Bitcoin as an Asset Class: Risks, Volatility, and the Case for (or Against) Exposure
Bitcoin has captured headlines for over a decade, but how should we really think about it — as a speculative craze, or as a legitimate asset class? If you’re building a portfolio and exploring alternatives beyond stocks, bonds, and real estate, understanding Bitcoin’s role is essential. Let’s break down Bitcoin’s characteristics, risks, and potential so you can make an informed decision.
Is Bitcoin an Asset Class?
An asset class is a group of financial instruments that behave similarly and are governed by the same laws or market forces. Traditionally, these include:
- Equities (stocks)
- Fixed income (bonds)
- Cash or cash equivalents
- Real estate
- Commodities (gold, oil, etc.)
Bitcoin doesn’t neatly fit into any of these, but it is more and more treated like a legitimate asset class by retail as well as institutional investors. So in my opinition it is absolutely an asset class. It’s often described as:
- A store of value, like gold
- A high-risk speculative asset
- A digital commodity
What makes Bitcoin unique is its decentralization, limited supply (21 million coins), and independence from central banks.
The Risks of Bitcoin
1️⃣ Volatility
Bitcoin is extremely volatile. What does volatility mean? Price swings of 5% or more in a single day are not unusual. While this creates potential for outsized gains, it also means:
- Sharp drawdowns (e.g., Bitcoin has seen drops of over 70% in past cycles)
- Emotional challenges for investors (can you stomach a 50% loss?)
Bitcoin is an asset class that makes the most sense for a long-term investment horizon. Short-term investments require timing and exploiting price swings. Timing the price swings requires enormous experience, financial analysis skills and nerves of steel.
For most normal investors, this is not a good idea. If you are convinced of the philosophy and robustness behind Bitcoin, do yourself a favor and don't gamble for short-term gains. You'll most likely lose money - and that is the opposite of what we are trying to do with investing which is building wealth, slowly and predictably.
2️⃣ Regulatory and Tax Uncertainty
Regulations around Bitcoin differ by country and are evolving fast. Risks include:
- Changes in tax treatment (e.g., capital gains tax, transaction reporting requirements)
- Restrictions on use or trading in certain jurisdictions
👉 Tip: Even if you’re just holding, you may have tax reporting obligations on gains/losses.
3️⃣ Custody and Security
Owning Bitcoin means thinking carefully about how you store it. Unlike traditional assets:
- If you manage your coins yourself (also known as self-custody), and you lose your keys, your Bitcoin is gone - forever.
- Exchanges and custodians can (and have) been hacked.
Many beginners choose regulated custodians or reputable crypto platforms. While hardware wallets provide greater control, they also come with risks of loss or mismanagement. For most beginners, self-custody is not recommended.
The Case For Bitcoin Exposure
✅ Diversification — Bitcoin’s price movements have historically had low correlation with equities and bonds (though this can change in crises).
✅ Potential for outsized returns — As a scarce digital asset, Bitcoin has seen extraordinary long-term growth (despite large interim losses).
✅ Hedge against fiat currency debasement — Bitcoin protects against inflation and monetary mismanagement, similar to gold.
The Case Against Bitcoin Exposure
❌ Extreme volatility — Many investors find the wild price swings too stressful or incompatible with their risk tolerance.
❌ Regulatory risk — Future laws could limit Bitcoin’s use or impose heavy taxes.
❌ Unproven long-term stability — Bitcoin is still young relative to traditional asset classes. Its long-term behavior in various economic conditions remains untested.
Why Bitcoin Deserves Consideration
Bitcoin isn’t just another volatile asset. Beyond price movements and media narratives, it represents something fundamentally different from traditional financial instruments:
🌍 A Hedge Against Fiat Currency Fragility
Bitcoin’s design — with a fixed supply cap (21 million coins) and decentralized issuance — makes it immune to inflationary policies that can erode fiat currency value over time.
In a world where central banks can create money at will, Bitcoin offers an alternative:
- No central authority can dilute its supply.
- Ownership is not tied to a bank, government, or financial institution.
For some, this makes Bitcoin a form of financial self-sovereignty — a way to hold value outside the reach of policy shifts or monetary experiments.
🔑 A New Type of Asset Class
Bitcoin’s characteristics don’t fit neatly into categories like stocks, bonds, or commodities. Instead, it combines elements of:
- Digital commodity (scarcity, like gold)
- Global payment network (transferable without intermediaries)
- Technology protocol (open-source and permissionless)
This unique mix invites a fresh perspective. Rather than comparing Bitcoin only to risky speculative assets, many see it as a tool for hedging systemic risk in a fiat-dominated world.
⚠️ A Note on Volatility
Of course, Bitcoin’s price remains highly volatile, and that can affect short-term valuation. But those who view Bitcoin through the lens of fiat fragility tend to focus on its long-term properties, not daily price swings.
Final Thoughts
Bitcoin challenges us to think beyond traditional portfolio frameworks. It invites questions about the resilience of the fiat system and the future of money itself. Whether or not one chooses to engage with Bitcoin, understanding its role in a world of monetary uncertainty is becoming increasingly important.
Bitcoin’s inclusion in your portfolio depends on your personal risk tolerance, investment horizon, and belief in its long-term value. It offers a historically unprecedented unique mix of opportunity and risk, and while it can be a powerful diversification tool, it demands respect for its volatility and uncertainties.
In future posts, we’ll explore custody options, basic tax considerations, and how to choose a crypto platform.
Key Terms Defined
- Asset Class: A category of investments that share similar characteristics and behave similarly in the market. Examples include equities (stocks), fixed income (bonds), real estate, commodities, and now, arguably, Bitcoin.
- Volatility: The degree of variation in the price of an asset over time. High volatility means large, rapid price movements — both up and down — which can create both opportunity and risk.
- Fiat Currency: Government-issued currency that is not backed by a physical commodity (like gold). The value of fiat money comes from trust in the government that issues it. Examples: the US dollar, euro, yen.
- Hedge: An investment or asset designed to protect against potential losses in another area of a portfolio — for example, holding gold or Bitcoin to offset risks of fiat currency devaluation.
- Decentralization: The distribution of authority across a network rather than relying on a single central entity. In Bitcoin’s case, no government or corporation controls issuance or transactions.
- Supply Cap: The maximum amount of a given asset that will ever exist. Bitcoin’s supply cap is 21 million coins, hard-coded into its protocol.
Further Reading
The Bitcoin Standard by Saifedean Ammous — A deep dive into Bitcoin’s role as sound money and its potential to replace fiat currencies (Amazon link).
Broken Money by Lyn Alden — Explores the history of money, fiat systems, and Bitcoin’s place in that history (Amazon link).
Bitcoin Whitepaper by Satoshi Nakamoto — The original technical document introducing Bitcoin to the world.
If you would like to dig deeper, sign up for the waitlist for “Mystery Money” where we bridge the gap between knowledge, mindset and action - and demystify Bitcoin, beyond the hype. “Mystery Money” is an online course with short and digestible videos made for busy women and allows you to study at your own pace.
No payment required if you sign up for the waitlist - if you’re on the waitlist once the course goes live, I’ll notify you and if you choose to purchase it, you’ll get a 20% DISCOUNT (199 EUR (incl. VAT) instead of 249 EUR (incl. VAT).
