This is the only reason to invest in Bitcoin

Should you add the cryptocurrency to your portfolio?

| More on:
man thinking about whether to invest in bitcoin

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Are you thinking about investing in Bitcoin (CRYPTO: BTC)? You aren't alone. The virtual currency has become a very popular investment and with good reason. It's the most well-known of the cryptocurrencies. And unlike many other tokens, at least some businesses actually accept it as a payment method. It's also a favorite of celebrity investors and financial gurus including Elon Musk and Suze Orman. But before you bite the bullet and purchase some, it's crucial to make sure adding it to your portfolio is actually a smart move. And to do that, you need to consider your investment goals. That's because there's really only one good reason to add the virtual currency to the list of the investments you own.

You should invest in Bitcoin if this is your goal

If you're hoping to make a quick profit on Bitcoin, or your investing objective is to become a crypto millionaire, adding it to your portfolio could be a decision you'll come to regret. That's because timing your investment perfectly to see short-term gains is really difficult when the price of the cryptocurrency fluctuates so much. And Bitcoin would likely need to see much more widespread adoption before it has a solid chance of becoming a millionaire maker for most people who invest reasonable sums in it. But there is a good reason to add Bitcoin to your portfolio. In fact, the best and only reason why most investors should purchase some of the tokens is if doing so helps to build a diversified portfolio. In other words, if you've made a reasoned choice that you should have some exposure to cryptocurrencies along with your other assets, then Bitcoin could be a good buy. Diversification is essential to successful investing. When you spread your money around a broad mix of different assets, you stand a better chance of some of them performing really well -- even if others don't. You also reduce your risk from any individual investment, since you are limiting the amount of cash you put into it. Bitcoin is one of those assets that could outperform your expectations, potentially providing much higher returns than many other investments out there. That's because it's one of the safer crypto investments due to the solid team behind it, its established reputation, and the innovative blockchain technology it's built on. But you could also lose most of your money if it falls out of favor due to its environmental effects or because other cryptocurrencies turn out to improve upon its payment capabilities. The crypto market is also largely unregulated, relatively new and untested, and is extremely volatile -- much more so than the stock market. And the cost of virtual currencies can often become divorced from their underlying value, driven instead by social media hype and celebrity tweets. Because of the outsize risks, it's especially essential to purchase Bitcoin or any other cryptocurrency only as part of a well-balanced portfolio that gives you exposure to an appropriate level of risk based on your investment timeline and goals. So if you're thinking about adding Bitcoin to your portfolio, make absolutely sure that it fits within your broader pool of investments in a way that's likely to help you accomplish your long-term objectives. If you do that, you should hopefully end up happy with your decision in the long run.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A man looking at his laptop and thinking.
International Stock News

Why Alphabet stock was sliding today

Let's take a look.

Read more »

A man looking at his laptop and thinking.
International Stock News

Nvidia's stock was down despite its amazing earnings. Here's what history says is coming next

Although it might seem to defy logic, it's not an uncommon phenomenon.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Nvidia share price slips despite 94% revenue growth

Q3 earnings beat expectations, but what about guidance?

Read more »

high, climbing, record high
International Stock News

Could the S&P 500 Index hit 6,500 by the end of 2025?

Could the index climb higher?

Read more »

a small child holds his chin with his head on the side in a serious thinking pose against a background of graphic question marks and a yellow lightbulb.
International Stock News

Is it too late to buy Nvidia shares?

Is Nvidia stock a buy ahead of its third-quarter earnings report tomorrow?

Read more »

a group of people stand examining a large glowing cystral ball held in the hands of one of the group members while the others regard it with various expressions of wonder, curiousity and scepticism.
International Stock News

Here's what to expect from Nvidia on November 20

Can Nvidia score another win?

Read more »

Two people lazing in deck chairs on a beautiful sandy beach through their hands up in the air.
International Stock News

2 no-brainer Warren Buffett stocks to buy right now

While replicating Buffett's success isn't possible, there are a handful of his investments that are no-brainer buys.

Read more »

A man with a beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.
International Stock News

3 reasons to buy Nvidia stock before November 20

This week marks a big moment for tech investors as perhaps the most anticipated earnings of the year will be…

Read more »