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While Bitcoin is inherently volatile, it may offer potential diversification benefits

It’s hard to imagine that just in a few short months Bitcoin has managed to increase so much in value that it managed to break through its 2017 all-time-high by more than 300%.

Especially if you consider that this is an emerging asset class that is already rife with controversy and artificially held back by heavy restrictions and bans in several countries across the world – which makes mainstream adoption and investment even more challenging.

CMTrading founder, Daniel Kibel, says: “Bitcoin’s off-the-charts performance this year has definitely been eye-opening, however, cryptocurrencies make up in profit potential for what they lack in proper regulation and stability”.

So, it’s important to note that while the market can generate massive returns for traders, it also has the capacity to wipe them out the very next day.

Speculators undoubtedly love a volatile market because large price swings can boost potential returns – both on the way up and on the way down – however, crypto is so volatile that small positions and a solid risk management strategy are essential to avoid blowing up your trading account.

Crypto as a means of diversification

Regardless of their inherently volatile nature, the ascent of cryptocurrencies amid a global pandemic has shown that, surprisingly, they can be viable as diversification tools, particularly in times of economic crisis.

Therefore, while Bitcoin may offer exciting opportunities for investors with a risk appetite, conservative traders, who tend to favor more stable assets, may also also find it useful.

“While cryptocurrencies have this seductive allure of sky-high overnight returns, perhaps the better strategy is to utilize them to diversify a trading portfolio”, adds Daniel Kibel.

The majority of investors tend to hedge against risk and inflation by investing in gold, which is the quintessential safe-haven asset. However, Bitcoin could also prove to be a viable alternative – albeit a much riskier one.

Remember, that these are times of profound economic crisis, and a long-lasting inflationary environment looms on the horizon. When the dollar is rising, it weighs on the price of gold and vice versa, but Bitcoin remains seemingly unaffected.

The upside in cryptocurrencies is also benefitting retail traders who are arguably enjoying easier access to the profit potential of crypto through the safety of a regulated platform and low-barrier-to-entry accounts.

Online brokers provide clients with access to the most popular cryptocurrency pairs such as BTC/USD, LTC/USD and ETH/USD, and the same charting, risk-management and market analysis tools available for stocks or forex can be used to identify profitable entry points in crypto as well.

Therefore, instead of buying and holding a fraction of a Bitcoin in an online wallet, traders get to speculate on the price of any cryptocurrency and profit via an easy-to-use, fast and flexible trading platform complemented by round-the-clock support.

How to jump into the action

CMTrading is a licensed and regulated online broker that offers easy access to market opportunities through a vast range of tradable assets.

Start trading currencies, stocks, commodities and cryptocurrencies through an award-winning platform – available on desktop and mobile devices.

Enjoy superior trading conditions, exciting promotions and free access to high-quality educational resources on-demand.

Register here to get started today!

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While Bitcoin is inherently volatile, it may offer potential diversification benefits