The market is going through some rough seas right now with rapid tumbles followed by fierce rallies. No one is sure if we’re looking at a V-shaped, U-shaped, or L-shape recession and recovery of the global economy, and that uncertainty shows itself across asset classes.
Equities and related index funds across industries took a nosedive, commodities slipped with oil prices briefly extending into negative territory, gold which is considered a safe haven by many investors also dropped double-digit percentages. Yes, even Bitcoin hit an air pocket going down to $3,981 from $10,505.
But it’s not all bad news. A lot of these assets classes have started picking up again, some funds centered on crisis strategies have done particularly well, and as of writing Bitcoin bulls have charged passed the $10,000 fence. Full recovery will take long time, and we may even see a second dip before that happens. For both current investors and those looking to start their investment journey, now is a great time to assess your diversification strategy and structure a portfolio that meets your needs.
Should Bitcoin be in your portfolio? The short answer is yes, but the real question is why?
3 reasons for including Bitcoin in your portfolio
Bitcoin is a volatile asset to include in your portfolio, but there are reasons to include it for short-term gains because of that volatility, as well as long-term gains looking at the fundamentals. Let’s start with the short-term view.
Volatility for daily gains
Because Bitcoin prices see a lot of action on a daily basis, there are a lot of opportunities for crypto traders to make frequent small gains. Day trading, or scalping, is a popular strategy where crypto traders execute a higher number of quick trades, focused on smaller profits. Scalping is usually applied on smaller time frames (1-min to 15-min), during horizontal markets when the market is undecided.
However, this is not for everyone. Scalping will require your presence in front of the screen almost the entire day as you need to identify multiple trading opportunities. To identify potential profitable moves, you need to master a set of technical indicators in order to read the tea leaves on the charts.
When Bitcoin was created, it was determined that the coin should be issued as a reward for miners who maintain the blockchain and verify transactions. Halvenings are events where those rewards are lowered, to counter inflation as more Bitcoin enters circulation – with a hard cap set at 21 million. In 2009, for every block added a miner was rewarded with 50 Bitcoin. In 2012, this amount was halved to 25, in 2016 to 12.5, and in 2020, this amount will further be reduced to 6.25 Bitcoin per block.
Halvenings tend to have an impact on the price of Bitcoin, as it becomes harder to mine new coins. The same way gold prices increase as new gold becomes harder extract from mines. The first Halvening happened on 28 November, 2012. Although the price movement of +1.7% on the day itself was negligible, the preceding and following months showed continued growth and led to the rally in early 2013 when the price rose from $13 to $260 in 4 months. But sometimes, the Halvening is already priced in like we saw in 2016, where BTC gained 50% in the 3 months leading up to the Halvening event.
When the Halving will take place exactly remains uncertain, but current estimates point towards May 12, 2020. Only after the event, will we be able to see if the price of BTC goes up significantly, or if the Halvening was indeed already priced in. If you’re interested in holding Bitcoin for a longer period, now is a good time to add BTC to your portfolio.
Taking an even longer view, if you believe in the crypto industry as a whole and see how it could be bigger and better than what it is today, adding Bitcoin to your portfolio today makes a lot of sense.
For those who have been in the industry since the early days, it’s clear that the space has evolved so much and the last decade seems like a long time considering the degree of innovation we have all pushed for. But relatively speaking, the crypto industry is young and with relentless innovation there is so much more that will emerge from the bleeding-edge technologies and applications that define the world of Bitcoin.
Crypto exchanges are already taking a leading role in keeping this space moving, and they will continue to drive that level of innovation we need to always stay one step ahead of the curve. New projects come out on a daily basis that find unique ways to merge crypto with global finance, even venturing into the very traditional world of commodities trading. The new generation, already interested in industries that have a future like clean energy, have an appetite for Bitcoin that will only increase as they get older and look for ways to invest their wealth to secure the future.
Bitcoin certainly has a place in your portfolio. It’s up to you to decide how it fits in your investment strategy.
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