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Why it's a good thing so many new investors are investing in Bitcoin

Disclaimer: this piece isn't about whether you should or shouldn't invest in Bitcoin or any other cryptocurrency. That's a decision you should make after taking professional, financial advice. Instead, this piece is about the experience of investing many are achieving through an investment into Bitcoin.

I ended last week by writing a piece on Bitcoin and how you can look to reduce the amount of capital gains tax you pay on any profits you make (given that - surprisingly to same - profits made from Bitcoin or any other cryptocurrency are subject to capital gains tax).

The reason I wrote it is I'm somewhat fascinated by Bitcoin in every respect, and see a lot of discussions taking place about it, particularly on social media. It's new and something the world simply hasn't seen before, and so with us talking about all things tax efficient investing regularly, the discussion topic was an obvious one.

Since writing it and talking about if further, I've realised that many would consider Capital Gains Tax liabilities occurring from investments to be a scenario largely restricted to professional investors. With a current CGT allowance of over £11,000, it means you'd have to be realising a capital gain of over £50,000 each year before you need to consider paying CGT.

But with Bitcoin, it's a very real possibility that an investment into it - which could easily be your first real investment ever - puts you into the bracket where you're liable to pay capital gains tax.

As an example, if you had bought 10 Bitcoins on 2nd November 2015, it would have cost you $3,259.40 (approximately £2,360.72). If you had then sold them at the start of this year on 2nd January 2018, they would would have sold for £108,467.70. Representing a capital gain of over £100,000, it's easy to see how someone who may have invested a relatively modest sum could have a whole host of tax implications put upon them.

And so with this in mind, it got me thinking about how so many new investors who don't have experience of the investing landscape could actually be doing the right thing by investing in Bitcoin from a knowledge and experience point of view.

Determining your risk profile by experiencing market volatility

Almost all investments have a level of risk associated with them. That risk moves in either direction depending on what the asset is, ranging from being almost guaranteed to keep your money safe but with only a marginal profit to potentially returning a huge profit, but with only a very small likelihood of doing so.

As a new investor, understanding what your aversion to risk is is difficult. You can be swayed considerably by the potential return on paper, which can move you towards investments that are riskier than you'd actually like (or conversely, towards investments that are less riskier than you're looking for).

Experiencing the actual risk, however, is a different scenario, and this is exactly what's happening with Bitcoin investors.

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Seeing your investment increase by 30% in a matter of days can be a glorious feeling, but you need to pay more attention to how you feel when it decreases by 30%.

Are you happy to ride it out on the belief it'll recover? Is your gut instinct to withdraw your funds and take a loss? Are you unsure about what to do?

There are investment opportunities open to everyone almost regardless of their preference when it comes to risk, but having that understanding of what it actually is is key. For most, this comes through research, education and advice taking - but for Bitcoin investors, it can actually be something that's being achieved with first-hand experience of a live market.

Of course, the cryptocurrency market has been on very much of an upward trend, so experiencing losses isn't as frequqent as it may be elsewhere. However, when it does happen, it's vital to understand how you feel - but also how you would feel, and what you would do, if you've made considerable gains and they, hypothetically speaking, were reduced in a matter of days.

Showing the importance of needing to research and understanding your assets

Leading on from this perfectly, one of the most important parts of investing is having the information to make informed choices, whether that's through self-education or taking advice from financial professionals. Without it, you're not doing a great deal other than investing money based on a passing comment or a popular market trend.

Now it's important to highlight here this is exactly what's happened with Bitcoin for many - and many have seen results, even over short periods of time (I'm talking days and weeks).

But many who have jumped on the wagon have also seen losses, too - if you'd bought one Bitcoin on 6th January and sold it less than a week later on 12th January for instance, you'd be in the region of £2,800 down.

Whilst it's undoubtedly difficult to gauge the cryptocurrency market at the minute, it is showing the importance of needing understand what you're actually investing in as best as you can.

Without doubt take advice from professionals, as they'll help you to understand what investment opportunities are available based on your need and requirements. However, doing your own research is always recommended, too. The internet is filled with downloadables. Forums. Blogs. Groups. Social media. It's not to say it's all advice, but it's information that can help you build that understanding of the market.

Investing is about allocating your available funds to to asset classes that fit your portfolio and investment preferences best - and you can only make choices on investment options when you understand the opportunities as best as is feasibly possibe.

Continuing your investment portfolio after Bitcoin

There are investment opportunities available for everyone. From investing in early stage startups with the Enterprise Investment Scheme (EIS) through to a vast array of property investment opportunities, once you understand your preferences for investment, you can begin to experience just what's available.

Whilst this traditionally happens before any investment has actually been made, so to minimise any potential losses, the fact so many have started their investment portfolio with cryptocurrencies like Bitcoin isn't necessarily negative.

A sheet of data and graphs with a pen, phone and tablet

Yes, the unprecedented growth isn't something many could have foreseen and so we have to account for the fact 'luck' may have played somewhat of a role here, but we can't ignore that being involved has allowed a lot of new people to experience the world of investment in a way so many others simply haven't been able to.

They've bought an asset. They've read and used terminology. They've experienced market volatility. They've seen growth and many have seen falls. They've seen how much can be achieved by increasing your knowledge - understanding which other cryptocurrencies to invest in alongside Bitcoin, for example.

Whether or not Bitcoin is an asset class you should be investing in from a financial return point of view is not something I can answer (and iti's a question you really should be taking financial advice over) - but whether a new investor allocating funds to Bitcoin is a positive or negative from an experience point of view, in my eyes, is undoubtedly nothing but positive.

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