The crypto community celebrated as Bitcoin reached an all-time high of $69,210, only to see it drop 8% shortly after. While this marked a remarkable recovery from the 2022 crypto crash, there’s a catch: Adjusted for inflation, Bitcoin is worth less than it was three years ago.
Let’s crunch the numbers. The previous record for Bitcoin was set on Nov. 10, 2021, at $68,982.20. However, with inflation soaring in recent years, adjusting for it using Bureau of Labor Statistics data reveals that this would be equivalent to about $76,544.11 in today’s dollars. So, in reality, Bitcoin’s most recent peak was $7,334 less valuable than it was in 2021, reflecting a 9.6% decrease in purchasing power.
Bitcoin’s appeal as an inflation hedge is a common argument. The theory is that, over time, your money would appreciate more if invested in Bitcoin rather than left in a bank or traditional investments. While Bitcoin has indeed shown spectacular gains over its 15-year history, experts caution that its extreme volatility undermines its viability as a safe investment. In fact, sticking with a traditional portfolio may have yielded better returns over the past few years.
For instance, let’s compare Bitcoin’s price to a fund that tracks the overall stock market, like the SPDR S&P 500 ETF. Adjusting for inflation, that fund was about 1.5% less valuable on Tuesday than it was three years ago. This means that if you invested $10,000 in Bitcoin at its peak, your investment would be worth around $9,050 today. Conversely, if you invested the same amount in the SPDR S&P 500 ETF, it would be worth about $9,850. Inflation affects traditional investments just as it does Bitcoin, but in this case, you would have fared better investing in the stock market, effectively losing $800 by parking your money in Bitcoin.
Of course, it’s a mistake to invest in something when it’s at its peak. The adage is to buy low and sell high. If you could foresee the future, you could have done just that with Bitcoin and profited immensely. This year alone, Bitcoin’s value surged by 45%, but there’s no guarantee this trend will continue. With the recent approval of cryptocurrency ETFs by the courts, investors now have the option to blend Bitcoin and other digital currencies with more traditional assets. However, had the decision gone the other way, Bitcoin’s value would likely have plummeted instead. Overall, evaluating stock investments offers more tools than predicting the fluctuations of the Bitcoin market.
In the end, investing always carries a degree of uncertainty. However, this week’s Bitcoin “record” serves as a reminder that cryptocurrency remains as much of a gamble as ever.