcoin. It should not be your only investment and don't go into it blindly.
Common Misconception:
Contrary to some beliefs associated with Bitcoin with illegal activities, it serves legitimate purposes globally. Falling for fear, uncertainty and doubt (FUD) can cloud your judgement. While Bitcoin has been misused and associated with bad actors, so have other fiat currencies.
Use Cases for Bitcoin:
Investment - In the USA, Bitcoin's primary use case IMHO is as a buy & hold investment, providing a non-correlated asset in your portfolio. This can be both a store of value or long term growth approach.
Medium of Exchange - While available but less relevant in the USA, Bitcoin serves as a medium of exchange (money), particularly in countries with political or economic instability.
International transactions - transacting purchases in a foreign currency can be VERY expensive and take a good amount of time through the traditional financial channels. Using Bitcoin (or stablecoins) significantly lowers the transaction cost and time if the seller and buyer accepts Bitcoin.
Purchasing Bitcoin:
Two accessible methods include online exchanges (e.g., Gemini, Kraken) and recently approved exchange-traded funds (EFTs) from traditional investment companies (e.g., Fidelity, Blackrock). EFTs offer exposure to Bitcoin prices without direct ownership.
Personally, I do both. I buy Bitcoin thru Gemini & Kraken for my taxable accounts and EFTs for my retirement accounts.
Secure Handling of Bitcoin:
Consider self-custody by transferring Bitcoin to a hardware wallet for added control and security. While not mandatory it provides an extra layer of protection. Note, this is for Bitcoin purchased on an exchange. This does not apply to EFTs.
In conclusion, now may be a good time to look into Bitcoin. If you do be a smart investor and do your homework.
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