What Do We Think About Bitcoin?

After a meteoric rise in 2017 followed by steep declines, bitcoin returned to the headlines with a furious rally at the end of 2020. Is bitcoin an investment you should consider? Research Analyst Liz Laprade shared our philosophy on the prominent cryptocurrency in our recent webinar,* A Tale of Two Recoveries: Will Main Street Catch Up With Wall Street?

Please enjoy the excerpt below and click here for the full webinar replay to hear more. 

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Liz Laprade:

Is investing in bitcoin a wise move? In 2020 alone, bitcoin was up some 300%, and I think that’s making it easy to forget how volatile it has been historically. In 2017,  the value of bitcoin went from $1,000 to $19,000 and then crashed some 80% the following year. More recently, when the market corrected last March, the S&P 500 was down 34%, gold was down 3.5% and bitcoin was down 54%. That was before the run-up on the rest of the year.

Do we think it can be a sound investment? Well, you can put money into it and it will appreciate or depreciate in price. But it is a speculative investment. It’s risky and very volatile. I certainly don’t think of it as a preservation of value or a gold substitute. To be honest, it’s hard to even think of it like a stockA financial instrument giving the holder a proportion of the ownership and earnings of a company., since there really aren’t fundamentals backing the value. The value of a bitcoin is basically what someone is willing to buy it for that given day.

I’m not completely against investing in bitcoin. I think it’s a really interesting story, but would I allocate a large portion of my portfolio there? Probably not, especially not after it has run up so much in such a short period of time. But I can  understand the investment thesis for some exposure. I think as long as you have the right riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. appetite for it, then sure, buy some bitcoin. The advice I’ve been giving is this: Don’t buy more than you’re willing to lose.

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Click here for a replay of A Tale of Two Recoveries: Will Main Street Catch Up With Wall Street? Please contact us at (800) 492-6868 to learn more about our comprehensive wealth management solutions.