When it comes to creating a healthy investment portfolio, you may be interested in spreading your wealth so that it’s not in one place. The idea here is that if you make multiple investments into different assets, then you run less risk of losing money if you had put in all in one place.
In this case, you’ll want to spread your investments across multiple asset classes in order to have a diverse portfolio. An asset class is a category of investments that get grouped together because they have a similar financial structure, are typically traded in the same markets, and are subject to the same rules and regulations.When diversifying your investment portfolio into multiple asset classes the goal is to reduce the overall risk level of your investments.
There are generally four broad classes of assets, but some experts claim there are only three, while others say there are as many as five. With the introduction of cryptocurrency, matters have become even more complicated as experts, institutions, and governments, struggle to find out exactly which asset class it fits into.
Cryptocurrency: Commodity or Something Completely New?
If you buy and sell Bitcoin on a regular basis, you may not be new to the idea that cryptocurrency is typically regarded as holding a status similar to gold and silver – a commodity with exchange value. This is particularly relevant when doing your taxes where cryptocurrency needs to be filed as a commodity. While buying Bitcoin is not taxable, selling, trading, or using it to buy something else is a taxable event. And if you earn a profit from buying and selling Bitcoin, you will need to pay capital gains – on the other hand, you can also generate short or long term capital losses if you lose money.
On the other hand, in a report by banking giant Morgan Stanley, Bitcoin has begun to be defined as “digital cash” and is often seen to be a new asset class of its own. This is mainly influenced by investor confidence and the fact that major financial institutions are becoming increasingly involved in the buying and trading of cryptocurrency.
Basically, the more of a positive public perception that Bitcoin and other cryptocurrencies have, the more it will become a recognized asset class of its own. Investor trust also contributes to the value of cryptocurrencies, and the more popular it becomes, the more lucrative it will be to investors.
This shift in public perception brings cryptocurrency onto the same level as the other asset classes: shares, bonds, property, commodities, or cash. As cryptocurrency evolves into its own asset class, one has to wonder what that will mean for filing taxes. Will Bitcoin still be considered a commodity, or will it get its own designation?
It’s hard to say what the future holds – some people are still not confident about the future of cryptocurrency and whether or not it’s a secure investment. But any investment is risky, so the best you can do is make an informed decision.