Investing in bitcoin is not for the faint of heart. It can be unpredictable, volatile, and price swings wildly. But if you follow specific investing rules and do your research, you should be able to take advantage of bitcoin’s high returns while minimizing your risk. In this article, we’ll talk about why bitcoin has historically been deemed a highly volatile asset, what drives that volatility, how you can mitigate that risk, and why a bitcoin investment isn’t inherently riskier than other investments or maybe even less risky.
The cryptocurrency has historically been deemed a highly volatile asset, driven by speculative market action. This can be attributed to its lack of intrinsic value and use in illegal activities such as money laundering, tax evasion, and drug trafficking. It has also been called a bubble, a Ponzi scheme, fraud, and a scam. It’s easy to see why these opinions have so many beliefs. Bitcoin’s price fluctuates wildly from day to day. Furthermore, there are a lot of scam sites so better use a trusted website like the Bit Index AI platform if you are planning to start bitcoin trading. You can trade the prices here. It’s nearly impossible to evaluate objectively; most of its users are anonymous.
A bitcoin (BTC) investment is not inherently riskier than other investments. So what does this mean for bitcoin investors? In short, it’s still a nascent technology and asset class that is not correlated to any other. If you’re looking for diversification in your portfolio and want a new asset class with potential upside, then investing in bitcoin could be an option.
Bitcoin’s volatility has been compared to that of gold, and it turns out that the comparison is very apt.
- Bitcoin’s volatility has been lower than gold’s over the last couple of years.
- Bitcoin’s volatility was higher than gold’s for a period in 2017 but then dropped again in 2018.
These facts should not be surprising if you understand how Bitcoin and gold are similar. Both are scarce commodities whose price is determined by supply and demand. If you think about it this way, there will always be some difference between how much one of them costs in dollars versus another currency or commodity. And this difference can vary over time depending on what else is happening in the world (like geopolitical events or changes in monetary policy.
Bitcoin’s returns are superior to gold and traditional assets such as stocks, bonds, and commodities. From its inception in 2009 to the present day, Bitcoin has returned over 2,900%, whereas gold has only returned 685% during the same period. When we look at other traditional assets such as stocks, bonds, and commodities, Bitcoin still outperforms them all by a wide margin:
Stocks have returned 1,440% since 2009, while bitcoins have gained 2300% over the same timeframe. Bonds have earned investors 710%, on average. Commodities have delivered an average return of 50%.
If you’re a stock investor, then any time a new fund launches, it seems like your next step is to call your broker and ask if they’ll offer access to it. That’s not yet the case with bitcoin-based investment vehicles, but that doesn’t mean it won’t be soon.
Bitcoin ETFs have been in the works for years now. Although there’s no concrete timeline for one being approved by U.S regulators (and many believe approval will never come), other options are available today that let investors track bitcoin’s performance without worrying about buying actual cryptocurrency.
For example, The Bitcoin Investment Trust (BIT) offers liquidity without buying actual BTC tokens. BIT owns bitcoin on behalf of shareholders at prices set daily by Grayscale based on their index value. The trust also distributes all gains realized through this trading activity as ordinary income or loss distributions which may qualify for long-term capital gains treatment depending on how it held long shares before the sale.
Bitcoin has faced many challenges over the years, but it continues to be a force in the financial world. Its decentralized nature means that no single person or organization can control it, and this could prove to be its most powerful asset in the long run. The idea of cryptocurrency has been around for decades, but only now are we seeing how it could change our lives for good.