LONDON, ENGLAND – EVENT 20: Visualization of the cryptocurrency Bitcoin on November 20, … [+]
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It’s 2017 again as Bitcoin sees another big increase in value. The cryptocurrency has tripled in value since September 2020. Does the latest move mean it deserves a place in your portfolio?
A source of value
One of the key features of Bitcoin as a source of value. That’s especially important when the Fed is prioritizing low rates over potential current inflation, and the government is providing stimulus checks. These actions could lead to a decline in value over time. When that happens, as we saw in the 1970s, maintaining real assets can be a valuable investment strategy. Gold, other commodities and real estate can retain their value in times of financial weakness.
Limited supply
It may be possible to add Bitcoin to that list. Bitcoin is also somewhat special in that limited supply. In general, if the price of gold rises, then gold miners spend more hunting for new supplies, this can drive prices up moderately over time. With Bitcoin supply there is a restriction no matter what the price. This is in favor of the Bitcoin bull. When the price rises, the only natural way to get Bitcoin is to find a willing seller.
Dangers
However, there are also risks. Bitcoin is not a fertile asset. This makes it difficult to value, and can account for its large movements in price. This is different from a company like Apple
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Challenging evaluation
With Bitcoin, just like with gold, things are harder to explain. The value of the asset is not determined by cash yield. However, that cuts all sides, critics might argue that the valuation is much lower, but there is also room for a higher valuation as there is no obvious basis for valuing Bitcoin.
In fact, as Bitcoin complies, the attention it attracts could lead to greater yields as more inbound purchases. That may be helpful as many institutional investors do not hold Bitcoin in the volume of products at this stage.
2017 All in all again
It is important to remember, however, that price volatility has two sides. In 2017 Bitcoin rose about twenty times from the lows that year. However, the gains were not short term, the price then fell 85% from the top over the next year, if you were unlucky enough to buy at that top. Of course, Bitcoin has still had an impressive bull run, but the exchanges on the way have been turbulent.
So those who are fascinated by the huge rise in Bitcoin prices should understand that a big decline has been part of its history as well. Nonetheless, the current rise and the potential weakness of the dollar over the coming years may continue to cause Bitcoin to attract more attention from foreigners. mainstream investment.
The fact that Bitcoin is owned by many investors could be a long-term bull issue for the cryptocurrency, although it resembles gold it is among the most difficult assets to assess where is its real value.