by Contributing Author
Bitcoin has proven to be a solid investment and one that should be a part of every investor’s portfolio. The value of this cryptocurrency was volatile and it dropped and rose a few times over the years, but the same is true for any other investment.
In this article, we’ll go over how much you should invest in Bitcoin, and how to lower the risks of such an investment. A smart investor should take advantage of all the implementation possibilities that make Bitcoin so valuable. However, it’s equally important to keep your portfolio balanced and not to hedge all your crypto investments.
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Key Factors to Help You Decide
Before we get into how much should you invest in Bitcoin, let’s discuss a few key factors that will help you decide. These are pretty much the same for every investor, regardless of how much funds they have at their disposal. The amounts can vary but the basic principles apply to any Bitcoin investment.
Set up a Budget
There’s an old saying: never invest more than you can afford and it’s applicable to Bitcoin as much as it is to any other investment. The first factor to help you decide how much you should invest in crypto is therefore a budget that you should stick to.
This doesn’t mean that you should invest everything that you have saved up. It’s important to have a short-term savings account with about six months of expenses lined up, as an emergency fund. A portion of your savings should go towards low-yield retirement savings. The budget for investment is what’s left.
Risk Tolerance
The next factor is the amount of risk you’re willing to take on. High-risk investments also make high profits, but they also come with volatility. It’s up to every investor to decide on which end of this balance they plan to be.
Crypto has already proven that it can sink but it can also jump back up after a while and it’s therefore somewhat similar to any other stock investment.
When You Need to See a Profit
In the end, an investor needs to figure out how long they are willing to wait before they see a profit out of Bitcoin investment. Sometimes, it’s best to think about an investment in the long term. However, if you need to make a profit fast, not all crypto investments are a good idea, and the gains you’ll get will be lower.
In the long run, Bitcoin has proven to be a steady investment and if you’re willing to wait, you’ll end up on top.
How Much Crypto Should You Own
There’s no clear answer as to the amount you should own in Bitcoin since it depends on too many individual circumstances. When presented as a percentage, most experts agree that about 5 percent of all of your assets are in Bitcoin.
This is a safe amount that allows you to make a profit out of the investment, but not too much, so that you get hurt by the volatility. As is the case with most investments, however, the devil is in the details.
It’s important to keep track of the market and increase the size of your Bitcoin investment when there’s a surge in value. Some claim that at this point you can have as much as 20 percent of your investments in Bitcoin. Again, this depends on how risk-averse you are and how much you’re willing to risk.
Profit Margins for Investing In Bitcoin
This is a difficult subject to address since Bitcoin is somewhat more volatile than most other investments. There’s quite a big difference between the potential low and high price of Bitcoin. For 2023, the low prediction is somewhere about $18.000 for one BTC, while the high-end prediction is at $30.000. When it comes to the same prediction for the year 2030 the amounts range from $30.000 to $100.000.
There will be highs and lows as they often are for an asset as volatile as crypto but if you’re willing to wait them out, there’s profit to be made in Bitcoin trading.
The Composition of Crypto Portfolio
As is the case with more traditional investment portfolios, a crypto portfolio needs to be diverse in order to hedge against potential risk. There are a few popular and widely used cryptocurrencies that you should always have in your portfolio since these are the safest bets. Bitcoin is the most popular of these.
You should also add some new and niche cryptocurrencies to your portfolio. This should be its smallest part. Investments such as these won’t usually bring high profits, but every once in a while, they find a niche audience and can end up being your best investment.
How to Manage Your Bitcoin and Crypto Portfolio
There are a few standard tools and techniques that you can use to manage your Bitcoin portfolio. These include:
Dollar-Cost Averaging
Most investors can’t simply move a lump sum of money in traditional currencies to a crypto investment account. There are still ways to invest in Bitcoin even if you are a member of this majority. Dollar-cost averaging allows investors to automate the process of purchasing Bitcoin at regular intervals using traditional fiat currencies. That way a portion of your regular cash flow is used for investing in crypto.
Crypto Portfolio Tracker
A crypto portfolio tracker is a piece of software that reads your crypto wallet and creates a dashboard displaying the statistics involved. This makes it easier for an average investor to keep track of the investment and the value of the cryptocurrency they’ve bought.
Using crypto portfolio trackers also allows investors to trade across many different crypto exchanges. Trackers also help with tax planning and preparation. It’s a very useful feature since it allows the investor to handle all the crypto business within the tracker.
There are many different trackers to choose from and you should take your time figuring out which ones suit your needs.
Time Spent in the Market
Beyond the percentage of investment set aside for crypto, there’s another important metric to keep in mind: the time spent in the market. This means that an investor should figure out how long they plan to keep the cryptocurrency in the market while it’s not performing as well as they planned.
In the long run, cryptocurrencies have shown that they are able to bounce back if you’re willing for the market to do its thing. However, not every investor can afford the leave their funds locked in a market that’s having a downturn. It’s a matter of balance, as is with most investments.
To Sum Up
Bitcoin investment should be a part of your portfolio. It’s a lucrative investment and after a while, you’ll return your investment and end up with a profit, even if Bitcoin is somewhat volatile. The most important decision to make is to choose how much of your investment portfolio should consist of Bitcoin.
This depends on your circumstances and how diverse your portfolio is in general, but most experts suggest that it should be about 5 percent. At the same time, investors should diversify the crypto part of the portfolio itself, by investing in other cryptocurrencies.
