Editors' pick: Originally published Nov. 3.
Although bitcoin has just turned eight, it remains shrouded in an ambiguous stance by regulatory bodies toward it, sensationalism by the media and technical jargon.
These factors have together created a complex image around bitcoin, and it thus remains one of the least explored and most highly misunderstood investment options for average investors. However, bitcoin is a good investment option and can be the perfect diversifier, which average investors should consider for a well-rounded portfolio.
When we talk about investment portfolios, the first thoughts are of maximizing returns and minimizing risk, which is also the core of Noble laureate Harry Markowitz's Modern Portfolio Theory.
The idea is to combine uncorrelated assets in an investor's portfolio and thus diversify the invested amount across different asset classes, which traditionally included bonds, cash and equities, thereby minimizing the risk of putting all one's eggs in one basket.
But there are now additional asset classes commodities, collectibles, currencies and other alternative-investment options such as hedge funds and private-equity funds. The economic upheavals and volatile stock market echoed voices to look at alternatives instead of sticking to conventional investment options.
Bitcoin started trading in January 2009 at about $0.0007 apiece, and it hit parity with the dollar in February 2011, which was the fastest recovery against the greenback ever. By November 2013, bitcoin's value peaked at $1,242.
However, it soon started its downward journey and remained volatile for most of 2014. Its movement last year mostly hovered between $200 and $400.
Bitcoin was at about $400 in the first half this year and started moving higher in the second half.
The number of bitcoins in circulation is limited, which means that it can't be inflated and thus would retain a relatively stable purchasing power as compared with other currencies. The ability to retain its value makes it attractive as a long-term investment especially for retirement purposes.
Bitcoin has a market capitalization value of $11.62 billion and is trading at about $700.
The digital currency's price has shown signs of maturity and is fast shedding the image of being considered speculative in nature. Bitcoin-related ventures have also been attracting a decent number of funds, which demonstrates the increasing confidence of angel investors and entrepreneurs.