Time to Buy Bitcoin?
The cryptocurrency is once again top of mind for investors.
11.14.2024
We weren’t fielding many questions last year when Bitcoin was trading below $40,000. With the cryptocurrency briefly surpassing $93,000 on Wednesday—marking a record high—we’re seeing renewed interest.
Bitcoin is up 109% year-to-date and has risen 28% since last week’s election. Many investors believe the incoming administration will introduce deregulation and policies favorable to the industry.
With Bitcoin top of mind for investors, we wanted to share our perspective on cryptocurrencies from an investment standpoint.
Does Cobblestone invest in Bitcoin or other cryptocurrencies?
No, for three primary reasons:
1) Cryptocurrencies lack the economic fundamentals that are critical to our investment selection process. There is no clear explanation or economic rationale to suggest why cryptocurrencies should generate returns for investors. Buying something without a rational basis for future appreciation isn’t investing—it’s speculating. As a fiduciary to our clients, we avoid speculative investments.
2) Bitcoin is highly volatile and has a limited trading history. Even a small allocation to Bitcoin can significantly affect a portfolio’s risk and return. For example, an investor with a traditional allocation of 60% US stocks and 40% US bonds would have experienced substantially higher volatility by shifting to 58% US stocks, 40% US bonds, and just 2% Bitcoin—exceeding the volatility of a portfolio entirely invested in US stocks while delivering lower returns.
The chart below illustrates this impact over the 14 years since Bitcoin price data became available.
3) Bitcoin is not an effective hedge and tends to decline violently during stock market downturns. In fact, as shown below, during the last four periods when US equities dropped by 10% or more, Bitcoin experienced even larger declines.
If I still want to buy Bitcoin or other cryptocurrencies, what’s the best approach?
If you understand the risks and still wish to invest in Bitcoin or other speculative cryptocurrencies, low-cost exchange-traded funds (ETFs) are a practical option. Feel free to contact us—we’re happy to discuss your options and how they align with your financial goals. But remember, we weren’t fielding questions last year when Bitcoin was trading below $40,000!
Disclosure: Unless stated otherwise, views, opinions or forecasts expressed in this blog are those of the author and do not necessarily reflect those of the Adviser and/or its employees. The contents of this blog are distributed for informational purposes, and are not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Nothing in these communications is intended to be or should be construed as individualized investment advice. All content is of a general nature and solely for educational, informational, and illustrative purposes.