But do you really need Bitcoin in your wallet?

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We could very well be sitting here in 2050 with Bitcoin (CRYPTO: BTC) as the predominant currency in the world, with all opponents silenced decades earlier. But we don’t hear enough about the alternate future for Bitcoin, which involves a dark, cold, and never-ending crypto winter.

The potential of Bitcoin has been well documented. But do you really need it in your wallet? Here, we’ll go over some of the considerations you might want to think about before adding it to your list of investments.

Bitcoin is a currency

The tricky question for some (and perhaps rightly so) is that Bitcoin is considered an investment. It doesn’t have many of the characteristics that you are looking for in an investment: it doesn’t reflect any underlying activity, pay no dividends, and it doesn’t have a lot of fundamental value.

Similarly, Bitcoin’s extreme volatility does not bode well for it as a store of value. It seems a little strange to call Bitcoin a store of value when its value goes up and down almost every day.

Make no mistake about it: Bitcoin is a currency. It might be a digital alternative currency, but it’s still a currency. If you don’t feel like investing in other currencies, like the British Pound or the Russian Ruble, you might be wondering why Bitcoin is any different.

Bitcoin harms the environment

In the midst of a global climate crisis, adding Bitcoin to the global wallet is a questionable decision at best. Its mining and transactions consume an enormous amount of energy. In fact, it has been said that a single Bitcoin transaction consumes as much energy as the average American household uses in an entire month.

It’s probably more of a philosophical argument than anything else, but even if Bitcoin does eventually explode in value, why is it so important that we are part of something that promotes existential risk on this planet? This can make some people very rich, but it is fair to fear that we have a small number of rich people on a planet that is increasingly uninhabitable for the vast majority.

In a world where we really have to do everything we can to minimize our impact on the planet, continuing to use Bitcoin in multiple ways feels like losing the intrigue. Our relentless thirst for a more vibrant and robust economy may not be worth the environmental damage.

Image source: Getty Images.

Bitcoin and wallet risk

If there’s one thing we’ve learned since the start of the pandemic, it’s that life is incredibly fragile and can be changed at any time for any reason – or no reason. At the same time, we are working very hard for our money. That said, it’s even more important to make sure that your portfolio is free from excessive risk.

It is true that Bitcoin could reach $ 1 million per token one day, transform the world forever, and create new millionaires daily. But it’s also very important to think about the reverse scenario: its value continues to fall (it’s down about 50% from its previous highs) and just never picks up. You will also have to pay a fee to own it, depending on how you choose to do it.

Even if you invest 1% of your portfolio in Bitcoin (which is probably not enough to make a significant difference in the long run), you should be comfortable knowing that part of your portfolio is dedicated to the speculation. You hope that in the future someone will pay more for the asset you currently own. But along the way, there is no dividend to be paid, and no promise of future returns.

Remember that humans are averse to loss: a loss of money will be worse than a gain of the same amount will be pleasant. It is for this reason that even $ 1 lost in a speculative asset will be quite unpleasant, when even large gains may seem tenuous. With Bitcoin in particular – where the risk of bankruptcy is palpable – you will need to be very careful before allocating an amount of any size.

Do you really need it?

Before converting money to Bitcoin, make absolutely sure you know what risk you can take. Also keep in mind that we are often poor judges of our respective risk management abilities. Often times, we’ll think we’re okay with wild price swings until those swings happen in our own wallets.

While Bitcoin has the potential to reach outrageous highs, it comes with enormous risks that come with it. So the question remains: do you really need it in your wallet?

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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