2 min read.Updated: 31 Dec 2020, 11:27 AM ISTAvneet Kaur
Wealth managers caution retail investors and ask them to strictly avoid investing in bitcoin
They believe the prices have been highly volatile, completely driven by speculative forces
Bitcoin has surged past $29,000 to reach yet another record level on the last day of 2020, showing no signs of slowing down its torrid December rally. Bitcoin has almost quadrupled in value this year amid the global coronavirus pandemic. Will this rally continue? Experts see great going for the largest cryptocurrency in the world in future mainly due to the recent institutional adoption. "Bitcoin would cross 50K USD, There is a lot of institutional adoption happening over the past few months. The first trigger for that was Paul Tudor Jones, who was one of the legendary traders out there and post that the firms like Guggenheim, Fidelity, Blackrock, stated that Bitcoin has the potential to replace gold as a store of value," says Gaurav Dahake, CEO, Bitbns.
Crypto market experts say as the institutional investment in bitcoin increase, the currency will see stronger support during price dips." Bitcoin is different from established markets like stocks or commodities because a lot of new buyers are still coming in. As more companies and individuals shift savings into bitcoin, we may see stronger support during price dips. While a correction is inevitable, it may not be that deep. No one can predict the future, but Bitcoin could easily go to 30 lakh or more in 2021," says Rahul Pagidipati, CEO, ZebPay.
At present, in INR terms a bitcoin is priced over 21 lakh .
However, wealth managers caution retail investors and ask them to strictly avoid investing in bitcoin. They believe the prices have been highly volatile, completely driven by speculative forces.
"The only thing real about bitcoins is that they are in limited quantities and are mined after a tech driven process. But beyond that, there is no underlying basis on what price should they be traded. Retail investors should definitely avoid such high risk bets as if mistimed they can lose substantial parts of their capital," says Raghvendra Nath, Managing Director, Ladderup Wealth Management.
While there are no clear fundamentals driving the price movement of bitcoin, regulation is another limitation, say the independent financial advisors.
"There are no clear fundamentals that drive the price movements of bitcoin. Demand and Supply drive the price. That's all. There is no underlying asset for bitcoin. So the valuation is fictitious. As there is no 100% regulation and acceptance, there is a lot of grey area in bitcoin investments," says Ramalingam K, Chief Financial Planner, holisticinvestment.in.
While the current trend in the price movement might be luring for investors, IFAs advise to avoid getting greedy and invest in real assets to avoid big losses in the short term.
"It is always advisable to invest in real assets where the volatility is controlled even though the returns may be more reasonable. At least the power of compounding can ensure that the retail investors' wealth grows over long term," says Nath.