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  • Writer's pictureJames Veal

Should African Americans Be Investing in Bitcoin?

Isn’t that something, arguably one of the worst years in American history in 2020, the U.S. stock markets ended at all-time highs. The Dow Jones took a nose-dive in March but it came back strong enriching the wealthy and individual investors despite a horrific coronavirus pandemic that has killed over 350,000 Americans and left millions of people unemployed and hungry.

The S&P 500 index ended the year up over 16%. The Dow Jones gained 7.25% for the year and the tech-heavy Nasdaq (unbelievable) was up 43.6% in 2020. Gold didn’t do too bad either and gained 24% in 2020. But, do you want to take a crack at it and tell me who the big winner was in 2020? It was Bitcoin. Yes, Bitcoin gained over 299% for the year. With all of its past volatility behavior, crazy ups and downs and public interest, it could be a solid addition to the average investor’s portfolio. You may need to have a strong stomach for it though.

Big Firms Interested in Bitcoin Too

Big name hedge fund firms and a number of heavy hitter company’s like Square (SQ) and PayPal (PYPL) have purchased millions of dollars of Bitcoin. With a short supply, this pushes up its price. Despite its risk, Bitcoin has given many people a sense of acceptance. It looks as though it has plenty more room to grow. However, you have to remember that Bitcoin is a volatile asset and considered a risky holding if you invest in it.

The stock market doesn’t like uncertainty. With the unrest due to the coronavirus pandemic, alternative investment solutions (not savings accounts) is where investors usually go and park their money. Gold has traditionally been the asset class investors have fled to in times of uncertainty. There was hope among the cryptocurrency community that Bitcoin would also serve as an alternative during the coronavirus crisis and economic uncertainty. And eventually it has.

Bitcoin vs Gold?

One key difference between gold and Bitcoin is that gold is actually a physical asset - in which there are a number of uses for it besides being a commodity of exchange. For example, close to 80% of gold is made into jewelry every year. It is also a hedge against inflation or other economic or market uncertainty. That’s why there was a spike up this year on Gold prices.

In contrast, Bitcoin and related instruments have not been a store of value. One other hurdle for investors looking to buy Bitcoin is that there are limited options to get exposure to this digital asset via a stock market.

How Do You Buy Bitcoin?

There are two ways to purchase Bitcoin. You can buy it directly in which requires setting up and funding a separate account - but possibly paying high trading fees. However, the fastest way investors can get cryptocurrency exposure without actually buying their own Bitcoin is buying a “Bitcoin Trust”. It is like a stock or ETF trust that holds Bitcoin. Similar to your owning a S&P 500 ETF holding all top 500 U.S. company’s, the stock/ETF trust behaves similarly as it does not exactly match the underlying Bitcoin price but moves in comparison.

The bottom line is that it looks a bright future for cryptocurrency. African Americans looking to invest in the Bitcoin cryptocurrency has to understand one thing, it has a history of wild declines and can be quite volatile. The way that most Americans buy and sell Bitcoin today is on apps like Robinhood, Coinbase, and Square’s Cash App. It is somewhat easy to set up an account, but remember to just watch out for the fees. Nevertheless, if Bitcoin continues to go up, expenses may not be a concern.

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