Given Bitcoin’s recent selloff, investors may be wondering whether to buy now at rock-bottom prices, sell and run for the hills, or stick with it for the long term.
It also brings back a common question: What role should the world’s most widely held cryptocurrency play in an individual’s investment portfolio?
Bitcoin’s price has fallen from a peak of more than $126,000 in October to less than $64,000 as of Thursday afternoon, a drop of about 50% in just a few months.
The drop continues after the launch of the Spot Bitcoin ETF in January 2024, with analysts expecting this to attract more investors and push the price higher. Analysts say President Donald Trump’s crypto-friendly administration is also believed to be supporting prices.
The pullback comes amid rising geopolitical tensions, increased market volatility and signs of growing investor caution, even as the broader economy is holding up.
Historically, Bitcoin and other cryptocurrencies have tended to respond to periods of increased market volatility with sharper swings than many traditional assets. Unlike stocks and bonds, crypto prices are primarily driven by changes in investor sentiment and liquidity, making them more sensitive to changes in risk appetite when markets become cautious, according to a 2023 analysis by S&P Global Ratings.
This dynamic can amplify volatility in both directions. John Blank, chief equity strategist at Zacks Investment Research, said in a CNBC interview on Monday that Bitcoin is highly dependent on continued demand and the price could “explode up and down” as buyers and sellers pull out, warning that Bitcoin could fall to as low as $40,000 if the economic downturn deepens.
For financial advisors, this drop highlights that volatility is part of owning Bitcoin.
What to do with the Bitcoin you currently have
There is no one right course of action for investors during or after a Bitcoin decline. Financial advisors say the decision will depend on how Bitcoin fits into broader financial plans and how much volatility they can realistically tolerate. It’s also wise to consult a trusted financial advisor before making any changes to your portfolio.
Historically, Bitcoin has fluctuated in notable cycles, with sharp increases in price often followed by sharp declines. These momentum-driven spikes led to big profits for some investors, but then a shift in sentiment could result in a decline of more than 60%.
“Bitcoin’s recent volatility is a reminder that cryptocurrencies remain a speculative asset and not a core component of most portfolios,” says Vered Frank, certified financial planner and founder of Stack Wealth. “The significant decline after a period of hype shows why relying on Bitcoin as an independent wealth creation strategy is risky.”
Frank advises keeping cryptocurrencies a small part of a diversified portfolio. “For investors with strong financial fundamentals and a high risk tolerance, an allocation of 1% to 5% makes sense,” she says. “The economic downturn does not change the role of cryptocurrencies, but highlights its uncertainty.”
That volatility isn’t a drawback, but rather a defining feature, some advisers say.
“Volatility is a feature of Bitcoin, not a bug,” says Douglas Bonepers, a certified financial planner, co-founder of Born Fied Wealth, member of the CNBC Council of Financial Advisors, and a Bitcoin owner since 2014. He says Bitcoin could have a place in a portfolio for some investors with a higher risk tolerance, especially those who view it as a long-term store of value rather than a short-term transaction.
From that perspective, the recent selloff doesn’t necessarily undermine the case for holding Bitcoin long-term, Bonepers said. He said Bitcoin’s limited supply and independence from governments and central banks is likely to support its value over time.
“If you started holding Bitcoin believing it was a legitimate asset class with long-term opportunities, you need to ask yourself what has actually changed with the recent selloff,” he says.
Unlike stocks and bonds, Bitcoin does not generate income or cash flow, so long-term returns depend primarily on price appreciation and investors’ willingness to tolerate rapid fluctuations. As a result, planners who are completely comfortable with Bitcoin tend to treat it as a limited, high-risk investment.
That said, Frank says recent fluctuations are a reminder that cryptocurrencies are not essential to financial planning. “For most people, cryptocurrencies are only meaningful as a small part of a diversified portfolio, and only in amounts that they can afford to lose. They should not replace stocks, bonds, or emergency savings,” she says.
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