The Bitcoin Stock Debate: Practical Investment Advice for the Long-term Investor

Bitcoin Stock Divide

You can’t go an hour on cryptocurrency forums, subreddits, or Twitter chats without hearing the advice to hodl. For the uninitiated, “hodl” has become the rallying cry for the cryptocurrency community. It sums up the advice to hold your assets, even in the face of market volatility. Hodlers take the view that blockchain will win out in the long term, so investments in Bitcoin, Ethereum, and other projects should be long-term plays. With this talk of holding long-term, the Bitcoin stock divide grows. Investors want to know where to put their assets to maximize growth while avoiding risk.

Long-term investing in cryptocurrency is at a turning point. Now, institutional investors and private equity are starting to take notice of the gains to be had from cryptocurrency. Legitimate investing tools like mutual funds and portfolio balancers are gaining traction. The New York Stock Exchange even lists a Bitcoin index (NYXBT). Crypto is no longer a fringe subculture. It’s rapidly gaining recognition and legitimacy.

Crypto’s climb as a legitimate investment vehicle has left many investors curious. Could I invest in crypto on the order of decades? Is putting my retirement savings in cryptocurrency a good idea?

While I’m sure some crypto diehards out there would enthusiastically say yes, this article takes a more measured and nuanced approach. If you’re talking about true long-term investing, on the order of decades, adding diversified crypto as part of a complete portfolio does have some advantages. There are also serious drawbacks that mean you should keep investing in the regular stock market as well. However, the Bitcoin stock divide doesn’t have to be a divide at all if you adopt the right strategy.

Growth Potential

There’s no question that investing in Bitcoin and other cryptocurrencies has massive growth potential. Between Jan 1, 2017 and Jan 1, 2018, the S&P 500 grew 22%. That’s an enormous year for the stock market. Over the same time period, Bitcoin grew 1300%. It’s incredible the return on investment a cryptocurrency trader can see.

Admittedly, 2017 was a massive year for Bitcoin and all cryptocurrencies. The Bitcoin stock comparison isn’t exactly fair for 2017. The truth is we don’t yet have enough historical data on Bitcoin to predict average annual returns. 2017 was such an enormous anomaly of a year that we’d be making a mistake to assume all years will be similar.

For the foreseeable future, there’s a good chance many cryptocurrencies will continue to appreciate in value. Blockchain adoption is only accelerating and many projects will become more valuable as it does. The overall growth potential for a long-term investment in crypto far outweighs the potential for stock market investment.

Volatility

The massive upside and crushing downside are two sides of the same coin when it comes to crypto. In a bear market, any investments you made at the peak quickly deteriorate. It can be difficult to stomach the losses when you’re hodling long-term. More difficult, however, are the losses that never recover.

While blockchain and distributed ledgers are likely to win out in the end, there’s no guarantees that any of the current blockchain projects on the market will end up being successful. Projects that seem like a good idea today could tank next year. This is the reality of long term investing in the crypto space. The challenge is picking winners and staying on top of your investments when things look like they might start to go awry.

That’s a lot of work and risk for a retirement account or college savings plan for your kid. Cryptocurrency investing is still so speculative that it feels incongruous to think about it in the context of retirement or college savings.

Volatility and speculation is a major reason why the traditional stock market still makes sense as an investment vehicle for long-term, predictable returns. Of course, there’s no guarantees there either. If you were planning on retiring in 2009, you probably had to work another 5 years before your portfolio stabilized. On the whole, however, we can predict the stock market much more easily than we can crypto, and it’s rare that a public company’s stock goes to zero.

Diversification

One way to mitigate volatility in long-term investing is diversification. Instead of betting it all on one or a handful of projects, consider buying a small stake in a lot of projects. All it takes is one look at coinmarketcap on an ordinary day to see why this makes sense. At any given time, some projects are gaining while others are losing. Diversification helps you average out the gains and the losses. Sure, it mitigates the massive growth potential, but it also tempers the losses.

Diversifying makes crypto a more attractive investment that still has big upside with less volatility. However, determining which projects to invest in and at what allocation can still be time consuming. Additionally, you’ll need to…

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