Bitcoin: From the breath of life to a risky gamble

Last week, although there were ups and downs, Bitcoin price still fluctuated at a fairly high level, approximately 100,000 USD/coin.

Bitcoin price increased more than 150% since the beginning of the year. From about 67,000 USD to 103,000 USD/coin in just a few weeks after Donald Trump was elected President of the United States. The key factor creating this push comes from the victory of Mr. Trump – whose views will create conditions for virtual currency (cryptocurrency, digital currency…) to develop. In addition, the virtual currency market also gained more excitement when Mr. Trump appointed a number of personnel to hold important positions to promote this type.

Most recently, responding to US media on December 13, Mr. Trump reaffirmed his intention to establish a strategic reserve fund in Bitcoin like an oil reserve. Responding to CNBC, he asserted: “We will do something great with cryptocurrency because we don’t want China, or anyone else, to dominate.” At the Bitcoin conference in July, he announced that he would create a “strategic Bitcoin reserve” for the United States and predicted that Bitcoin could “eclipse” the gold market with a market capitalization of about $16,000 billion.

Regarding this issue, Senator Cynthia Lummis (Republican, USA) recently introduced a bill to Congress to propose that the US buy 1 million Bitcoin in 5 years to help reduce public debt, which is at 35,000 billion USD.

Not only American politicians, some countries have also considered establishing Bitcoin reserves. Last week, information leaked that Russian lawmakers were pushing the country to create a Bitcoin strategic reserve fund. Previously, Russian President Vladimir Putin praised Bitcoin as an alternative to foreign currency reserves after Moscow had many assets frozen by the West because of its military campaign against Ukraine. In Central America, El Salvador has since 2021 become a pioneer country in Bitcoin reserves. To date, El Salvador is said to have purchased about 5,900 Bitcoins and this reserve has generated a profit of more than $100 million.

However, although it is not recommended to remove Bitcoin or virtual currency from the investment portfolio, financial experts also continuously warn about the risks of this type of asset.

On December 12, Blackrock published a report on investing in Bitcoin based on analysis of investment risks. This is a financial company that currently manages the largest amount of assets in the world with a value of about 11,500 billion USD and has pioneering transaction models associated with Bitcoin.

Accordingly, Blackrock assesses that if investors have appropriate management methods and accept risks, they can include Bitcoin in a multi-asset investment portfolio. Blackrock’s report also emphasized: “Investors should be wary of Bitcoin’s risks.” “Ultimately, Bitcoin may still fail to achieve wider adoption. And the virtual currency is volatile and susceptible to sharp sell-offs,” according to the report. Additionally, the report also points out that there have been times when Bitcoin’s returns have been more closely tied to stocks and other risk assets. This means that investors cannot yet view Bitcoin as a “hedge”. Thereby, Blackrock recommends that Bitcoin should not account for more than 2% of the investment portfolio.

In fact, from November 2021 to December 2022, Bitcoin price decreased from 70,000 USD to 17,000 USD/coin. Therefore, even when Bitcoin price increases at a high level, financial experts still warn of the risk of “collapse”.

CNN quoted expert Trent Porter (Priority Financial Partners, USA) as emphasizing: “Before you invest in Bitcoin, ask yourself if it drops 50% or more, will you fall? whether you are in a difficult financial situation or not. If the answer is yes, you should reconsider.” Mr. Porter also noted that even if the legal risk of cryptocurrencies has decreased under Mr. Trump, that does not mean the overall risk of cryptocurrencies has changed.

Similarly, Mr. Mike Turi (founder of Upbeat WealthTuri – an investment consulting company in the US) also assessed: “Bitcoin is more of a gamble than a reliable investment.” Therefore, he believes that when investing money in Bitcoin, investors need to consider it a huge risk. Sharing the same opinion as Blackrock’s report, many financial experts also believe that Bitcoin should be kept at a low proportion in the investment portfolio.