Is Bitcoin a Good Investment?

Bitcoin has been in the news today as it surged to all time highs of $20,000 USD yesterday, and not content to take a breather there, it is currently sitting above $22,000

This has a very different feel to 2017 when Bitcoin last peaked off the back of speculation before losing 80% in value.

The difference now is that Bitcoin is being driven by asset allocators not speculators. We are now seeing investment banks, and hedge fund managers suddenly show interest in bitcoin as a store of value and consider that it is worth holding around a 5% Bitcoin allocation in clients portfolios.

The catalyst has been that 3 legendary US investors have recently gone out on a limb and opined that Bitcoin has strong investment potential, and this has started to give Bitcoin a more socially acceptable dimension to those with serious money. Add to that, Paypal and Square are allowing customers to easily buy Bitcoin through their apps, and now we have investment banks preparing to invest their clients into Bitcoin when they wouldn't go near it in 2017

If asset allocators really do embrace bitcoin as a part of clients portfolios, then the price of Bitcoin has significant upside potential.

However, despite the overall bullishness, we do have some words of caution. This is a very volatile investment that has lost more than 80% many times, and we expect it to happen again in the future.

It is also a dangerous asset to trade in and out of because of the high volatility. It will get you to sell low and chase the higher prices, so the smart investors would simply see bitcoin as a small % holding in their portfolio and rather than make a particular prediction about Bitcoin, they would just see this as a portfolio construction.

It requires an unemotional approach to invest in this area but we are certainly seeing more asset allocators showing interest in Bitcoin and with the supply of Bitcoin being capped at 21 million, this should mean more buyers than sellers.