Is bitcoin a good investment? A guide for Canadian investors
Is bitcoin a good investment in 2021?
In terms of absolute numbers, bitcoin’s dominance is undeniable. As king of crypto, it clocked a staggering 300% gains over a one-year period, handily topping the 31% gains for the S&P 500 and 40% for the S&P/TSX Composite Index, for the same time frame, as of June 9, 2021.
This is after bitcoin’s steep plunge in April 2021 from its all-time high price of more than US$64,000, wiping out nearly half of its market cap.
As with any other speculative investment, your losses and gains could be magnified by investing in bitcoin, says Tina Tehranchian, senior wealth advisor at Assante Capital Management Ltd.
“At this stage of the game, it is a very high-risk investment that should only be attempted by those who have the stomach for the price volatility and can afford to lose their bitcoin investment,” she says.
One way to smooth out bitcoin’s volatility is to buy right and sit tight, notes Gaby Hui, director at Merkle Science, a predictive blockchain monitoring and investigative platform that helps crypto companies, financial institutions, and government entities prevent illegal activities using cryptocurrency.
“Purely by looking at crypto versus equities performance over the last few years, it [bitcoin] is worth the risk,” she says, but with the caveat that investors should keep an eye on a longer horizon and not be startled by bitcoin’s fluctuations.
Another argument in bitcoin’s support points to “studies that have shown that bitcoin is weakly correlated to equities and that by adding exposure to it, you can create a more efficient portfolio,” Hui says.
Fears of rising inflation have also provided fuel to bitcoin’s appeal. In fact, investors with some risk appetite are already buying bitcoin in place of gold, a safe-haven asset held to protect against inflation. “Gold has been used for decades as a hedge against inflation, the way investors are using bitcoin today,” Hui observes.