Like gamblers wagering on the Super Bowl, BetDSI.eu (Diamond SportsBook International), an online odds-making operation, has opened up odds on Bitcoin prices and other cryptocurrencies like ethereum and bitcoin Cash.
Bitcoin, which is currently trading in the $4,130 range (it had crested $4,400 on Aug. 14), is tracking on an upward curve, not only at BetDSI.eu but with major Wall Street investment firms, too.
Consider this, BetDSI.eu pegs bitcoin’s price at the end of 2017 at $5,000. That’s not so far off of Goldman Sach’s end-of-year pricing estimate of $4,800 (although Goldman’s tech analyst has Bitcoin dropping significantly after reaching that figure.)
With the prices of cryptocurrencies skyrocketing, investors may wonder if bitcoin is a good portfolio play right now — before the market calms down, as Goldman suggests. The cryptocurrency comes with its share of caveats — it’s unregulated, highly volatile and its total inventory of 21 million bitcoin is considered limited by currency and commodity traders. Even so, business and investment professionals are fairly bullish on bitcoin and its underlying technology, despite its “new kid on the shady side of the black” status.
“Bitcoin surpassed its all-time high, exceeding $4,000, a significant development and more evidence of the increasing importance of blockchain-based technology as an asset to the future of our economy,” says Perianne Boring, founder and president of the U.S. Chamber of Digital Commerce. “More and more leading companies are investigating and adopting blockchain technology, a practice that will be valuable to consumers and businesses for its ability to trim costs, provide better, faster service, and greater cybersecurity, among other aspects.”
[Read: How to Unlock Blockchain’s Investment Potential.]
If you’re thinking about hopping aboard the bitcoin bandwagon, make sure you educate yourself on the topic first — no matter how fast it’s growing.
“I advised one of my clients to invest in bitcoin when it was $27 — he had some money and could afford the risk,” says Michael Minter, founder of Mintco Financial in Tampa, Florida. “The client didn’t invest because he didn’t feel comfortable investing in something, in his words, ‘I didn’t have a clue about.'”
Later, Minter advised his brother to get into the cryptocurrency market when Bitcoin was $500 a share. “I told him that if he wanted to take some risk, go for it,” he says. “My brother is still young, and his money was not working for him at that time we discussed cryptocurrencies.”
Minter’s larger point is this: Despite the high prices of bitcoin, only invest in things you know and believe in, and will hold long term. That’s where education becomes a big priority. “You should ask yourself if you would use bitcoin, if you really understand it and if you think people will be using it several years from now, and what will be the advantages of using it,” he says. “If you answer yes to these questions, why not? Just invest in bitcoin in small amounts and learn from the experience.”
Even after you educate yourself, Wall Street professionals urge special caution, given bitcoin’s unique investment model. “Bitcoin is about as speculative as you can get with an investment,” says Mark Painter, a money manager at Everguide Financial Group in Berkeley Heights, New Jersey
Painter, who sees more clients asking about bitcoin these days, says he doesn’t think many people understand the real impact of cryptocurrencies, and what effect they will have down the road.
“The most important thing is educating the client on the risks,” making sure that they understand that cryptocurrencies should not comprise a large part of the portfolio and that investors should be comfortable with the idea of losing everything, he says. “Once a client understands these risks and is comfortable, I have moved small pieces (less than 5 percent) into bitcoin for them. This allows them to participate without dramatically affecting their overall portfolio construction.”
[See: 10 Long-Term Investing Strategies That Work.]
Other investment professionals agree, adding that in the portfolio management game, especially for regular retirement investors with limited downside risk, bitcoin can be treated with interest, but with especially careful interest.
“Bitcoin is still a volatile and speculative investment, even if it’s grown exponentially the past year or so,” says Evan Tarver, investments analyst at New York City-based FitSmallBusiness.com. “Since it’s a currency, its value is affected by a lot more than just the performance of a company, as is the case with a stock or something similar, and investors should know that.”
However, depending on the investment risk profile of the client, bitcoin might be interesting, Tarver says. “I wouldn’t suggest putting your 401(k) into it, but if you have cash lying around to make some higher risk, higher reward investments, bitcoin might be the investment vehicle for you,” he notes.
Tarver advises investors to limit themselves to either a buy-and-hold or a high-frequency day-trading type of strategy. “However, it looks like in the future there will be mutual funds, hedge funds and exchange-traded funds that track the movements of cryptocurrency, and they might provide the best opportunity to invest,” he adds. “With those tools, you can spread and reduce your risk just like with any fund or ETF.”
[See: 6 of the Most Unusual ETFs You Can Buy.]
Cryptocurrencies aren’t for everyone, especially if you’re nearing retirement and can’t afford a big portfolio loss. But if you know what you’re doing, have cleared the investment with a financial professional and start with small investments, bitcoin can be an interesting experience, investing-wise, and in the short term at least (if the odds makers are right), a profitable one, too.
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Does Bitcoin Belong in Your Portfolio? originally appeared on usnews.com
