In the first quarter of 2024, Bitcoin’s price reached new heights in the wake of the first BTC ETFs approved by the SEC. In March, the pioneering cryptocurrency topped $70,000 and recently hit a new record, thanks to the crypto advocates buoyed by Trump’s win in the US presidential election. At the time of writing, Bitcoin is trading at an impressive $ 93,507, and Bitcoin evangelists feel very optimistic about its future, expecting its price to continue climbing thanks to a potential friendlier regulatory environment. Many investors believe that Bitcoin is an excellent tool for creating generational wealth, and some even advocate for the US to build a strategic reserve of Bitcoin.
In the first decade after its introduction, the financial planning world wasn’t really open to embracing crypto assets as a viable option for individual investors. However, things have changed dramatically over the past few years, professionals have started to benefit more from education about crypto assets, and Bitcoin has become widely accepted not just as a cryptocurrency used for transactions but also as a payment method for companies. It’s not at all surprising that the number of people keeping an eye on Bitcoin’s price today has only been increasing. But is it a good time now to invest in the leading crypto asset? Let’s find out below!
Understanding what it means to invest in Bitcoin
You can only invest in what you know, so it’s important to take the time to understand Bitcoin’s ins and outs before adding it to your portfolio. Bitcoin is a well-established cryptocurrency, and it’s also the oldest in the market, created by Satoshi Nakamoto, who set things up to ensure there will ever be only 21 million bitcoins in existence. Compared to other assets valued depending on tangible components, including the goods and services of a company or a natural resource, Bitcoin represents a store of value, and its price is strictly based on the amount others are willing to pay for it.
It has a highly volatile nature, making it quite risky as an investment. Over the years, the digital currency has seen some dramatic plunges ( although it has also experienced tremendous growth); for instance, between November 2021- November 2022, its price dropped from $64,455 to $16,196. While Bitcoin is considered currency and, in some cases, even used as money, it isn’t legal tender in the US or other countries in general. Furthermore, it’s complicated to transact with it for those who use it to buy and sell stuff, particularly when it comes to tax reporting of the transactions.
What role does Bitcoin play in your investment portfolio?
You may have heard that Bitcoin is a great addition to your investment portfolio, but here’s the thing: according to financial planners, it’s all about taking smart actions. What does that mean? Well, you should never invest any money in Bitcoin for something that you must do over the span of the next 5 years. Given its volatile nature, using Bitcoin for short-term saving objectives isn’t recommended. Furthermore, experts suggest allocating just a small portion of your long-term investment strategy to it: no more than 5%.
Investing in Bitcoin can be a great idea if you need money to buy a house, retire early or pay for college for your children, but you should use a “core and explore” strategy, as experts call it. This means that 90% of your assets should be in a well-diversified portfolio designed with your unique risk tolerance and timeframe in mind, and the rest of 5% in more speculative investments like crypto – but only if you can take the risk of possibly losing the money that you put in.
So, should you invest in Bitcoin?
It’s essential to remember that investing in Bitcoin is only something you can decide based on your preferences and circumstances. And it’s important to ask yourself some questions before you buy it. For instance, if the crypto were to drop as much as 50%, would you be left struggling financially? If that’s the case, you should reconsider your decision to invest in this cryptocurrency. You need to be very honest with yourself and consider if you would be okay with the possibility of your investment never working out. Is that a risk you can take? If not, you’re probably not ready to invest in crypto. Also, remember that even if you decide to invest, it’s essential to set some firm rules straight from the beginning. Many people enter the market at its peak when there’s high euphoria, but many of them don’t even establish an exit strategy in the first place. This is, however, very important because it will help you avoid being driven solely by emotion.
While Bitcoin can be bought directly, this option can be quite complicated, and as seen previously, it also carries many risks. But here’s the good news: there’s another way to get access to this cryptocurrency: Bitcoin ETFs. Investors have poured around $28 billion into these ETFs, with their combined net asset value reaching a massive value recently. So, if you don’t want to commit to crypto directly, using a Bitcoin ETF is the easiest and safest way to gain exposure to it and potentially take advantage of its opportunities.
The bottom line
Bitcoin’s journey has been impressive so far, and it isn’t surprising that many people are becoming increasingly interested in it. After all, they have all the reasons to do so, especially given the decentralized nature of this asset. Unfortunately, Bitcoin is also incredibly volatile, and even if market conditions may be favorable at the time, you should only buy this asset at your own risk and only after understanding how it works and its downsides. While Bitcoin indeed has huge potential for returns, you could also lose your money if things don’t work out well. If you’re okay with taking this risk (and it won’t affect your financial situation in any way), then you can proceed with purchasing it. But make sure to do it cautiously and have a smart strategy in place, knowing when to exit the market.
