Bitcoin has recently experienced a remarkable resurgence, reaching a new high of $69,191.95 on March 5, and briefly surpassing the $70,000 mark. This surge has not only uplifted Bitcoin but also other cryptocurrencies like Ethereum, Solana, and Dogecoin. For cryptocurrency enthusiasts, this resurgence reinforces their belief in the long-term potential of cryptocurrencies, as reflected in the popular term “hodl.” However, newcomers to the cryptocurrency market may be left wondering whether now is the right time to invest.
Bitcoin has had its share of ups and downs, including a significant rebound during the initial wave of the Covid-19 pandemic and a subsequent downturn in the spring of 2021, exacerbated by the collapse of the FTX exchange. The current uptick in Bitcoin’s price began around January 10, coinciding with the Securities and Exchange Commission’s (SEC) approval of spot exchange-traded funds (ETFs) by major financial companies such as BlackRock, Invesco, and Fidelity.
These ETFs aim to mirror the price of Bitcoin without requiring direct ownership of the cryptocurrency and have attracted over $9 billion in net inflows since their introduction. Douglas Boneparth, a certified financial planner based in New York, acknowledges the increased market confidence resulting from institutional engagement and suggests a cautious allocation of up to 10% in Bitcoin for client portfolios, signaling a shift in investment strategy.
Despite Bitcoin’s reputation for volatility and initial skepticism from the traditional financial sector, attitudes towards the cryptocurrency are gradually evolving. Experienced money managers have observed significant profits from Bitcoin investments across various investor groups, from individual retail investors to seasoned Wall Street professionals. This shifting perspective recognizes the perceived value of Bitcoin in the market, hinting at a potential, albeit limited, role for Bitcoin in diversified investment portfolios.
However, Peter Mladina of Northern Trust Wealth Management advises a cautious approach, disputing the notion that Bitcoin can function as a conventional currency or stable store of value due to its volatility. Similarly, Joseph Boughan from Parkmount Financial Partners stresses the importance of managing expectations regarding Bitcoin’s price fluctuations, recommending a maximum allocation of 5% in client portfolios. Incorporating Bitcoin into an investment portfolio, even in small proportions, can significantly alter its risk profile, similar to increasing stock holdings. While the heightened volatility of Bitcoin may offer lucrative opportunities, it also carries risks, especially for investors needing to liquidate their investments during market downturns.
The resurgence of Bitcoin has coincided with the resurgence of more speculative digital assets, such as meme coins and non-fungible tokens (NFTs), which have historically experienced dramatic fluctuations and speculative bubbles. Experts caution against viewing these trends as sustainable investment strategies, emphasizing the real risk of loss.
Meanwhile, Bitcoin whales—investors holding substantial amounts of the cryptocurrency—have shown a reluctance to sell, despite recent price peaks. Although the number of addresses holding at least 1,000 Bitcoins has increased, it remains below the peak levels of February 2021. This pattern suggests that major investors continue to believe in Bitcoin’s potential for further appreciation.