On Tuesday morning, bitcoin briefly reached an all-time high price of $69,210, according to Coin Metrics. It fell later that afternoon, but hovered around $66,400 as of 5 p.m. on Wednesday.
The new record had been a long time coming: It’s been over two years since the cryptocurrency reached its previous high of around $68,982 on Nov. 10, 2021.
One factor that appears to be fueling bitcoin’s recent rise is the debut of bitcoin ETFs. In January, the Securities and Exchange Commission approved 11 spot bitcoin exchange-traded funds, allowing investors to purchase bitcoin ETFs through their brokerage accounts and gain exposure to the cryptocurrency without having to buy and store it themselves or through a crypto exchange.
The digital token’s rise also helped boost the price of other virtual coins, including ether, which reached its highest price level since January 2022 on Wednesday.
Although bitcoin’s recent success may make it tempting to buy in, think carefully before adding it or any other cryptocurrency to your investment portfolio. Here’s why.
Unlike stocks and bonds, crypto’s value isn’t derived from an underlying entity, which is why it can be subject to erratic fluctuations and falls.
“There’s no business or actual commodity of any kind backing this other than just supply and demand and what people are willing to pay for it,” Douglas Boneparth, a certified financial planner and the president and founder of Bone Fide Wealth, tells CNBC Make It. Boneparth invests in bitcoin and other cryptocurrencies.
The volatile nature of crypto can be “stomach churning” for new investors, he says.
“If they’re not used to that, it could cause them to bail,” Boneparth says. “This is something that if you believe in it and have conviction, you’re going to have to hold it for a long period of time.”
Even if you’re able to tolerate the volatility, it’s smart to tread carefully if you’re thinking about buying crypto.
That starts with understanding that both bitcoin and the crypto market overall have taken major hits over the past two years. Bitcoin lost over 60% of its value in 2022, just one year after reaching its previous record high. The crypto market lost more than $2 trillion in value that same year.
Although bitcoin’s value has increased by around 45% year-to-date, as with any financial asset, its current performance shouldn’t be used to predict how it may behave in the future.
Due to crypto’s unpredictability, financial experts advise against investing more money in the digital tokens than you’re willing to potentially lose.
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