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 an 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Regulatory Ambiguity - The lack of clear regulations and the application of outdated rules to new technologies pose significant risk. [This may change under the new Administration, but if so it will be slow]
Lack of Understanding - The industry's newness, complexity and misconceptions surrounding Bitcoin contribute to it's risk. [There is significant educational content available online, but I would focus on reliable resources i.e. on traditional investment firm websites]
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 an understanding of the asset and your 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 of which a portion of this is Bitcoin, ETH & SOL (currently maximum 5% of my portfolio in a 90/5/5% split). I do not invest in meme coins.
I encourage others to do the same if thinking about investing in Bitcoin. Bitcoin or cryptocurrencies should never be your only investment and don't go into it blindly.
Common Misconception:
Contrary to some misconceptions that Bitcoin is only associated 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. Bitcoin is an evolving investment and potentially decentralized finance (defi) tool.
Use Cases for Bitcoin:
Investment - In the USA, Bitcoin's primary use case IMHO is 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). This is particularly useful in countries with political or economic instability. However, stablecoins are more suited as a medium of exchange.
International transactions - Transacting purchases in a foreign currency can be VERY expensive and take a good amount of time using traditional financial channels. Using Bitcoin (or stablecoins) channels significantly lowers the transaction cost and time.
Purchasing Bitcoin:
Two accessible methods include online exchanges (e.g., Gemini, Kraken, Coinbase) and 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 & Coinbase 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 and cryptocurrency purchased on an exchange. This does not apply to EFTs.
My strategy is whenever balances exceed $1,000 in my exchange account I move my cryptocurrency and Bitcoin to hardware wallets.
Please be aware however, that current cold wallets have risks as well. You need to keep your hardware wallet safe and secure. You also need to keep your seed phrase safe. Many don't want to take these risks.
In conclusion, if you decide to invest in Bitcoin or any cryptocurrency be an informed investor and fully understand your risk tolerance.
No comments:
Post a Comment