Is Bitcoin still worth investing in now? Here’s what financial professionals think

Bitcoin is back, with prices once again pushing above $10,000 (although it’s trading below $10,000 at press time), but it never actually went away.

Those who held on to the world’s most famous cryptocurrency after it crashed from its all-time high of nearly $20,000 in December 2017 felt vindicated as its price broke through five figures.

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Yet skeptics remain unconvinced, arguing that bitcoin and other cryptocurrencies such as ethereum, litecoin and ripple still have little practical use and are primarily driven by their own volatility.

So how should you approach Bitcoin? Does it have a real role to play in your portfolio, or is it still a speculative bubble to avoid?

The first thing is that compared to last year, the price has nearly tripled from around $3,250 to $12,000 at one point, and back to around $7,000 at the end of 2019. Bitcoin is still very volatile, and if you invest at the wrong time, you could pay a heavy price.

However, there are still many Bitcoin bulls. Clem Chambers, CEO of stocks and share website ADVFN, ranked Bitcoin as his number one investment choice in the world right now.

Chambers is not averse to sounding the alarm about risk. Two years ago, when Elon Musk's wealth was at its lowest point, he named Tesla his No. 1 stock, and his bold calls have since been vindicated.

He insisted that Bitcoin does have practical uses and is a safe haven for people to make money during times of political turmoil. Chambers said:

“It’s better than gold in an emergency. You can walk through any airport with $1 million in Bitcoin and no one can stop you.”

If your country is collapsing, Bitcoin is a great place to accumulate wealth. He added:

“Global fears about the coronavirus are also causing demand, which is one of the factors driving prices higher right now.”

Chambers expects demand for bitcoin to grow, especially after the so-called “halving” in May, which will reduce the reward for mining bitcoin from 12.5 BTC to 6.25 BTC, reducing supply and pushing up prices.

Matt Weller, global head of market research at Gain Capital, suggested that traders who liquidated their Bitcoin positions after the sharp drop in the price of the cryptocurrency may be jumping back in. Weller said:

“Cryptocurrency has quietly risen from the ashes of despair.”

The key word is "quietly," he added, with few people aware of the latest rally, preventing a repeat of the earlier mania.

Weller, however, advises caution as the current rally may need to take a breather. He said:

“The indicator showed signs of stagnating in overbought territory.”

Others recommend avoiding cryptocurrencies altogether. Paul Donovan, chief economist at UBS Global Wealth Management, noted that despite the price increase, interest in Bitcoin has actually fallen sharply.

Google Trends shows a spike in online searches around December 2017, when the world was fascinated as prices approached $20,000 and some speculated that bitcoin could reach $100,000 or even $1 million. Donovan said the initial excitement has passed. “Our own clients used to ask this question, but that interest has all but died down over the past 18 months,” he said.

So does it have a place in a balanced portfolio? Donovan shares Chambers’s view, but in a negative direction: “Of course not.”

He believes a balanced portfolio should consist of assets:

“These generate future income by acting as a claim on future production capacity or by having intrinsic value.”

This can include fiat currency, which can be used to purchase goods and services and satisfy tax obligations. "Crypto can't do anything. It's not an asset, it's not a currency, it can't be used to pay taxes," Donovan said.

He added that cryptocurrencies have value purely because other people are willing to buy them:

“Cryptocurrency is a computer code designed to find a reason to exist, designed by people who understand math but not economics or money.”

The upside is that investors shouldn’t get caught up in another bubble. “When the price of Bitcoin was approaching $20,000, there was a real concern that informed private investors were buying cryptocurrencies on unregulated markets and losing their savings to bubble sellers. That’s what made myself and many other economists so angry,” Donovan said.

He added that a repeat was unlikely given the waning interest. “If people want to gamble on the price swings and accept that they could lose everything, then don’t worry about it,” he said.

Others argue that cryptocurrencies do have practical uses, such as so-called digital gold.

Richard Galvin, CEO of Digital Asset Capital Management, said:

“It’s a place outside of traditional markets, where your wealth can be protected and preserved, and the returns are virtually irrelevant.”

Galvin said this can smooth out volatility in a balanced portfolio, acting as a “risk-on” asset during uncertain times.

The underlying blockchain technology is also beginning to demonstrate its real-world uses. “The growth of the decentralized finance industry has been incredible, with the sector largely built on Ethereum, with over $1 billion in collateral provided through various platforms,” Galvin said.

With Facebook’s Libra and a host of central bank digital currencies on the horizon, Galvin sees a golden opportunity to “get in on early-stage technology deals that are moving fast in a fast-moving market.” He recommends a cautious portfolio approach to minimize risk.

Victor Argonov, an analyst at online trading platform Exante, said Bitcoin could be an excellent safe haven for gold. "Physical gold is extremely difficult to buy, sell or trade across borders and is almost impossible to use as legal tender. Cryptocurrencies can be traded freely across borders and their use as legal tender is becoming more and more common," he explained.

Bitcoin proved itself as a defensive asset in 2018 when Turkey, Argentina, and Venezuela experienced sharp depreciations. “While previously citizens of these countries bought dollars in similar situations, this time many turned to cryptocurrencies,” Argonov said.

Note that Bitcoin’s supposed store of value is extremely volatile. He said:

“Crashes are commonplace and there is no guarantee that your money won’t be cut in half in a month.”

Argonov said the current volatility could be a sign that cryptocurrencies are still in their infancy and could stabilize over time.

The only thing that could seriously undermine its rise is a total ban by a leading country. “However, this seems unlikely. Every year, more and more influential members of the financial community join the cryptocurrency market, and they don’t want to leave it.”

So should you invest? Fabian Chui, global head of front office at ADSS in Abu Dhabi, said cryptocurrencies do offer opportunities for the right investors: “It is an emerging asset class that will generate differences of opinion, which creates a degree of speculation and volatility that translates into trading opportunities.”

Bitcoin’s price is consolidating as investors view it as a store of value and diversification. “Whether you believe it or not, this is an exciting space to be in,” Chui added.

If you have limited exposure to Bitcoin, you may find it tempting, but most ordinary investors should approach it with caution.

Resist buying when the price is high, like now, as it will be more vulnerable to the next crash.

On the other hand, it takes courage to buy it after it has fallen and been forgotten, which means most people will buy it at the wrong time.