Bitcoin (BTC) has come up under scrutiny this week after its price dropped well below $40k, a far cry from the highs of around $64k seen only a month ago.…
What is Bitcoin?
Bitcoin is a global digital currency based on distributed computing instead of gold and banks. At the time of this writing, Bitcoin is the world's largest digital currency by market capitalization (market cap), meaning that its total market value is greater than that of any of digital currency.
Bitcoin has offered traders and investors some promising returns, including when its price climbed more than 1,000% in 2017. (Retrieved 14 May 2019 - Coindesk) At the same time, traders must keep in mind that this digital currency is highly volatile and has suffered sharp declines at some points.
Bitcoin also provides opportunities for diversification, as market research shows Bitcoin has repeatedly displayed a low correlation to other asset classes. (Retrieved 14 May 2019 - PDF Link) In other words, Bitcoin prices don't generally follow the fluctuations associated with other asset classes such as stocks and bonds.
As a result, traders and investors can potentially reduce portfolio volatility through Bitcoin.