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After a “crypto winter” that saw a number of scandals, bankruptciesand a price drop of nearly 77%, Bitcoin finally reached a new peak on March 5, reaching $69,191.95. She briefly jumped to the north of $70,000 for the first time on Friday and the rise has boosted other cryptocurrencies, with Ether and even Dogecoin rising in value.
Read more: Memecoins, Ether Outpace Bitcoin During Record-Breaking Week
The rally is being hailed as validation for crypto true believers, who use the term “hodl,” a misspelling of the word “hold,” as a mantra during the downturn to remind myself of the long-term prospects of digital currencies. But for the crypto-curious, who may have ignored previous peaks and troughs, the question is whether now is the right time to get in.
New developments
Bitcoin has “comeback” before. After hitting lows in 2019, prices came back with a vengeance in the first year of the Covid-19 pandemic, only to drop again in the spring of 2021. It recovered later that year, but prices fell in 2022 in the wake of the infamous Melting of FTX.
Most of the recent price increase has occurred since January 10, when the Securities and Exchange Commission approved the spot exchange traded funds (ETFs), allowing household names like BlackRock, Invesco and Fidelity to offer them to consumers. And some advisers are taking a slightly more optimistic tone as retail investors consider whether cryptocurrency belongs in their portfolios.
Read more: How to Choose Which Bitcoin ETF to Buy
Douglas Boneparth, president of Bone Fide Wealth in New York, feels more confidence in the market because of institutional involvement in spot ETFs, which are designed to track the price of Bitcoin but don't require individual investors to hold it the sign itself.
Collectively, these ETFs have recorded more than $9 billion in net inflows since becoming available. And while Boneparth, a certified financial planner, wouldn't recommend clients reconfigure their entire portfolios with the digital asset, he's comfortable with 5% or maybe even 10% allocated.
“This time is different,” he said.
The changing landscape
Given the risks and volatility of crypto, many mainstream financial advisors, portfolio managers and investment researchers have been quick to dismiss it. That seems to be changing, at least a little. Although many don't think clients should blindly follow a “diamond hands” strategy, so far money managers have seen everyone from retail investors to sophisticated Wall Street traders make millions in Bitcoin. And a number think that – if handled properly – a little bit of Bitcoin could have a place in the average investor's wallet.
“People in a competitive market are trading it and they perceive value in it for one reason or another, so we have to respect that,” said Peter Mladina, executive director of portfolio research for Northern Trust Wealth Management.
Bitcoin is not part of Northern Trust's recommended portfolio. And Mladina counters some common narratives about cryptocurrency. It doesn't quite meet the criteria that make something a currency, he argues, and its volatility makes it a poor store of value. He doesn't recommend devoting a large amount of a wallet to Bitcoin, but added that “maybe for some people there might be a small allocation.”
Maximum allocations
Joseph Boughan, a financial planner at Parkmount Financial Partners in Scituate, Massachusetts, said he typically allows Bitcoin to form up to 5% of his clients' portfolios. He worries about the growing sense of FOMO (fear of missing out) in today's market that could lead investors to buy simply because prices are high rather than as part of a premeditated strategy. He's seen clients do really well when they share up to 5%, but he's also seen them do poorly. The goal for it is to set expectations for Bitcoin volatility before it begins.
Such volatility can add up. Research from Morningstar found that adding 2% Bitcoin to a hypothetical no-cost 60/40 portfolio changed its return profile almost 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.
That matters because investors who are “just playing with a little bit of 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 have to pull back during a trough.
Meme warning
Today's peak also brought back familiar phenomena from previous rallies: meme coins and NFTs. Some of the more speculative cryptocurrencies like Dogecoin have outperformed Bitcoin. At the same time, the volatile token industry, which was left for dead after crashing spectacularly, is trying to use the recent price revival to arrange a return. Experts are cautious. Many of the trending assets today, they say, have little use beyond pure speculation.
“We've been through this before,” Armor said. “I would remind people that if they want to gamble, that's up to them. But if you look back to 2022, defeat is a very real possibility.”
To contact the author of this story:
Charlie Wells in London at (email protected)