Bitcoin Cryptocurrency Photo: OpenAccessGovernment.Org

Bitcoin at $23,000: What investors need to know before jumping on the bandwagon

*Expert traders warn investors not to abruptly crank up their risk appetite or make radical changes to their portfolios just to accommodate crypto

Isola Moses | ConsumerConnect

Veteran crypto traders and market experts offer their insights on the volatile virtual currency.

If there was ever a fear-of-missing-out moment, it was Wednesday, December 23 when Bitcoin hit $20,000 and then just kept on going, Bloomberg report said.

Incidentally, for years, critics have decried the cryptocurrency as a fraud, a rip-off, a sucker’s bet that has no useful purpose in the real world, and that it is simply a vehicle for pure speculation like the tulips of the Dutch Golden Age.

In spite of the cutting criticisms of the investment instrument, Bitcoin has surged more than 370 percent since its 12-month low March 16, 2020, and boosters are giddy. FOMO is indeed running hot, according to report.

However, before you sink your savings into an asset that can drop 10 percent in a morning with no warning, it may be wise to heed the advice from veteran crypto traders and market experts.

According to experts, there are a lot of forces at work in this run-up only now coming to light, and serious questions about what comes next.

Of course, there have been big swings in recent memory. In 2017, for instance, Bitcoin fired investors’ imaginations with a monster rally.

The holiday season that year was filled with talk about the latest crypto to hit the market and a future of digital cash.

But Bitcoin crashed hard in 2018, losing about 80% of its value. Investors still don’t really know why.

But what’s different now? It was learnt that this time around, the first thing you need to know is that the surge isn’t driven just by wide-eyed retail investors. The financial establishment is throwing its weight into crypto, too.

In recent weeks, PayPal Holdings Inc., Visa Inc. and even the 169-year-old Massachusetts Mutual Life Insurance Co. have embraced Bitcoin in some way.

In the meantime, hedge-fund stalwarts such as Eric Peters and Alan Howard, the co-founder of Brevan-Howard Asset Management, are investing hundreds of millions of dollars in Bitcoin as well.

Rising mainstream acceptance of cryptocurrencies is one of the big drivers in this rally.

Still, new investors should be clear-eyed about what Bitcoin is truly good for.

On how Bitcoin is actually being used, the asset invented 12 years ago as a new form of decentralised, universal money has actually failed to fulfill that role, says Frances Coppola, an economist and author of “The Case for People’s Quantitative Easing.”

That’s why PayPal’s decision to permit accountholders to use Bitcoin to buy things from its worldwide network of merchants is going to be such a revealing experiment next year.

What was remarkable about Bitcoin’s performance this year is that it’s starting to be described as a go-to asset in hard times.

Gold has owned that role for millennia. But in 2020, the precious metal has underperformed Bitcoin, report stated.

There is mounting evidence that investors are opting for the digital currency as a way to hedge economic risks, especially the devaluation of major currencies that may be triggered by the tsunami of fiscal and monetary support that’s flooded the world’s major economies.

Coppola in a live chat by Bloomberg Wednesday stated: “I don’t think investors are interested in Bitcoin as a medium of exchange.

“I think they see it as a speculative asset and as an inflation hedge.”

This is a key reason why Peters, Head of One River Asset Management, is preparing to hold up to $1 billion in Bitcoin and Ether, the No. 2 cryptocurrency, by early 2021.

“It’s trending in that direction for sure,” added Dave Weisberger, the Co-founder of and Chief Executive Officer (CEO) of CoinRoutes, a United States cryptocurrency software firm.

Weisberger noted that investing in Bitcoin is like making a bet that someday it truly will be the equivalent of gold.

Meanwhile, as seasoned retail investors are excited by the historic performance, experts are urging newbies to cool their jets.

“It’s a hold for now,” says Jay Smith, a longtime crypto bull and widely followed investor on the eToro trading platform.

“We are entering new territory, and it feels like Bitcoin is finally being accepted as a new asset class, but there is still a long way to go.”

Other traders also warn investors not to abruptly crank up their risk appetite or make radical changes to their portfolios just to accommodate crypto.

Heloise Greeff, an investor based in Oxford, England, believes that Bitcoin is the “new gold” and is tempted by the run-up.

Yet she’s not going to rip up her investment approach.

Greeff, who pocketed a 44% return so far this year without taking the plunge, said: “For a moderate-risk portfolio like mine, investing in Bitcoin is like buying a lottery ticket.

“Someday I might do it, but I will assess the risk accordingly.”

Then there are those who are totally cool with just sitting out the Bitcoin story altogether.

Teoh Khai Liang, a Malaysian trader on eToro, expects Bitcoin’s price will probably continue to increase and buying it to diversify a portfolio isn’t the worst idea in the world. But he just can’t make his peace with its speculative nature.

Liang, whose portfolio is up 59 percent this year stated: “Bitcoin has been in the market for more than 10 years; so why buy at an all-time high?

“I would caution retail investors who want to get involved with Bitcoin — don’t. Don’t buy, don’t hold, don’t sell. Just stay away from this.”

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