Bitcoin’s historical development is undoubtedly extraordinary. In the early years, the crypto reserve currency experienced an explosive increase in value of several thousand percent. With a current market capitalization of around half a trillion US dollars, Bitcoin has positioned itself as an established asset. Many experts see assured future value growth. Isn’t a Bitcoin-only portfolio the best choice then?
Not quite, says Mark Valek, investment specialist at asset manager Incrementum AG. Advantages could arise due to the high performance potential, according to BTC-ECHO. “However, we view Bitcoin-only portfolios critically due to the concentration risk.” According to the financial expert, the risk of default cannot be ruled out.
Risk of default with Bitcoin-only?
In traditional investments, default risk refers to the possibility that a counterparty – such as a bank or a company – cannot meet its financial obligations and the investor suddenly loses a large part of his capital, says Valek. With Bitcoin, the risk of default has a different dimension.
As a decentralized cryptocurrency, Bitcoin poses technical risks, such as security gaps in the code. It is also unclear what effect an internet failure would have. In addition, global regulatory changes could affect Bitcoin, even making it illegal. “Valuation discounts would depend on the extent and drastic nature of the measures,” concludes the financial expert.
That’s why a Bitcoin-only portfolio is not recommended, especially if you have substantial assets, according to the Incrementum partner.
You can find out what you should know about BTC in your portfolio and what the cryptocurrency is like in general in the new BTC-ECHO Bitcoin Report.
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