Bitcoin surged over 800% in FY21, should it be part of your portfolio in FY22?

The Sensex and the Nifty made some impressive double-digit gains in the financial year 2020-21 but the dizzying rise of the bitcoin, the world's leading cryptocurrency, makes their journey look like a crawl at best.

Bitcoin surged 816 percent in FY21 from $6,412.5 on March 31, 2020 to $58,763.7 on March 31, 2021, data available with investing.com shows.

After March 2020, bitcoin started to surge and even went past $61,000 briefly. Investors lapped up bitcoin as an alternative asset class, anticipating strong gains and also as a hedge against inflation.

Besides, millennials who are much comfortable and open to digital payments and cryptocurrencies are also fuelling demand for cryptocurrencies.

Recently, Visa Inc allowed the use of the cryptocurrency USD Coin to settle transactions on its payment network. This came after Elon Musk's Tesla began accepting bitcoin to purchase its electric vehicles.

Earlier, Morgan Stanley said it would offer its wealth management clients access to bitcoin funds, adding to growing the acceptance of digital currencies by the mainstream financial industry.

So, should the first cryptocurrency, which was launched in 2009, be part of your portfolio in FY22?

First of all, one needs to understand that the Indian government is not open to trading in cryptocurrencies.

As reported by Moneycontrol, the government is considering blocking internet protocol (IP) addresses of cryptocurrency companies and exchanges as a part of its bill to ban digital currencies.

"Investors should wait for more regulatory clarity before investing in bitcoin. The crypto exchanges are making a representation to the Government of India for suggesting solutions for establishing investment credentials for the asset class while the RBI has voiced its concerns. Regulatory hurdles can result in wealth erosion for investors," Divam Sharma, Co-founder at Green Portfolio Services told Moneycontrol.

Dinesh Rohira, Founder-CEO 5nance.com, said as an investment asset class, bitcoin is surrounded by doubts at present, given its high volatility can wipe out the wealth of retail investors with small-ticket size.

"There is always a need for regulatory and government support to build confidence in such asset classes. As it is designed to keep regulation out of transactions, the price behaviour on a daily basis might be unpredictable. Investors can keep track of such assets but should avoid making bulk investments in the hope to gain quick money. It needs to be played very safely," said Rohira.

The bewildering rise of over 800 percent in a year is not sustainable, experts warn and bitcoin's volatility makes it very difficult to foresee a trend.

"Bitcoin or other cryptocurrencies are highly volatile asset classes and should only be looked at by retail investors with a high-risk appetite. Moreover, the stance taken by regulators in India also suggests that the government is not in the favour of promoting cryptocurrencies among retail investors," Gaurav Dua, SVP, Head-Capital Market Strategy, Sharekhan by BNP Paribas, told Moneycontrol.

Weeks ago, the US Federal Reserve Chair Jerome Powell also underscored that the public needs to understand the risks behind bitcoin and other cryptocurrencies.

Powell said the Fed prefers to call crypto coins “crypto assets” because their volatility undermines their ability to store value, a basic function of a currency, according to an Associated Press report.

It is possible that bitcoin touches the $1,00,000-mark in FY22 but its highly volatile nature should be kept in mind before investing in it.

"Bitcoins could continue to see wild rides as larger adoption by corporates and capital market participants could boost its prices due to limited supply, while regulatory actions and profit-taking could result in sharp correction," Deepak Jasani, Head of Retail Research, HDFC securities pointed out.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.