- While Bitcoin isn’t the only cryptocurrency you can invest in, it is one of the most popular.
- One advisor says a good rule of thumb is having crypto make up no more than 5% of your portfolio.
- You should first build an emergency fund, get out of debt, and max out your retirement accounts.
- See Business Insider’s picks for the best high-yield savings accounts »
Bitcoin is far from the only cryptocurrency out there, but it is the one that appears to be gaining the most traction. Bitcoin ATMs are growing in popularity, and Bitcoin rewards credit cards are even catching on. Major brokerage firms, including Morgan Stanley and Fidelity, are quietly implementing Bitcoin investment options into their platforms. Heck, I recently shopped on Overstock.com and found I could pay for my purchases with Bitcoin if I wanted.
All this news makes early investors in Bitcoin downright giddy, but what about everyone else? If you haven’t yet invested in Bitcoin, you may be wondering if you’re too late to the game — and if you’re setting yourself up for huge losses if you dive in now.
Should you invest in Bitcoin? That all depends on who you ask.
Why it’s not too late to invest in Bitcoin
Rolling Stone recently referred to Brock Pierce as the “Hippie King of Cryptocurrency,” but this Bitcoin billionaire is also the chairman of the Bitcoin Foundation and co-founder of EOS Alliance, Block.one, Blockchain Capital, Tether, and Mastercoin. Suffice to say he understands crypto markets.
Pierce told Insider it is “absolutely not too late to invest in Bitcoin.”
A lot of the conditions in the global economy have lined up favorably for cryptocurrencies, he said. Bitcoin just so happens to be in the strongest position. Pierce points to the amount of money the government keeps printing and the movement towards more digital economies and decentralized workplaces as major reasons cryptocurrency continues growing in popularity.
However, he also says there is “a lot of exuberance out there” for things like Dogecoin, Ripple, and now the Shiba Inu Coin, and this means there are “a lot of people with not much experience in the markets chasing the next hottest thing.”
As a result, Pierce says he would urge investors to focus on, learn, and understand the technological promise and the implications of a decentralized financial system, versus just “chasing into different meme coins.”
That’s one of the major strengths of Bitcoin in particular since broad-scale adoption is already underway. Bitcoin values may go up or down, but it is definitely not a fad.
Buying Bitcoin at the top? Maybe not.
But, are new Bitcoin investors simply buying in at the top? That’s a huge concern for potential investors who are worried about losing their investment over the long run.
Financial advisor Jared Machen of Brownlee Wealth Management says the increase in price is actually a compelling reason to buy Bitcoin.
“The price is only increasing because the adoption of Bitcoin is increasing,” he says. “With the daily news that large financial institutions are acquiring Bitcoin and building infrastructure to support it, it’s an encouraging sign regarding its recognition as an asset class.”
How high will Bitcoin go? That’s really anyone’s guess. While the cryptocurrency temporarily surpassed $60,000 in value earlier this year, it has since dropped.
Still, it’s important to remember that some insiders say Bitcoin could easily top $200,000 by the end of the year. Not only that, but Bitcoin is or will be “scarce” in nature, which makes it unique when compared to other currencies.
Financial advisor Travis Gatzemeier of Kinetix Financial Planning points out that, unlike the US dollar, more Bitcoin cannot be printed. In fact, it has a limit of 21 million coins, which potentially gives it value as long as there is demand, he says.
“As inflation erodes away the US dollar, this gives Bitcoin the potential as a store of value or digital investment asset that may keep up with the cost of living.”
What to know before you invest in Bitcoin
Before you invest in Bitcoin, it is important to understand how this type of investment works in the real world, including the tax implications.
Financial advisor Christopher Struckhoff of Lionheart Capital Management says that, even though many tout Bitcoin as an excellent “store of value,” it is not a great medium for exchange because it triggers taxes when used. Many crypto investors do not realize this, but the implications can be enormous.
For example, let’s say you bought a single Bitcoin when it was valued at $5,000 and it’s now worth $60,000. If you use that Bitcoin to buy an item (like a car) or even another type of cryptocurrency, like Ethereum, you now have $55,000 in taxable income to report that year.
Not only that, but it’s not a great store of value since, for the time being, Bitcoin is extremely volatile. This is especially true when you’re looking at it over the course of several years. After all, let’s not forget that a single Bitcoin was worth less than $7,000 as recently as April of 2020.
None of this is to say that Bitcoin won’t hold its value or head “to the moon” in the coming years. However, potential investors need to know what Bitcoin truly is and what it isn’t, as well as the practical implications that come into play when you actually use it.
Other investments to make first
Financial advisor and retirement planning expert Taylor Schulte says that, before investing in Bitcoin or other cryptocurrencies, it’s important that high-interest debt is paid off, tax-advantaged retirement accounts are fully funded each year, and your financial plan is on track to reach your primary goals.
At that point, his rule of thumb is to ensure no more than 5% of your invested assets are held in cryptocurrency, including Bitcoin.
“With those boxes checked and a desire to take risk, my rule of thumb is to speculate with less than 5% of your investable assets,” he says. “By limiting your speculative investments to 5%, you should be able to avoid putting your financial plan in jeopardy.”
Unfortunately, financial advisor Kevin Mahoney of Illumint says, most of his clients in their 20s and 30s aren’t taking full advantage of most straightforward investing opportunities like maxing out an IRA or investing extra savings in a brokerage account. Further, many don’t know what low-cost, diversified index funds are, much less how to find them.
Financial advisor Thomas Kopelman of RLS Wealth Management agrees with Schulte that it’s crucial for everyone, including young professionals, to nail down the financial basics first.
“Build an emergency fund, elect into your 401(k) to the match, pay down high-interest debt, and start a Roth IRA,” he says. “Crypto can be a good investment when done correctly, but don’t neglect the important things first and take a huge risk.”
In the meantime, figure out your risk tolerance and if you could stomach the changes in market value over time. If you have a hard time holding onto investments for the long-term, this may not be a good place for you to start, says Kopelman.
Finally, Kopelman says to make sure you aren’t just investing in this because your friends or colleagues told you to, or because you have a serious case of FOMO.