Do you think a beginner should invest in Bitcoin ETF?

Investors nervous about the stock market might be looking for alternative investments, like Bitcoin. When considering cryptocurrencies, though, it’s important to assess your overall portfolio goals and risk tolerance.

Learn about investing in Bitcoin overstocks in a way that may help you decide whether adding the cryptocurrency to your portfolio is the right move for your situation.

Bitcoin Risk vs. Stock Risk

Investments carry risk. The market could crash for various reasons. Companies could go bankrupt. Or, in a positive sense, a stock could soar over time. Weighing risk is important when you decide to add different assets to your portfolio.

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“With an individual stock, there are risks,” Kirk Chisholm, a wealth manager and alternative investment specialist at Innovative Advisory Group, told The Balance via phone. “There’s a risk that it won’t grow, dividends might be cut and many people compare performance to the S&P 500, which means you run the risk of trying to keep up with the Joneses.”

However, he pointed out, these are risks common with many investments. Stocks are different because there is some guidance you can use to get an understanding of where a price might go.

Bitcoin History vs. Stock History

While you can’t base future performance on the past, it’s useful to take a look at how different investments have fared over time.

In 2015, Bitcoin’s price fluctuated between $200 and $500 per coin. However, during 2017, the price suddenly rose, reaching a high of $19,891 in December, before dropping below $3,500 in December 2018. In 2020 alone, Bitcoin’s price has bounced between $3,858 on March 12 and $9,074 on July 5.

Stock growth hasn’t been as dramatic, but it’s also been more stable since 2015. The S&P 500 index remained at right around $2,000 in early 2015. While there have been ups and downs since then, the S&P 500 is around $3,100 as of July 2020.

The Dow Jones Industrial Average (DJIA) hovered between $17,000 and $18,000 in early 2015. In December 2017, when Bitcoin was peaking at nearly $20,000, the DJIA was at about $24,000. As of July 2020, the DJIA is around $25,000.

Who Is a Good Fit for Bitcoin?

Bitcoin may make sense if you’re looking for a little extra diversity in your portfolio. Cryptocurrencies like Bitcoin provide alternatives to more common assets.

“Bitcoin is helpful if you want to have some assets that aren’t denominated in the dollar or other home currency,” Stein said. “It’s a way to hold some assets away from the dollar.”

In general, even if you feel like Bitcoin is a good fit for your portfolio, Stein and Chisholm agreed that it probably shouldn’t be the main focus of your investment strategy. It’s mostly about how much risk you have and can tolerate, and whether you’re comfortable with losing that amount in your portfolio.

Is It Still Worth Investing in Bitcoin?

Gone are the early days of Bitcoin when you could buy one coin for less than $1,000. With that in mind, along with the dangers involved, you may wonder if it’s too late to invest.

“If you believe in the thesis of Bitcoin, there’s still good reason to consider it, but be careful about how much of your portfolio you devote to it,” Chisholm said.

Stein said he has about 3% of his portfolio invested in cryptocurrencies, so he thinks it’s worth making an investment if it fits your goals. Plus, if you think that it will gain ground in the future due to the limits placed on production as well as potential adoption, it could be worth an investment.