Using Bitcoin to diversify your portfolio? Read this – The Motley Fool Australia

ASX 200
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Cryptos have been rising and falling largely in line with other risk assets.
Image source: Getty Images
The Bitcoin (CRYPTO: BTC) price has just slipped back below the psychologically important US$30,000 level.
At time of writing, the world’s biggest crypto by market cap is trading for US$29,995 (AU$42,904). That’s down 3.4% since this time yesterday.
Though with the token’s notorious volatility it may be significantly lower or higher by the time you’re reading this.
The decline in the Bitcoin price today follows another retrace in risk assets, with the tech-heavy Nasdaq dropping 1.2% yesterday (overnight Aussie time).
And this, says David Donabedian, chief investment officer of CIBC Private Wealth Management, bodes poorly for investors buying Bitcoin to diversify their portfolios.
According to Donabedian (quoted by Bloomberg), “I think it will continue to trade with the equity market and risk assets. That’s the big lie that’s been exposed, the idea that it’s some new asset class that’s going to help diversify your portfolio has been blown to smithereens.”
Last week crypto investors faced a challenge not seen before.
Namely, the near total collapse of algorithmic stablecoin TerraUSD (CRYPTO: UST). UST was intended to be pegged to the US dollar but plunged to 30 US cents when investors lost confidence in the crypto and its supporting token, Terra (CRYPTO: LUNA).
Luna was meant to help keep UST pegged right at US$1 by enabling investors to swap UST for US$1 worth of LUNA at any time. But that plan didn’t hold up as the LUNA price absolutely evaporated.
Last Monday, 9 May, LUNA was worth US$66.50. At the time of writing the token is trading for 0.021 US cents.
The fallout has wiped more than US$300 billion from the total market valuation of all cryptos. Bitcoin itself plunged to US$26,350, according to data from CoinMarketCap.
But analysts point out it could have been much worse.
“We have witnessed the rapid decline of a major project, which sent ripples across the industry, but also a new found resiliency in the market that did not exist during the last market downswing,” says Changpeng Zhao, CEO of Binance Holdings (quoted by Bloomberg).
eToro’s crypto expert Simon Peters notes that the biggest shift in crypto markets has been the arrival of institutional investors adding Bitcoin and other top tokens to their holdings.
According to Peters:
The last time the market faced adversity like this was the collapse of 2018. But the makeup of the market is very different today than four years ago. Institutional investors now make up a much bigger proportion of the market, which has already had an observable impact upon not just prices, but the way the market moves.
What investors will now be considering, is how these players will help support levels moving forward. With deals from major global financial institutions going ahead, the potential is there for the sector to keep bubbling away, despite difficulties around valuations.
Indeed, perhaps it’s the arrival of institutional investors into the crypto space that’s seeing Bitcoin move in line with risk assets, making it a potentially poor asset to help diversify a share portfolio.
Before you consider Bitcoin, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Bitcoin wasn’t one of them.
The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
See The 5 Stocks
*Returns as of January 13th 2022
The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia has positions in and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
| Tony Yoo
The exit of ‘get rich quick’ investors from crypto is a boon for serious long-term holders, says DeVere Group boss…
Read more »
| Bernd Struben
Terra’s LUNA token, meant to help its UST token remain pegged to the US dollar, has lost 99.99% of its…
Read more »
| Bernd Struben
Last week’s meltdown of UST and its backing crypto LUNA sent most every crypto tumbling lower.
Read more »
| Bernd Struben
All three crypto ETFs which launched yesterday are well into the green today.
Read more »
| Bernd Struben
The LUNA token, meant to keep UST pegged to the US dollar, just crashed more than 99%.
Read more »
| Tony Yoo
Looking back, a cryptocurrency bear market started exactly a year ago. How long will this last until fortunes turn around…
Read more »
| Bernd Struben
The three crypto ETFs all offer investors direct exposure to the underlying digital tokens, but you won’t find them on…
Read more »
| Bernd Struben
The world’s top crypto looks to be caught up in Terra’s UST and LUNA selloff.
Read more »
View All
In this FREE STOCK REPORT, Scott Phillips, and his team at Motley Fool’s Share Advisor have released a special free report, detailing 5 ASX stocks that they think could be fantastic stocks to own as investors prepare for their retirement.
Sign Up for Take Stock
Investment news, stock ideas, and more, straight to your inbox.
Get Started Investing
You can do it. Learn about investing with our Investing Education hub.
Win at Retirement
Our latest articles and strategies for the post-work life you want.
Listen to Our Podcast
Hear our experts take on shares, the market & how to invest.
Join Our Premium Community
Join our flagship membership service, Share Advisor.
To make the world Smarter, Happier, And Richer
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show and premium investing services. The Motley Fool launched its Australian presence in 2011, and since then has grown to reach over 1 million Australians.
Read more about us >

This Service provides only general, and not personalised financial advice, and has not taken your personal circumstances into account. The Motley Fool Australia operates under AFSL 400691. For more information please see our Financial Services Guide. Please remember that investments can go up and down. Past performance is not necessarily indicative of future returns. The Motley Fool Australia does not guarantee the performance of, or returns on any investment.
© 2010 – 2021 The Motley Fool Australia Pty Ltd. All rights reserved.
ACN: 146 988 052
Australian Financial Services Licence (AFSL): 400691
The Motley Fool Australia, PO Box 104, Isle of Capri, Qld 4217
Contact Details:
Phone: (03) 8592 4841
Email: [email protected]
Our friendly customer service team will happily get back to you as soon as they can.