Alice Morgan Photo Illustration by Investopedia
The Key Takeaways
- Despite bitcoin’s recent success, financial planners say they're cautious about recommending bitcoin to clients.
- Experts suggest that you allocate a very small percentage of your overall portfolio to it. This is usually between 1% and 2%.
- Some advisors suggest buying Bitcoin directly, while others recommend spot ETFs for those who are new to cryptocurrency investing.
Bitcoin (BTCUSD), has seen a phenomenal rise this year. It is now worth over $100,000 and analysts predict that it will go higher still next year. Financial advisors are cautious when recommending cryptocurrency and recommend allocating a very small part of your portfolio to it.
Bitcoin’s prices fell after the Federal Reserve announced that it would not be cutting rates in 2019. However, this hasn’t stopped them from more than doubling up so far in 2018. Treasury yields are likely to remain high if the Fed does not accelerate its pace of rate reductions. This will encourage more investors to invest in Treasury bonds as opposed riskier assets such as bitcoin.
Experts warn against investing in Bitcoin
Asset manager Blackrock recently suggested that a 1%-2% bitcoin exposure in a portfolio is a "reasonable range."
Some advisors agree that a small allocation of bitcoin is ok.
“If the price does actually appreciate…it will still add meaningful outperformance to the portfolio,” Malcolm Ethridge is a Certified Financial Planner (CFP), Managing Partner of Capital Area Planning Group. “But if it doesn’t live up to its promise, and the price falls to zero, it wouldn’t completely wipe them out either.”
Bitcoin is a volatile asset, and limiting the risk by investing a little could be limiting your losses.
"This should be viewed as outside of core investments because they’re so volatile and you can lose a significant amount of money," said David Rosenstrock is a CFP, and the founder of Wharton Wealth Planning.
Scott Sturgeon CFP founder of Oread Wealth Partners advises that people should reflect on the reasons why they are investing in bitcoin.
“If you want to invest in it because you see it as an uncorrelated asset or as a hedge against inflation, maybe that’s justification to invest,” Sturgeon, said “Conversely, if you want to buy it just because it’s gone up 120% year-to-date, I might suggest you’re just chasing returns and are speculating more than investing.”
What is the best way to invest in bitcoin? Should you buy it, choose an ETF or consider a proxy?
If you're convinced that investing in bitcoin is right for you, you need to decide how to want to put your money in it. You have three options: you can buy the bitcoins directly, invest in bitcoin funds and ETFs or purchase shares in companies that deal with bitcoins.
Douglas Boneparth CFP is the President and CEO of Bone Fide Wealth. He educates clients on cryptocurrency without soliciting investments. He started personally investing in bitcoins in 2024. He prefers to invest directly in bitcoins rather than a spot-ETF or stock such as MicroStrategy, a Bitcoin holding company which is considered a proxy cryptocurrency.
“I’m a purist and believe that if you're going to own bitcoin, the best way to do that is by actually owning the cryptocurrency itself and storing that on a hardware wallet,” Boneparth. “As far as Microstrategy goes, you're essentially buying leveraged bitcoin—they’re loading their balance sheet with bitcoin and using a lot of debt to go out on the open market and buy it…You’re buying an even riskier bitcoin asset.”
Spot ETFs are a good option, say advisors, for those who have never invested in crypto. So, you wouldn’t need a Bitcoin wallet to keep the cryptocurrency. Instead, the ETF transaction can be done through your brokerage. But, be careful to look at the costs.
“If you’re new to the space and you’re a long-term investor, using an ETF makes it relatively easy,” Sturgeon, said
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