With bitcoin trading at more than $40,000 apiece last weekâ€”and quintupling in value over the past yearâ€”the question arises for investors: Get in or stay out?
There are plenty of reasons for caution. The virtual currencyâ€™s value has soared and plunged repeatedly since its introduction in 2009. It fell 52% just from Feb. 13 to March 11 last year.
And, while bitcoin is referred to as a digital currency, it doesnâ€™t meet at least one important criterion of a currency: It lacks widespread usage as a medium of exchange in legitimate commercial transactions. In November, digital-payment processors handled just $269.7 million of merchant sales world-wide in bitcoin, according to research firm Chainalysis. By comparison, total U.S. retail sales registered $546.5 billion in November.
Many pros think individual investors should steer clear of the currency entirely. But others suggest investors would do well to consider adding bitcoin to their portfolioâ€”but generally only as a small percentage of their overall assets.
â€œMaking bitcoin a significant part of your portfolio would increase your risk substantially,â€� says Eswar Prasad, a trade-policy professor at Cornell University who is writing a book about digital currencies. â€œBut a marginal amount seems worthwhile given recent dynamics.â€�