Bitcoin—Bonanza or Bust?
Updated: Nov 18, 2021
Bitcoin is in the news. Should you have it in your investment account?
At Novak Wealth, we deconstruct the lure and promise of bitcoin for our investors. Ignoring the hype and working with years of experience managing high-value portfolios, our first response to any financial services or financial instrument is to do our research. Then, we spell it out plainly for you to make the best decision for your portfolio strategy.
Bitcoin is expensive—is it worth it?
As you may have read recently, the price of bitcoin is growing exponentially fast. The average return on bitcoin is 200% per year, compared with Tesla 63%, Amazon 33% and the stock market at 11%. In total there are 3.24 trillion dollars invested in cryptocurrencies, as compared to gold with about 12.4 trillion. Cryptocurrencies are quickly becoming a sizable asset class.
We think it’s worth it. In fact, more large companies and smart people are getting involved in blockchain technology and cryptocurrencies every single day. Mastercard and Visa are preparing options to let cardholders exchange their reward points for bitcoin and other cryptocurrencies. Twitter is planning to incorporate bitcoin, Tesla bought over a billion dollars’ worth of bitcoin to hold on its balance sheet. Microsoft is deeply involved in blockchain technologies. And countless tech-savvy talent is leaving big tech companies and moving to blockchain and cryptocurrency companies.
What about your portfolio?
The case for bitcoin is growing stronger every day. But does it deserve a spot in a high-net-worth investors portfolio? Some would say, not yet—prudency counsels you wait. But others would say the adoption of this technology is growing faster than the adoption of the internet when it was introduced to the world in the late 90’s. In addition, this growth is something a smart investor might be unwise to ignore.
Do you have the stomach for it?
When considering adding bitcoin and ethereum to your portfolio, the first and second-largest cryptocurrencies, even a small amount like 1% or 2% can have a diversification effect on your portfolio, but of course there will be a lot of volatility in that portion of your portfolio. In addition, other cryptos like meme coins shiba inu and dogecoin that Tesla CEO Elon Musk touted a couple of months back deserve a great big dollop of healthy caution.
Your 2% allocation to cryptocurrency could grow to 4% over a few months and drop down to 1% a month later, if you’re comfortable with volatility, and you want to be involved in this asset class, it’s available for you to access directly or in the form of an ETF which is eligible to be put inside your TFSA investment account. According to CNN Business, Ethereum is now at $4850 and has gained 560% this year. Bitcoin grew “only” 135% to $70K. Crypto investors know that as inflation soars, digital currencies are gaining value when interest rates are low and as central banks continue to throw money at the economy. Over time these assets are becoming more attractive and are attracting the interest of high-net-worth investors. These investments can quite easily be incorporated into a high-net-worth strategy, just as we manage everything in your financial picture. But just because something sounds trendy doesn’t mean it is—and the maturity of crypto plus some solid patterns across growth since inception allow savvy investors to take part in its promise.
A studied, steady approach
Here at Novak, we continually examine these trends and confer with our in-house experts about how, when and why to add cryptocurrency to our portfolios.
We focus on building diversified and stable investment portfolios for high-net-worth clients, but we’re not opposed to a small allocation to an explosive asset class like cryptocurrencies.
Click to watch a quick video about our core investment strategies to secure and grow high-net-worth investment portfolios.
If you want to talk more about how an allocation to bitcoin could work with your portfolio, schedule a call with an advisor.