Is it a good time to invest in Bitcoin: It does not matter what you think of digital currencies in general, and Bitcoin in particular, what is important is that the era of Bitcoin has returned.
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Bitcoin rise
Bitcoin rise
After the “Crypto Winter,” which included scandals, bankruptcies, and a 77% drop in the price of Bitcoin,
the price reached a new record last week, reaching $69,191.95.
Bitcoin price jumped on Friday to reach $70,000 for a short period,
which boosted the rise of other digital currencies “Ethereum” and “Dogecoin.”
This rise is a function of the confidence of the true supporters of cryptocurrencies,
who use the incorrect term “hodl” instead of “hold” as a
recession-era slogan to remember the long-term prospects of cryptocurrencies.
As for cryptocurrency enthusiasts, who have ignored the rise and fall of prices,
the most important question is whether this is the right time to invest in digital currencies.
The latest developments
The recovery of Bitcoin is not something new and did not happen for the first time.
After the digital currency recorded its lowest price in 2019, it rose sharply in the year of the Covid-19 pandemic,
before it declined again in the spring of 2021, to recover in the same year,
and the collapse of the FTX stock exchange ”
in the year 2022 led to a decline in the price of Bitcoin.
One of the reasons for the recent rise in the price of Bitcoin
is the Securities and Exchange Commission’s approval of exchange-traded funds,
allowing companies such as BlackRock, Invesco, and Fidelity
to offer Bitcoin exchange-traded funds to their clients.
But on the other hand, some investors follow a more optimistic tone,
as they are studying whether the time is appropriate to invest in cryptocurrencies
and add them to their investment portfolios.
Spot ETFs
For his part, Douglas Boneparth, president of Bone Fide Wealth in New York,
believes that the increase in market confidence is a result of
institutions’ participation in spot exchange-traded funds,
which are designed to track the price of Bitcoin,
but do not require individual investors to keep their tokens.
ETFs have recorded more than $9 billion in net inflows since they became available.
Although Boneparth, a certified financial planner,
doesn’t recommend clients reconfigure their entire portfolios with digital assets,
he is comfortable allocating 5% or even 10%.
“It’s different now,” Boneparth added.
Cryptocurrency risks
Given the risks and volatility of cryptocurrencies, many major financial advisors,
portfolio managers and investment researchers were quick to dismiss them.
There seems to be a slight change.
Although most believe clients should not blindly follow a “diamond hands” strategy,
money managers have now seen everyone from
retail investors to sophisticated Wall Street traders making millions from Bitcoin.
Some believe that – if handled correctly –
a little bit of Bitcoin could have a place in the average investor’s portfolio.
Peter Mladina, the executive director of portfolio research for Northern Trust Wealth Management, said:
“Investors are trading in a market full of competition,
and they choose Bitcoin to preserve its value or for some other reason.
We have to understand, accept and respect this decision.”
Northern Trust does not recommend adding Bitcoin to its portfolio.
Mladina opposes everything that is said and rumoured about cryptocurrencies. For him,
Bitcoin does not fully meet the criteria for making something a currency,
and its fluctuations turn it into a bad store of value.
Mladina does not recommend allocating a large amount of wallet to Bitcoin
but added that “maybe for some people, there may be a small allocation.
Maximum allocations
Joseph Boughan, a financial planner at Parkmount Financial Partners said
he typically recommends his clients allocate 5% of their portfolios to Bitcoin.
He’s also concerned about the high sentiment of FOMO (fear of missing out)
in today’s market that could prompt investors to buy simply because prices are high,
rather than as part of a deliberate strategy.
He’s seen clients do well when they put down as much as 5%,
but he’s also seen them do poorly.
His goal is to set expectations about Bitcoin’s volatility before starting.
This volatility may increase.
Research by Morningstar found that adding 2% of Bitcoin
to an inexpensive hypothetical 60/40 portfolio could change
its return profile roughly as much as adding a 10% stake in stocks.
Adding 5% resulted in a risk profile more
similar to a portfolio consisting of 90% stocks and 10% bonds.
This is important because investors who “play around with some bitcoin”
could end up adding more volatility than expected to their portfolios,
said Bryan Armour, director of passive strategies research for North America at Morningstar.
The upside of this volatility can be great,
but it can be painful for those who need to pull back during a bottom period.
Meme coins
Bitcoin’s rise to a record high brought back to the market phenomena similar to previous rises,
namely meme currencies, and non-fungible tokens,
as more speculative cryptocurrencies such as Dogecoin outperformed Bitcoin.
At the same time, the non-fungible token industry,
which was left to its own devices after the major collapse,
is trying to exploit the latest price spike to make a comeback. Experts warn.
They say that many of the assets traded today have little use other than pure speculation.
“We’ve been through this before,” Armor said.
“I remind people that if they want to play, it’s up to them.
But as we look back to 2022, the loss is very real.
Is it a good time to invest in Bitcoin