When Bitcoin first burst into the public domain several years ago, many analysts and market commentators quickly concluded the cryptocurrency was just a fad. Warren Buffett, the Oracle of Omaha, even went so far as to call cryptocurrency “rat poison squared.“
Despite the City’s doubts, Bitcoin now looks as if it’s here to stay and the crypto asset seems to have taken on a new role in financial markets.
A new role
As the trade war between the US and China rumbles on, investors have been rushing into safe haven assets such as gold. Interestingly, the price of Bitcoin has also surged. The value of one coin was $3,500 at the beginning of the year, but it’s $11,000 at the time of writing.
These developments seem to suggest many investors believe Bitcoin offers the same kind of safe haven qualities as gold.
The two assets do have some things in common. Neither is controlled by a government or central bank and there will only ever be a limited amount of gold and Bitcoins in the world. Further, gold can be a great store of value, and you can use it to buy or sell other assets all over the world. The same goes for Bitcoin.
A pension replacement?
So, based on the above, could Bitcoin be a great investment instead of the State Pension? As the State Pension offers a guaranteed income in retirement (assuming you have a full National Insurance record) it doesn’t make any sense to give this up in favour of Bitcoin.
However, nothing is stopping you adding £1,000 worth of Bitcoin into a retirement portfolio. Many City analysts recommend adding gold because of the safety the assets provides. As Bitcoin has proven itself to offer the same kind of protection in uncertain environments, adding some to your portfolio might add a layer of security.
Asset allocation
If you do so, I highly recommend only allocating a small percentage with the rest devoted to equities. A low-cost FTSE 100 tracker fund, for example, would give you exposure to some of the largest companies in the world with diversified income streams. You won’t get the same exposure with Bitcoin.
If you’re looking to take on a bit more risk, then an FTSE 250 fund might be a better option. This is more of a play on UK stocks because most of the index’s constituents are domestic companies. This has produced a higher return over the long term (around 10% per annum) compared to the FTSE 100, but this comes with the downside of more volatility.
Still, here at the Motley Fool, we believe the only way to invest is for the long term. If you’re looking for the best long-term investment, I think the FTSE 250 has to have a mention. The perfect portfolio would, in my view, have an equal mix of both the FTSE 100 and 250. This would give you exposure to both international growth and UK-focused companies.
Bitcoin might have a space in this mix but, at the end of the day, how much of your portfolio you decided to allocate to the crypto asset will come down to your personal risk tolerance.
