Bitcoin as an investment diversification strategy.
It is no secret Australians are heavily invested in property. Over the years as world governments and banks loaned out easy money, these funds were channeled into the property sector and contributed to asset price inflation. These investments have done very well for the average Australian investor. For many investors, it is perhaps time to take stock an evaluate how their wealth is spread over their various investments.
As we enter into periods of economic uncertainty, diversification of investments is the key to effective risk management. Having all your eggs in one basket is seldom a good long-term investment strategy. By investing in more than one asset category, you’ll reduce the risk that you’ll lose money and your portfolio’s overall investment returns will have a smoother ride. If one asset category’s investment return falls, you’ll be in a position to counteract your losses in that asset category with better investment returns in another asset category.
Besides property, cash, bonds, stocks and precious metals, there is now a new form of investment asset and that is digital assets or cryptocurrencies. The most famous of these is Bitcoin.
Bitcoin functions similar to gold as a store of value and a hedge against inflation caused by loose monetary policy. This is because the number of Bitcoins is limited in supply and modeled after gold. Bitcoin has grown from under $1 AUD back in 2009 to over $7000 AUD to date. Bitcoin however is not alone, there are over 3000 blockchain digital assets being traded every day. The market cap of these assets exceeds 150 billion USD.
Digital assets should not be ignored. They are a high-risk investment option but with tremendous profit potential. Investors should look at investing in some of these assets as a form of diversification strategy because there is a possibility that digital currencies will become part of our daily lives like the internet.
Investments in Bitcoin is subject to capital gains tax as highlighted by ATO tax guidance document on bitcoin. https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia—specifically-bitcoin/
However there is a 10,000 AUD tax exemption if the gains were spent on personal use. (In Australia you can pay credit card bills, shop online or book holidays with Bitcoin and this would constitute personal use) There are also many Bitcoin ATMs throughout Australia where you can change bitcoin into Australian dollars.
In short, Bitcoin is a high growth investment asset which is usable as an alternate form of cash but it also has the potential for capital gains tax exemptions. For these reasons it is well worth to diversify a small percentage of your investment portfolio into Bitcoin, ignore the short-term volatility and hold for the longer term.