Bitcoin has broken records in 2024, climbing past $90,000 after a rough “crypto winter” that lasted a couple of years. The recent surge, more than a 30% jump since the election, has a lot to do with the SEC approving new bitcoin spot ETFs, which make it much easier to invest in bitcoin through regular brokerage or retirement accounts. This also paved the way for the first ethereum ETFs, which hit the market in July.
So, with all this hype, is it time to jump in? Well, it’s not that simple.
What’s the buzz about bitcoin ETFs?
A survey in early 2023 showed 75% of people who know about crypto aren’t too confident about its safety. That changed a bit when the SEC allowed spot bitcoin ETFs, giving regular investors a way to own bitcoin without the fuss of a crypto exchange. These spot ETFs own actual bitcoin, tracking its price minus fees, so you can get exposure to bitcoin just by holding shares in your brokerage or retirement account.
Should bitcoin be part of your investment portfolio?
The appeal is understandable, but remember: bitcoin is still a speculative asset, meaning it doesn’t produce any income (like dividends or interest). Its value is entirely based on what people are willing to pay for it, making it a risky bet for those looking to profit off price swings.
Bitcoin’s price can be a rollercoaster
The excitement around bitcoin’s current rise is real, but remember it’s also known for extreme drops. In 2022, for instance, bitcoin plunged over 60% compared to the S&P 500’s 19% decline. Investment advisor Ric Edelman suggests if you want to add bitcoin to your portfolio, keep it to a small portion (1-5%) due to its high-risk, high-reward potential.
Bitcoin isn’t as unique a diversifier as it once was
In the past, bitcoin wasn’t closely tied to stock prices, but that’s changed. A 2023 paper by the IMF showed that since 2020, bitcoin has been moving more in sync with the stock market, especially during crises, making it less of a “hedge.”
Don’t expect to see bitcoin in your 401(k) anytime soon
While some companies like Fidelity are offering a small crypto option in retirement accounts, many aren’t jumping on board yet. The Department of Labor has even warned 401(k) administrators to be cautious about including crypto, stressing the risks for investors.
So, should you invest?
Investing in bitcoin is ultimately a personal choice. It’s important to have a diversified portfolio first, and only invest money in crypto that you’re okay with losing. Before you dive in, ask yourself why you’re interested: Is it a belief in bitcoin’s long-term potential, or is it just FOMO?
As finance professor Michael Finke puts it, “Investors often get excited by shiny objects that go up quickly in value but may not be great long-term investments. Bitcoin’s recent surge is a prime example.”
