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Cryptocurrency Basics: Pros Cons and How It Works

Bitcoin (BTCUSD) has had a spectacular run this year, rising to over $100,000, and some analysts expect it to go even higher next year. While that may tempt you into considering investing in it, financial advisors remain cautious about recommending the cryptocurrency to clients and suggest allocating only a small portion of your portfolio towards it. Portfolio rebalancing is the process of realigning asset weights in an investment portfolio. In crypto, rebalancing helps manage risk and maintain a desired allocation despite price fluctuations. For instance, if your portfolio is split 60% Bitcoin (BTC) and 40% Ethereum (ETH), a sudden rise in BTC’s price could skew your allocation. Rebalancing restores the portfolio to its target allocation.

Meme coins captured the attention of most crypto traders and emerged as a popular narrative this year. A CoinGecko report updated on Monday notes that the meme coin narrative captured a combined 30.67% of global investor interest. BTC and ETH's realized volatility has increased, but short-term options haven't adjusted to this change. This indicates that while spot prices are fluctuating, the options market is not fully reacting to these shifts, although BTC and ETH volumes have displayed slightly different patterns.

Since announcing its Bitcoin purchase plan in mid-2020, the company has been selling stock when prices rise and increasing debt to continue buying Bitcoin. It currently holds 444,000 Bitcoins. It is the fourth-largest holder of Bitcoin globally, following Satoshi Nakamoto, BlackRocks iShares Bitcoin Trust, and the cryptocurrency exchange Binance.