Bitcoin investors have been on a “wild ride lately,” and the cryptocurrency has even been attracting more interest from mainstream investors, but there are “reasons to be skeptical” according to a recent article in Morningstar.
“Overall,” the article states, “it has enough negatives that I would hesitate to carve out more than a small fraction of a portfolio for bitcoin.”
Here are some key pros and cons outlined in the article:
In Favor of Bitcoin
- Since only 21 million bitcoins can be mined, the limited supply will support its value.
- Alternative to gold as a tangible store of value.
- Bitcoin could benefit from increased demand for secure international transactions.
- Potential hedge against long-term inflationary pressures.
The Case Against Bitcoin
- Has no intrinsic value, but rather its value depends on what people are willing to pay.
- Although often referred to as “digital gold,” bitcoin has not held up well during periods of market crisis.
- While the supply is ostensibly limited, “there’s nothing preventing competing cryptocurrencies from emerging.”
- Fees and transactions costs are a negative.
The article notes that bitcoin “can play a role in diversifying a portfolio,” but registers skepticism regarding its role as an investment asset. “Its popularity with momentum investors and speculative buyers makes it prone to pricing bubbles that will eventually burst,” it concludes, adding, “as mainstream investors increasingly embrace bitcoin, its value as a diversification tool is diminishing.”