Should You Invest in Bitcoin?

If you’re worried about Bitcoin’s volatility, you could consider diversifying into passive ETFs like the iShares S&P/TSX 60 Index Fund (TSX:XIU).

| More on:
Where to Invest?

Image source: Getty Images

Bitcoin has been having a rough month. From April 30 to May 30, it fell 41% in price. A number of theories have been offered to explain the selloff, such as Tesla banning Bitcoin sales,China banning banks from offering Bitcoin and whale accounts dumping large quantities.

Ultimately, nobody knows exactly why Bitcoin moved the way it did over the past month. The bigger question is whether now is the time to invest. When a high-quality asset goes down in price, that provides the opportunity to profit on the upswing. Bitcoin certainly looks like it’s in that boat right now. But is it actually such a high-quality asset that you can count on it to rise again?

Bitcoin is extremely volatile

The first thing you need to know about Bitcoin is that it has always been volatile. Since topping $100, it has fallen 80% on two occasions, from 2013 to 2015 and in 2018.

The crash we’ve seen this year has been nowhere near as bad as those were. In the early days, Bitcoin would go up and down 10% in price on almost a daily basis. So, the recent volatility doesn’t mean Bitcoin is finished. It is, frankly, typical for the asset class that Bitcoin belongs to (cryptocurrency).

Some real concerns

While Bitcoin’s recent volatility doesn’t mean it’s finished, there are some real concerns with BTC overall. Among other things, it still isn’t widely used for legal transactions and is widely used for illegal activities, like the recent $5 million extortion attack on a U.S. pipeline. Companies that have tried to start accepting Bitcoin have in many cases reversed course. Tesla is one example and the Valve Corporation is another.

Broadly, it doesn’t look like Bitcoin is going to be the future of money. In a recent article, Paul Krugman noted many issues with Bitcoin’s mainstream adoption, ultimately concluding that it is not a significant contributor to legal business activities. He also noted that “bubbles” can last an extremely long time, and that Gold has been gaining in value for 100 years despite no longer being used as a currency.

Foolish takeaway

If you’re concerned about Bitcoin’s volatility but still want to invest, there is one thing you definitely can do:

Supplement any Bitcoin you buy with a much larger position in an index fund like the iShares S&P/TSX 60 Index Fund (TSX:XIU). It’s pretty common for portfolio managers to put 90% of their money in passive investments like XIU, and 10% in more speculative stuff. Having a portfolio that’s 10% Bitcoin and 90% index funds would seem to fit with this strategy.

XIU is just one index fund among many that you could include in your portfolio. With 60 stocks, high liquidity, and a low 0.16% fee, it’s pretty good. But ideally, you’d have a mix of Canadian stocks, U.S. stocks, global stocks, and a variety of bonds in there too. All of that together would be 90% of your portfolio if you followed the strategy I’m describing. The remaining 10% could be things like Bitcoin, “hot stocks,” and precious metals. Not a bad way to play it mostly safe while still having a bit of fun. And if you did this, you could realize a positive return eventually even if your BTC climbed to $0.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button owns shares of iSHARES SP TSX 60 INDEX FUND. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »