Financial Insights That Matter
Bitcoin has been making headlines again — hitting record highs and catching the attention of investors everywhere. However, with its widely fluctuating performance, it’s natural to wonder if bitcoin is a good investment or just too risky to consider. To help make sense of it all, here’s what’s behind the recent surge of bitcoin, along with cryptocurrency’s pros and cons.
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Russell Hackmann, CFA, president of Hackmann Wealth Partners, said that bitcoin has surged from a low of about $17,000 per bitcoin at the end of 2022 to $93,000 currently. “In early December 2024 it reached a high of about $105,000,” he added. “The previous high was about $68,000 in October 2021.”
Hackmann said that bitcoin tends to fluctuate significantly over four-year cycles that are triggered by what are known as “halving” events, which make the mining of bitcoin double in difficulty level.
“Bitcoin mining is the process by which new bitcoins are minted; the design of bitcoin causes minting to become more and more expensive over time, so the total amount of bitcoins in existence never exceeds 21 million,” he explained.
Hackmann pointed out that the most recent halving, on April 24, 2024, reduced the supply of new bitcoins being mined and started the most recent rally.
“In addition, in 2024, after a protracted regulatory battle, the SEC finally relented and permitted bitcoins to be owned by ETFs (exchange-traded funds),” he said. “Exchange-traded funds hold $13 trillion of assets. This allows bitcoins to be purchased and held by a much larger array of accounts including retirement accounts. Major ETF players, such as Blackrock and Fidelity, have aggressively marketed their ETFs, attracting new assets into bitcoin, and driving up the price of bitcoin.”
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For those interested in potentially investing in bitcoin, here are some of its pros and cons, according to Hackmann.
“Even with all the ups and downs, bitcoin investors have made significant money over time,” said Hackmann.
Despite its volatility, those who have held bitcoin for extended periods often see impressive returns compared to traditional investments.
Hackmann pointed out that bitcoin can serve as a diversifier when added to a portfolio in small percentages.
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