Cryptocurrency proponents argue that the digital coins are a safe investment because they have a “zero correlation” to the stock market. As a result, a dose of cryptocurrency makes investors’ portfolios less volatile.
“We’re starting to see bitcoin as a disaster hedge to the traditional market,” said Chris Burniske, co-author of Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond. “Even though there’s a bull market now, it doesn’t mean that’ll be the case in 2018.”
But David Yermack, who teaches classes on bitcoin at New York University’s Stern School of Business, said the digital coins’ uniqueness brings its own risks.
“In terms of diversification, it’s useful to have a little in your portfolio, but the fact that you don’t understand why it’s moving doesn’t mean it’s safe,” he said. “If anything, the lack of explanation should make you more hesitant.”
Still, Yermack believes that cryptocurrency, and the so-called blockchain technology on which it’s exchanged, will only become more understood and widely used with time.
“It’s going to be a profound change,” he said. “Every central bank in the world has a team of people looking at this.”