What Role Should Bitcoin Play In Your Emergency Fund?

Posted: Jul 15 2018, 7:31pm CDT | by , in News | Latest Business News

 

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What Role Should Bitcoin Play In Your Emergency Fund?

Can Bitcoin Pay For An Emergency?

No matter your income level, everyone should have some savings to cover expenses in the event of a crisis, such as loss of a job, major car repairs, or health issues. Many Americans, however, simply haven’t managed to set aside such funds, either due to financial constraints or poor money management. So how do we bridge the gap?

One way to make saving for an emergency easier and more financially efficient is by investing a small amount with the hope that your principle funds will increase in value. Most of the time this is a slow process, but with the rise of Bitcoin, it’s now possible to turn a marginal amount of money into a high-value fund, almost overnight.

Investing For An Emergency

Before diving into Bitcoin, it’s important to consider whether investing your emergency fund is a good idea. Many financial planners back this strategy because it keeps your money accessible while increasing potential returns – stocks, CDs, and other investments generally turn a greater profit than a savings account. On the other hand, stocks can fall, and some investments are less valuable if you cash them out early, so it’s important to choose carefully.

Additional questions apply if you’re considering investing your emergency fund in Bitcoin. Right now, a single Bitcoin is worth more than an ounce of gold, doubling in value over the last year alone. Gold, in comparison, has stayed essentially stable across that time period. If you’re looking for a high-growth investment strategy, Bitcoin could be the right option for you – but proceed with caution.

Volatility Concerns

One of the main reasons to be careful investing your emergency funds in Bitcoin or other cryptocurrency is that the market is still essentially unregulated. For example, if you’re trying to build a basic emergency fund – 3 to 6 months of household expenses – you might think Bitcoin could turn 1 month worth of savings into 6 months in less than a year. And maybe 2018 will be as good for Bitcoin as 2017 was. On the other hand, Bitcoin could turn out like many other investment bubbles.

Think of the dot-com boom or the more recent housing bubble. What these situations had in common was that they were unsustainable; they made early investors rich, but by the time they became mainstream, they were too volatile and the majority of later investors lost money. You can’t afford to lose your emergency fund, so it’s important to be savvy about where you save or invest it.

Explore Your Options

Bitcoin and its kin are just one among many options for building an emergency savings fund, so be sure to explore your options. You’re never going to get the kind of return on Bitcoin that the earliest investors got - $100 of Bitcoin in 2010 is now worth $70 million – but some other forms, such as Ethereum, are still hitting their stride. If you are considering cryptocurrency as an investment form, don’t limit yourself to Bitcoin.

Additionally, if you’re going to experiment with cryptocurrency as a form of savings, add a second, more reliable system to your play. One way to do this is by automating contributions to your savings so that some money is taken out of every paycheck. This will help stabilize your finances so that even if cryptocurrency crashes, you’ll have savings to fall back on.

Bitcoin and other cryptocurrencies have a lot of potential, but they’re inherently unstable and pack a lot of volatility. You could be looking at a few years of extensive growth, or the market could crash this year. Are you willing to take that risk with your savings?

This story may contain affiliate links.

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The Author

<a href="/latest_stories/all/all/68" rel="author">Larry Alton</a>
Larry is an independent business consultant specializing in tech, social media trends, business, and entrepreneurship. Follow him on Twitter and LinkedIn.

 

 

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