Today is the last day of the year and the price of bitcoin reaches historic highs of around $ 28,800. Since the beginning of the year I have been saying that bitcoin is a good investment and whoever did it has my congratulations because those who invested at the beginning of the year have already quadrupled the investment.
With the recent digital currency race and the subject coming up at family reunions at the end of the year, the question is repeated: is it still worth investing in bitcoin?
My answer is: it depends!
Who should invest in bitcoin?
Bitcoin is a speculative asset. Like gold! It produces nothing! It only has a price that is affected by supply and demand. In this type of asset, I look at the problem as a matter of probabilities in the face of external factors.
What is certain is that as I have been predicting, institutional investors have finally started buying over the course of this year and will continue and even increase throughout 2021. As they move a lot of money, it is inevitable that they will affect the price. With just that argument one would expect the price to continue to rise but there is a down side: the small investor who was burned in 2017/2018 is now reaping some rewards and selling at some profit to be able to say he has not lost money.
Furthermore, the consequences of the covid-19 on the economy are still unpredictable. I wouldn’t be surprised if suddenly small investors started having to sell bitcoin to pay the bills.
In view of the current circumstances, I cannot say with any degree of certainty how likely the price is to go up or down.
So what should we do?
My suggestion is as follows: It makes sense to have a small percentage of a portfolio allocated into bitcoin. At least for me! Even with the high levels of risk I see today. Between 3 and 5% of the portfolio allocated to bitcoin seems to me a sensible choice. More than that becomes almost lunacy and less than that is also unwise, because we still have a good chance that the price will continue to rise and inflation will start to eat away at our small euros and dollars.
Buying bitcoin in order to get rich quickly is a very bad choice and the most probable outcome in that case is to get poor quickly.
Bitcoin is a very speculative asset that in my view only takes place in a well-structured portfolio with well-defined objectives.
Who should NOT buy bitcoin?
- Those who need the money!
- Those who think they will get rich with bitcoin
- Those who do not yet have a well diversified portfolio with other assets
Most (non-institutional) buyers are young people who understand the technology. For the, loosing their entire portfolio is not a big deal. Their “portfolio” is one or two paychecks that they easily can recover and betting on bitcoin is something that gives them the hope of being rich quickly. In that case I emphasize BETTING. I have nothing against them, it’s thanks to them that bitcoin exists but for those who take money seriously, doing all-in in bitcoin is (in my humble opinion) crazy, especially at today’s prices and circumstances.
The bottom line
Let’s have a 2021 with a $ 50,000 bitcoin. I believe the price will reach $ 50,000 sometime in 2021 or 2022 but from now until then we have a strong chance of bumps and sharp drops in the price.
I keep 5% of my holdings in bitcoin and I suggest keeping between 3-5% for the cases I have already mentioned.
Read also: Best altcoins to invest in 2021
Note that I am just another guy with an opinion and not a financial advisor.
Good luck with your investments and happy 2021!