Wednesday, August 10, 2022

How Much Bitcoin Should I Own

Are Cryptocurrencies Legal


Theres no question that theyre legal in the United States, though China has essentially banned their use, and ultimately whether theyre legal depends on each individual country. Also be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors. As always, buyer beware.

Why Am I Investing

First, assess why you want to invest in the first place.

If you’re just afraid of missing out, then you should probably pause before moving forward. It’s important to truly understand bitcoin, cryptocurrency or any asset prior to investing in it.

“‘Educate before allocate’ is a phrase that me and my friends are using,” says Boneparth, who has invested in bitcoin since 2014.

Taking a step back may be difficult, especially now as bitcoin hits an all-time high, but it’s worth taking some time to research what it is, how it operates and what the risks are before parting with your money.

Do You Have To Pay Taxes On Cryptocurrency

If you buy and sell coins, its important to pay attention to cryptocurrency tax rules. Cryptocurrency is treated as a capital asset, like stocks, rather than cash. That means if you sell cryptocurrency at a profit, youll have to pay capital gains taxes. This is the case even if you use your crypto to pay for a purchase. If you receive a greater value for it than you paid, youll owe taxes on the difference.

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Is Bitcoin Bad For The Environment

The digital currency uses as much power as the Netherlands every year, with just 30 countries using more energy, according to researchers from the University of Cambridge.

Computers that mine bitcoin use up to 1% of the worlds electricity supply.

While some of bitcoins consumption is renewable , fossil fuels are still being used to power the mining and servicing of the digital currency.

This is why electric car manufacturer Tesla has stopped accepting crypto payments, causing bitcoin to fall.

Which Are The Three Biggest Cryptocurrencies

How Much Bitcoin Should You (I) Own

Bitcoin launched in 2009 and remains the market leader. Its market capitalisation effectively its total worth is $1.017bn, as at April 28 2021.

Ethereum and Binancecome in second and third, with respective market caps of $302bn and $85.5bn.

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What Percentage Of Portfolio To Invest In Bitcoins

Here is how I think how one can go about it.

I would say start with a few thousand Rupees first. Only invest that you wont feel bad about losing.

But just putting some money in it will not do. If you do wish to eventually increase allocation to cryptos in your portfolio, then you also need to learn a lot about these coins and blockchain.

Suggested Listening Three episodes of Hash Power podcast by Patrick OShaughnessy .

Once you begin learning about it, you can increase your allocation to say 1% of your portfolio. At this stage, you are still a crypto-curious person. Dont think of yourself as an expert. Dont let eye-popping returns during this time fool you into thinking that you have mastered the cryptocurrencies. Calm your nerves.

And remember, just like in stocks, even here, you are HODLing for the long term

So how will 1% allocation to Bitcoin and other cryptocurrencies work in practice?

Suppose you have Rs 1 crore portfolio. In that, you now invest 1%, i.e. Rs 1 lakh in cryptos while the remaining 99%, i.e. Rs 99 lakh is in a portfolio of equity and debt.

Now if in a short time your crypto increases 10-fold , then your Rs 1 lakh turns into Rs 10 lakh. And your overall portfolio shoots up to Rs 1.10 crore. Good for you.

But should you just invest this 1% in just Bitcoin or in a basket of other currencies as well?

Further Reading 2 How to split portfolio allocation % between Bitcoin, Ethereum, and Altcoins?

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How Much Should You Allocate To Bitcoin

So how much bitcoin should you have in your portfolio?

Luckily there is a simple formula:

Number of times you’ve written HODL in the past 24 hours+ percentage of times you put the word ‘fiat’ before the word ‘money’ in conversationx 2 if you ever say ‘debasement’ outside of the bedroom your current allocation to bonds= % to allocate to Bitcoin

Obviously Im joking. There is no simple rule of thumb for Bitcoin like there is for shares and bonds. Its far too young and controversial.

Id say less is more. To match gold, for instance, theres still room for a 1% position to grow into a 10% position or to be trimmed en-route while not doing too much damage if it bombs.

Now you might say if you expect an asset to go up tenfold it makes no sense to hold just 1%. I hear you. Just take into account the uncertainty.

The brainiacs at ARK Invest ran a Monte Carlo simulation and found:

Efficient Bitcoin allocations range from 2.55% to 6.55% , ARK says.

Those numbers seem reasonable to me.

Obviously they stand to look ridiculous if Bitcoin goes up five-fold by 2025 or if you can buy three bitcoins for £10 by Christmas.

Thats the nature of investing in highly uncertain super-fast growth.

No pain, no gain

Do not underestimate the pain caused by volatility in your portfolio, even if youre bullish.

If youre a passive investor in broad index funds, you wont be used to seeing truly outrageous overnight moves.

Morningstar also crunched the historical data on allocations and found:

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Three Things To Ask About Bitcoin

Bitcoin is one of those Marmite-y things that people love or hate.

I believe a framework for thinking rationally about Bitcoin in your portfolio is useful wherever you stand and it can help move you towards a sensible middle ground.

Too many people are either all-in on Bitcoin, or else fending it off with scam-repellent barge poles.

Rather than fire emojis at each other on , lets break down whether you should hold Bitcoin with three key questions:

  • #1 What do you think is the future of Bitcoin?
  • #2 Do you need to have Bitcoin in your portfolio?
  • #3 How much should you allocate?

Answer these and you should at least know why you do or dont own Bitcoin, and where it fits into your asset allocation.

Theresa Morrison: 1 To 4% Of Your Portfolio

How Much Bitcoin Should You Own? The 1% BTC Elite Club

How much you should invest in crypto depends on how interested in and aware of the market you are, says Morrison, CFP at the Beckett Collective.

Crypto-aware clients sit in two camps: crypto-savvy or crypto-curious, says Morrison. For the crypto-curious, a 1% diversification can be a way to explore .

For the crypto-savvy, think about your asset allocation and diversification strategies in a similar way as you would with your traditional portfolio, says Morrison. Crypto should be considered an aggressive asset. The holistic picture of both is the important one. Whats the impact on your net worth?

But generally speaking, Morrison recommends keeping any crypto investments below 5% of your portfolio. Once its over 5%, you start to see the volatility swings affect the rest of the traditional portfolio, and most people dont want that, says Morrison.

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Bitcoin And Other Cryptocurrencies Hold A Certain Cutting

Many of us have followed the dramatic rises and precipitous falls of bitcoin, and cryptocurrencies in general, over the past few years. Some may have written them off entirely after 80% declines in 2018, only to see them roar back into investors collective consciousness in 2020. Certainly sentiment has shifted over a short two years more institutional investors are taking a hard look at crypto, and previous naysayers have softened their views.

This all leads to one question: How much cryptocurrency should I own?

Factor #: Profit Tolerance

Although it can seem like stupid advice at first, think about it: if you invest an amount that can get you highly emotional when you lose it, what will happen if you x20 your money?

This happened to a lot of investors back in late 2017 when cryptocurrency was booming. They became millionaires because they made the decision to invest their life savings.

But if they were too greedy to be reasonable about their investment, do you think they sold their positions and took their profits? No. Most of them went back where they were during the 2018 market crash.

Only reasonably-minded investors end up making profits with Bitcoin and cryptocurrencies.

So once again, think about the amount you plan on investing. How will you behave if its worth 20x its initial value in one year?

  • Will you rent a bigger apartment? Buy a fancy car?
  • Will you fall in love with your cryptocurrencies and hold them until you die?

Once again, investing an amount youll feel emotionally detached from is essential, whether your assets go up or down. It will make you a solid investor that will lose less money when the market goes down, and profit more when it goes up.

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How Many Bitcoins Should You Own To Stay A Millionaire

    Bitcoins price collapse creates opportunity to buy more BTC, but how much?

    When AngeloBTC, BitMEXs ex-top trader tweeted that Bitcoin would dip into the $6,000 zone on October 15, most of the traders were skeptical and asked him to delete the tweet, stemming from disbelief that BTC wouldnt dive that deep. 38 days later, BTC dipped below $7,000 and a few days later hit a low of $6,515 on Bitstamp.

    This was an opportune moment to accumulate more BTC. Call me an opportunist for wanting Bitcoin to dip lower but this was a rare occasion.

    Why though?

    Considering how Bitcoins model as a digital store of value is eerily similar to that of gold, there are chances that Bitcoin will reach widespread adoption, perhaps, even challenge gold. If that is to be the case, Bitcoins market cap will hit trillions in the near future, this would easily put the price of Bitcoin in the hundred-thousands.

    Reasons Why Not To Buy Bitcoin

    How much bitcoin should I own?

    Although I believe Bitcoin is a good investment, its not all white, and there are a few reasons why not to buy Bitcoin.

    Bitcoin has been around for a decade now. Many reasons to not buy it have slowly been solved. A few remain though — lets examine them.

    #1: Bitcoin could undergo technological obsolescence

    The most troubling problem on the horizon for Bitcoin may not be hackers, government shutdowns, or similar problems — it could instead be that Bitcoin becomes obsolete.

    Im sure youve heard of Quantum Computing. Its certainly on the lips of every major action movie star. Slowly but surely, quantum computing is moving from the fictional Hollywood sci-fi universe into reality.

    A recent MIT Technology Review reported: The massive calculating power of quantum computers will be able to break Bitcoin security within 10 years

    Who are these security experts? And why did they say this?

    Divesh Aggarwal at the National University of Singapore and his security colleagues have been developing quantum computing for a while now.

    They say the only way to cheat is to calculate the private key using the public key, which is extremely hard with conventional computers. But with a quantum computer, it is easy Bitcoin is much more at risk, and could be completely broken by a quantum computer as early as 2027.

    So, is Bitcoin a bad investment? Right now no — because quantum computing is still extremely early in development. But in ten years? Maybe. Or maybe not.

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    How Risky Is Bitcoin Compared To Stocks And Bonds

    The standard deviation of an assets returns can also be called risk or volatility. A stock whose returns deviate greatly from the mean is said to carry more risk. The first step in trying to quantify this risk is to pull some financial data of various assets and calculate their returns. For this example, Ill use:

    • ^GSPC, the ticker for the SP500, to represent stocks.
    • BND, a Vanguard Total Bond Index fund, to represent bonds.
    • and BTC-USD, AKA Bitcoin.

    For this analysis, I chose a 2 year period as the timeframe. Next, well find the logarithmic return of each asset so that we can examine them separately in the specified timeframe.

    This shows us the daily log returns of the assets. To see an annualized amount, multiply the mean daily returns by the number of trading days in a year for each asset: 250 for stocks and bonds, 365 for Bitcoin.

    For calculating standard deviation, we can use the Pandas .std method. Following the same logic as before, we need to annualize this number. However, instead of simply multiplying by the number of trading days, we also need to take the square root of the number of trading days due to the algebra involved in converting variance to standard deviation:

    From here we can summarize the data visually in Tableau showing that Bitcoin has had significantly higher returns, while also carrying significantly more risk .

    Figure 2Figure 3.

    Invest In A Cryptocurrency Etf

    So far, the U.S. has approved one cryptocurrency exchange-traded fund, or ETF. This bitcoin ETF launched by ProShares doesn’t invest directly in bitcoin. Instead its based on futures contracts tied to the cryptocurrency. Because its an ETF, investors can likely invest directly from their brokerage accounts instead of having to open a crypto wallet.

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    Bitcoin Price: Potential Risks Of Playing Bitcoin

    The question comes up more and more. Already, 22% of advisors tell that their clients own Bitcoin.

    Advisors point out the potential risks of owning Bitcoin. “I am not actively recommending cryptocurrency,” said Kimberly Foss, president and founder of Empyrion Wealth Management, in Roseville, Calif. “At this point, the market is too unproven, too unregulated and too prone to manipulation, both by actors with potentially nefarious motives and also by other forces that are at present not well understood.”

    Tips To Invest In Cryptocurrency Safely

    How Much Bitcoin Should You Own?

    Investments are always risky, but some experts say cryptocurrency is one of the riskier investment choices out there, according to Consumer Reports. However, digital currencies are also some of the hottest commodities. Earlier this year, CNBC forecasted that the cryptocurrency market is expected to reach a value of $1 trillion by the end of 2018. If you’re planning to invest in cryptocurrencies, these tips can help you make educated choices.

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    How Many Bitcoins Do Other Popular Investors Hold

    There have been many talks on the amount of Bitcoin thatSatoshi Nakamoto holds. It is estimated that the coins creator holds anywhere between 300.000 and 1.000.000, which at the moment of this writing translates to $2.7-$8.8 Billion USD respectively.

    Now lets talk about a couple more examples:

    Barry Silbert, the founder of Digital Currency Group, reportedly purchased 48,000 BTC in a U.S. Marshall action. The large amount of Bitcoin was seized from Silk Road, which was the most popular marketplace of the dark-web. What is most amazing to note is that Barry purchased those coins at a mere 350$ each.

    Popular venture capitalistTim Draper, purchased 29,656 BTC in a US court Marshall auction, for $632 USD each. The value of his investment is currently sitting at $107 million.

    You can find out a lot more with regards to the most popular Bitcoin millionaires, by checking outthis article.

    Investing In Bitcoin In 2021

    There’s no denying that owning Bitcoin has been extremely profitable during its short history. Its value has increased from $1 in 2011 to more than $60,000 at times in 2021. Bitcoin is the most famous cryptocurrency and has been rapidly gaining popularity as a form of digital gold. Just as the supply of the precious metal is finite, the limited supply of 21 million Bitcoin could also significantly boost its value.

    Bitcoin is also a volatile, high-risk investment. It’s only existed since 2009, it might never be widely used as actual currency, and newer altcoins have distinct cost and operational advantages. And, Bitcoin mining is clearly at odds with environmentally responsible investing.

    Although Bitcoin shouldn’t account for a large portion of the value of your portfolio, a small investment in the cryptocurrency is worth considering. The key is to maintain a balanced, diversified portfolio. If you choose to invest in Bitcoin and other cryptocurrencies or cryptocurrency stocks, you will be well positioned to benefit if Bitcoin rises in value, but you won’t be putting all of your eggs in one very volatile basket.

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    How Much Bitcoin Should I Own

    There is no specific amount of Bitcoin that is considered to be a minimum investment for closely following the industrys updates.

    However, it has been calculated that each millionnaire would only be able to own 0.32 BTC if all bought some.

    Therefore, if one needs to be given a certain number of Bitcoin to hold, this would be a great place to start.

    After that milestone has been reached, you could go as far as owning a whole coin.

    Should You Invest In Cryptocurrency

    Why you should buy bitcoin

    While many Americans may be comfortable investing in cryptocurrencies, financial experts caution that they come with some key drawbacks, including their purely speculative nature. Their design makes cryptocurrencies tremendously risky and unsuitable for most investors.

    Bitcoin has been on a roller-coaster ride in 2021. It started the year around $29,000 and soared to more than $63,000 by mid-April. But news about China outlawing cryptocurrency helped drive the crypto coin lower. It eventually bottomed below $30,000 in late July, but since then it has more than doubled in price and hit a new yearly high, at nearly $67,000, in October.

    After such massive gains on Bitcoin, Ethereum and many others, some new traders may be jumping into the market because theyre afraid of missing out on the gains. But they may not completely understand that these cryptocurrencies are being driven higher solely by speculation.

    Popular cryptocurrencies are not backed by anything, unlike traditional investments such as stocks, which can be supported by the assets and cash flow of a real company.

    There is no underlying, fundamental value like a piece of real estate or security such as a stock or bond, says Greg McBride, Bankrates chief financial analyst. The price represents what someone else is willing to pay for it, but that can change a great deal in a short period of time as weve seen.

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