Should you withdraw one billion VND from your savings to invest in Bitcoin?

According to experts, Bitcoin has potential but also carries significant risks because it is not yet legally recognized, its market price fluctuates sharply, and it requires considerable investment knowledge.

I have one billion VND deposited in a one-year bank account. However, I find the interest rate low, insufficient to cover inflation and rising consumer prices. I want to withdraw it all to invest. But the real estate market is frozen, with some areas showing signs of price drops. The stock market is constantly fluctuating, with no sign of a strong recovery.

I have an acquaintance who advised me to buy Bitcoin and leave it there, saying it would definitely make a profit after 4-5 years. But I feel uneasy about it, so I still want to invest in other channels instead of putting everything into cryptocurrency.

I would appreciate any expert advice you can give me. Thank you!

Pham Van San

Bitcoin is currently the largest and most popular cryptocurrency by market capitalization. Photo: Tat Dat

Consultant:

Bitcoin's growth potential stems from its application in cashless payments, its limited supply, and its ability to benefit from political and economic instability. Bitcoin is increasingly used due to its convenience in payments without the need for currency conversion, with low transaction and management costs. Furthermore, increasing political instability worldwide, and recent banking instability in the US and Europe, have eroded investor confidence in fiat currency and the stock market, shifting attention to investment channels less affected by these factors, such as cryptocurrencies.

Furthermore, the supply of Bitcoin is finite, only about 21 million units, and no more will be created by 2140. Although more and more alternative cryptocurrencies are being created, Bitcoin remains the most popular currency in the market and is used to buy and sell other currencies. Therefore, Bitcoin has promising growth potential. However, you should also consider the risks associated with this asset.

Each investment channel has two main types of risk: operational risk and market risk. Operational risk is risk unrelated to supply and demand, typically involving issues related to investors' trading activities such as capital injection and withdrawal, and the specific operating methods of the investment channel that may result in asset losses. This type of risk is controlled through the supervision and management of government agencies and legal regulations.

Market risk refers to risks primarily related to changes in the supply and demand forces of participating parties. Supply and demand fluctuate depending on the characteristics of the investment channel and the impact of macroeconomic factors. This type of risk is difficult to control and is specific to each investment channel.

For example, in the real estate investment channel, operational risks arise during the transfer of ownership, risks in transaction contracts, and legal issues. Market risks in the real estate channel include changes in demand for buying and selling real estate, leading to illiquidity, risk of capital loss, and capital being tied up for a long period.

Returning to your question, in Vietnam, with investment channels not recognized or protected by law, such as Bitcoin, the operational risks are very high due to the lack of a specialized regulatory body and legal regulations to protect investors' rights. Therefore, when fraud and misappropriation of assets occur, investors can easily lose both their principal and interest.

Bitcoin also carries high market risks due to its constant trading. Cryptocurrencies are not yet as widely recognized globally as traditional assets, and their volatility is limitless, meaning asset values ​​can rise or fall sharply in short periods, making it difficult to realize profits as planned.

Currently, each country has different views on Bitcoin. However, the group of countries with a moderate approach to its management and use remains large, mainly those leading in information technology. This group neither encourages digital currency transactions nor prohibits them negatively. Regulatory agencies only implement policies to collect taxes and measures to monitor smuggling and money laundering using cryptocurrencies. Typical countries in this group include Japan, Australia, the United States, South Korea, Singapore, the Philippines, and New Zealand.

In summary, Bitcoin is a high-return, high-risk investment channel, suitable for investors with a high risk tolerance and a thorough understanding of the cryptocurrency market.

Regarding investment allocation, this largely depends on your financial situation and goals, your risk tolerance, and your contingency plans. Generally, assets with high returns also carry high risks, and vice versa. Therefore, diversifying your investment portfolio will help you achieve good returns with reasonable risk over the long term.

I cannot provide a specific asset allocation ratio due to a lack of information regarding age, occupation, income, expenses, financial goals, dependents, contingency plans, etc. My advice is that your investment portfolio should maintain a comprehensive range of channels such as real estate, stocks, deposits, and other financial products regardless of the economic circumstances. In the long term, these channels will continue to grow in line with Vietnam's economic development.

The allocation of investment across different channels needs to be adjusted according to the economic situation, financial situation, and risk appetite at any given time. Concentrating all assets in any single channel significantly increases the risk of "losing everything," potentially reducing long-term profitability.

Currently, the global economy in general and Vietnam in particular are in the final stages of monetary tightening to combat inflation. Many international experts predict that this action could lead to an economic crisis in the next 6-12 months. In this economic context, preserving assets to seize opportunities when a new economic growth cycle returns will significantly increase total asset value.

Highly liquid, secure, and sustainably growing assets like savings deposits should be increased in proportion to around 40-70%. 2024 will be an opportunity to begin reducing the proportion of savings deposits to hold higher-yielding asset classes with higher risks. It's important to note that, regardless of the chosen investment channel, strategic investment and research are crucial for achieving desired results.

Phan Hoang Quan

Personal Finance Planning Specialist at FIDT

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