Bitcoin's Record Breaking Year 

 Is Now the Right Time to Invest in Bitcoin?

22/November/2024

The Rise of Bitcoin: What’s Behind the Surge?

Bitcoin’s value skyrocketed this year, starting with a major milestone in March 2024 when it crossed $70,000 for the first time. By November, it had climbed past $90,000, a more than 30% increase since the U.S. presidential election. The catalyst for this growth? The approval of Bitcoin spot ETFs by the Securities and Exchange Commission (SEC).

What are Bitcoin spot ETFs?

Spot ETFs allow investors to buy funds that directly hold Bitcoin, similar to how gold ETFs work. This means investors can get exposure to Bitcoin’s price without needing to own or manage the cryptocurrency themselves. Spot ETFs make crypto investing:

• Easier: No need for crypto wallets or exchanges.

• Safer: Funds are regulated by the SEC, providing more security for investors.

Should Bitcoin Be Part of Your Investment Portfolio?

Despite its growth, Bitcoin remains a speculative investment. That means its value isn’t tied to anything tangible like products or services. Instead, it’s driven entirely by demand—essentially, what people are willing to pay for it.

Key considerations:

1. Volatility: Bitcoin’s price is unpredictable. While it’s climbing now, history has shown that downturns can wipe out gains quickly.

   • For example, in 2022, Bitcoin lost over 60% of its value, far worse than the stock market’s 19% drop.

2. No dividends or interest: Traditional investments like stocks and bonds generate income through dividends or interest, which helps your money grow over time. Bitcoin doesn’t do this, so your profit depends entirely on its price going up.

3. Correlation with the stock market: Bitcoin used to be seen as a way to diversify investments, meaning it wouldn’t move in the same direction as stocks. But recent studies show Bitcoin and the stock market are now more correlated, meaning they often rise and fall together, reducing its value as a diversification tool.

The Risks and Rewards of Investing in Bitcoin

Rewards:

• High return potential: Bitcoin’s price has increased by over 600% in the past five years, making it attractive for investors seeking big gains.

• Easier access: With spot ETFs, anyone with a brokerage account or retirement plan can now invest in Bitcoin, simplifying the process.

Risks:

• Highly speculative: Bitcoin is not tied to any physical asset or income-generating activity, making its value harder to predict.

• Regulation uncertainty: While the SEC has approved spot ETFs, the broader crypto market still faces potential regulatory crackdowns, which could hurt prices.

• Not a hedge: In times of economic crisis, Bitcoin has shown it doesn’t reliably protect against losses in other markets, as it once promised.

Final Thoughts: Is Now the Time to Invest in Bitcoin?

Investing in Bitcoin is ultimately a personal decision, and it’s essential to approach it cautiously. Experts recommend limiting crypto to a small portion of your portfolio—no more than 1%–5%—to minimise risk. Remember:

• Diversification is key: Before investing in speculative assets like Bitcoin, ensure your portfolio includes stable investments like index funds or bonds.

• Understand your motivation: Are you investing because you believe in Bitcoin’s long-term potential, or is it just FOMO (fear of missing out)?

While Bitcoin’s record-breaking year has reignited interest, its speculative nature means it’s not without significant risks. As always, do your homework and consider consulting a financial advisor before diving into the world of crypto.