There is a new investable asset class that is gaining increasing awareness, and is becoming an essential part of a diversified portfolio. The upside is absolutely huge, but so can be the risks. I’m talking about cryptocurrency. Bitcoin was the first of its kind, created in 2009 and gained notoriety in 2013 for its huge price spike from less than a penny to above $1200 USD per coin in 2013. It subsequently crashed back to around $200 in the years following.
In 2015, enter Ethereum. Ethereum builds on the capacities of bitcoin but adds several new features that make it usable in many different applications other than just currency.
Other than Bitcoin and Ethereum, there are several other types of cryptocurrencies collectively called “Altcoins”.
Fast forward to 2017, several regulated exchanges have opened up, namely Coinbase here in the US. It is now possible for everyday folk to invest in this asset class. Do to the high volatility risk and the possibility of unknown future scenarios that could drive the price of these assets to zero, we recommend a 1% allocation of your net worth. This should be rebalanced annually or semi-annually.
The upside, however, is enormous. If this technology gets adopted and Bitcoin or Ethereum becomes the standard bearer, a 1,000% or even 10,000% increase in price is not out of the question. As of this writing, bitcoin has a market cap of approximately $10 Billion USD. Ethereum has a market cap of $1.5 billion USD. If either of these were to reach $1 trillion in value (which is not out of the question when you consider the nature of these assets) then that would mean a 10,000% increase for bitcoin and a 66,667% increase for Ethereum. To put into context, a $1,000 investment could turn into $10 million USD and 66.667 million USD respectively. In other words, it could fund your entire life as well as retirement!