🥇 First rule of investing? Know when to save! Up to 55% off InvestingPro before BLACK FRIDAYCLAIM SALE

Bitcoin: It Could Make You Very Rich — or Very Poor

Published 2021-03-05, 09:17 a/m
Bitcoin: It Could Make You Very Rich — or Very Poor

The cryptocurrency market started making the headlines again this year with the sudden rally for Bitcoin. In true cryptocurrency fashion, Bitcoin’s incredible gains in valuation are being riddled with significant losses in the space of a few days.

Between February 21 and February 28, 2021, Bitcoin lost US$12,230 of its value before regaining 9.6% the next day to climb to $48,960 at writing. While many might have considered its sudden decline an end to the bull run for the crypto market, its massive single-day gains could prove otherwise.

A history of volatility Suppose that you see such a significant loss in the space of a few days with a traditional asset class. In that case, the decline would be something that should bother investors. However, Bitcoin is notoriously volatile to the point that most early adopters are prepared for unrelenting volatility each year.

While Bitcoin is historically volatile, it’s worth noting that the cryptocurrency’s volatility has reduced as it matures. Previous corrections and gains were far more dramatic for the world’s most popular cryptocurrency. It even lost 85% of its value in 2013 before climbing to new all-time highs.

As more people adopt the cryptocurrency and larger players become involved, Bitcoin could become less volatile in the future.

Bitcoin’s rise and plunge Bitcoin’s big boon in 2021 came when Tesla founder and CEO Elon Musk announced that his company poured US$1.5 billion into the cryptocurrency. Tesla achieved a US$1 billion profit from its quick dip into the cryptocurrency because it sparked a massive rally. Tesla made more profit from its investment in Bitcoin during a few weeks than it did from its electric vehicle sales last year.

The cryptocurrency suddenly declined as several big names dumped their holdings to take their profits and part ways with the cryptocurrency. However, it seems that Bitcoin is on the rise yet again.

Adding Bitcoin to your portfolio Bitcoin is a highly volatile asset, and cryptocurrencies are in an unpredictable asset class that also lacks the liquidity that traditional asset classes like equity securities enjoy. However, it’s possible to add the cryptocurrency to your portfolio while retaining the liquidity of traditional asset classes through Purpose Bitcoin ETF (TSX:BTCC.B).

The newly listed Exchange-Traded Fund (ETF) is a quick and convenient way to gain exposure to the cryptocurrency. It is the first North American Bitcoin ETF that began trading earlier in February, and it has already attracted hundreds of millions in investments.

The ETF represents an ownership stake in cold-stored BTC, making the investment more secure than buying and holding Bitcoin yourself. The ETF can also qualify for tax-sheltered accounts like the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). It means that any potential profits through investing in the Bitcoin ETF could provide you with tax-free returns.

Foolish takeaway The cryptocurrency market has never looked as frothy as it is right now. Investors might be wondering whether it would be a good idea to buy the cryptocurrency right now or stick to relatively traditional assets trading on the TSX.

If you feel keen on investing in Bitcoin, Purpose Bitcoin ETF could be a relatively more liquid method to gain exposure. However, the ETF will be subject to the underlying cryptocurrency’s volatility, rendering it a risky investment.

The post Bitcoin: It Could Make You Very Rich — or Very Poor appeared first on The Motley Fool Canada.

Fool contributor Adam Othman has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2021

This Article Was First Published on The Motley Fool

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.