02/25/2024
Bitcoin is not a store of stable value. Some investors may be drawn to cryptocurrencies thinking theyāre an asset to store value, but there have been several cases of bitcoin theft. Some unfortunate owners have lost access to their funds by misplacing or forgetting their private digital keys. Since Bitcoin isnāt controlled by any central authority, thereās no one to contact for assistance.
Risk 4: Negative carry. Investors are normally paid to hold most major currencies, including the U.S. dollar, in the form of interest, Upton notes. Thatās not the case with Bitcoin as investors who hold the asset may lose out on earned interest. The same is true of gold. This is called a negative carry, meaning investors can lose money simply holding the asset.
Risk 5: Bitcoin is not always a hedge against U.S. equity risk, says Capital Group currency analyst Jens Sondergaard. A common assertion of Bitcoin enthusiasts is that it may help provide downside protection when equity markets decline. While that has been the case at times, Bitcoin did not act as an effective hedge during the bear market in late February and March 2020. The price fell sharply, followed by a rebound and then a huge run-up. āIt remains an open question whether Bitcoin can act as a hedge,ā Sondergaard says. āInvestors should be careful assuming too much about how it will behave in various market environments.ā
