Does Bitcoin Have a Place in an Investment Portfolio?
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Here's your money briefing for Friday, April 30th. I'm J.R. Whelan for The Wall Street Journal. Today we close out our week-long investment guide with a look at an asset that's taken the investing world by storm, Bitcoin. Its meteoric rise in value has brought a new generation of investors into the market, hoping to get a piece of the action. But the wild price swings in Bitcoin and other cryptocurrencies are not for the faint of heart.
where they belong is sort of on the bleeding edge of your risk tolerance. You could get the greatest returns on the planet from investing these things. You could get wiped out. How much money are you willing to risk on a really, really big bet?
So how do cryptocurrencies work and what role could they play in a portfolio? We'll get a quick class in Bitcoin 101 with our cryptocurrency reporter, Paul Vigna, after the break.
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When Bitcoin came on the scene, it generated a lot of buzz. It was a bit mysterious, very techie, and promising to revolutionize how we think about currency. Now, a few years down the line, it's still buzzy, still techie, but it hasn't replaced cash or credit cards, and it's also become known as a highly speculative asset. It can be hot one day and cold the next. So is it a good investment? Paul Vigna has been covering the cryptocurrency markets for the Wall Street Journal for years.
What is driving the recent public interest and volatility in Bitcoin?
He's even written books about it. Paul, thanks for being with us. J.R., happy to be here. All right. So, Paul, if there's one thing people know about Bitcoin, it's that the price has absolutely skyrocketed over the past couple of years. When we're recording this, it's down a bit from its peak, but still over $50,000. And if there's a second thing people know about Bitcoin, it's probably that its price can fall just as fast. What is it that causes Bitcoin to go up or down?
In Bitcoin's history, it has had a couple of very well-defined cycles where the price has gone up quite a lot, and then the cycle has come down quite a lot. And every one of those cycles has brought in new people. And people get in on the upside, you know, when the price is going up, and they think, oh my God, this is the greatest thing I've ever seen in my life. This thing goes up like mad. It can't go down. I can't lose. And then it goes down. Almost completely. It really, to a large, large degree, it is driven by momentum and sentiment and speculation. People are buying Bitcoin because they think the price is going to go up. Some people buy Bitcoin because they believe it's going to be the future and they're going to hold it forever because they think the price is going to go up and they can sell it later for a lot more money.
So in most cases, what you are buying is this sentiment that the price is going to go up. That creates, it tends to create its own momentum. And you get these long, long rallies where the price goes up. But, you know, look, Bitcoin is not a stock. It's not a company. It doesn't have cash flows.
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