Does bitcoin deserve a place in your investment portfolio?

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While institutional support has increased, blockchain analytics firm Glassnode estimates that about 2 per cent of holders still control more than 70 per cent of all bitcoin. Such a tightly held market means that price manipulation is a risk, and investors need to be discerning towards liquidity, especially in a highly speculative environment.

If you want to invest in Bitcoin in small amounts for portfolio diversification, it does have some benefits. Crypto-currencies are peripheral alternative assets or potential derivatives of currency.

Still, with investors increasingly conscious of sustainability issues, the resources needed to grow the bitcoin blockchain through mining are considerable.

Bitcoin miners run banks of massively powerful computers, tasked with solving increasingly complex maths equations. If a miner is the first to solve the equation, they are granted 6.25 Bitcoin ($270,000).

The mining process uses more annual energy than many countries; if the Crypto-currency was a sovereign state it would be among the top 30 energy users in the world.

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The carbon footprint associated with bitcoin’s environmental impacts is dependent on the source of energy used but, with about 60 per cent of the world’s electricity still being generated by fossil fuels, its carbon footprint is significant.

In the big picture, there is a lot of hype, polarisation and misinformation surrounding bitcoin. Vested interests are rife. This is the type of environment that has tended to bring out the worst risks for investors.

Matthew Gadsden is senior consultant at consulting firm JANA.

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