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Can Bitcoin become an alternative investment opportunity for portfolio diversification?

(Correction: Third paragraph has been edited to mention the correct source as the Journal of Financial Planning, not FPA as mentioned previously)

Bitcoin, the controversial digital currency, continues to spread its wings. Yes, it is being criticized for various reasons and is highly volatile, but the fact of the matter is several companies and banks are warming up to bitcoin.

The digital currency offers an excellent opportunity to investors to diversify their portfolio. The Merkle explains that investing in bitcoin is devoid of any banking restrictions. Moreover, the end user exercises full control of their funds at any given time, without having to trust a third party to keep it safe.

An article published in the Journal of Financial Planning emphasized that for many investors, bitcoin represents a potential opportunity that could both diversify and boost the efficiency of a portfolio, CoinDesk reported. However, the report said that individual investors can benefit from holding a "small amount" of bitcoins in a diversified portfolio.

“It is important [for financial planners] to underscore the risk involved with investing in these assets. Bitcoins should only be held as a minor component of a well-diversified portfolio, such as in a market-weighted basket of major asset classes”, the report said.

Also, there has been a “fundamental” shift in the types of investors interested in bitcoin, said Michael Sonnenshein, Grayscale’s director of business development, as reported by Forbes. Mostly, ultra high-net-worth individuals, family offices and smaller institutions or tech-type investors are the ones who have shown interest in the digital currency.

“What we’re starting to experience now is unprecedented interest from the financial advisor community as they are seeing a tremendous increase in the fielding of questions and inquiries from their clients and their clients’ children and relatives about Bitcoin — should this be something that they are looking at to invest?” says Sonnenshein. “When people start seeing the Visas and MasterCards and the American Expresses of the world beginning to get involved with Bitcoin and blockchain technology, it suddenly wakes up in a lot of people that this is something they too should be looking at”.

Moreover, he sees that people who have been affected by global market gyrations in China or Greece are turning to digital currency as another portfolio diversifier. In August, the People's Bank of China's "one-off depreciation" of the yuan, saw BTC/USD rising to 271.50 levels, while BTC/CNY soared to 1690.36 levels.

Also, with a hard cap on total bitcoins that can be created (21 millions) and halving of mining rewards every four years (next is due in 2016), bitcoin price is going to rise tremendously going forward, providing an attractive investment opportunity.

 “Given its predictable growth and ultimate fixed supply, bitcoin could become a store of value superior to fiat currencies in the long term,” Forbes quoted Chris Burniske of ARK Investment Management, the first public fund manager to invest in Bitcoin.

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