Personal Finance

I believe crypto investors are headed for financial disaster — am I missing something?

Joey Frenette

Published: December 26, 2024 4:07 pm

Cryptocurrencies as an asset class have been embraced by many sorts of investors in recent years. Undoubtedly, as more firms, like MicroStrategy (NASDAQ:MSTR), advocate for crypto by building Bitcoin reserves for the long haul, perhaps the crypto market isn’t just one giant bubble just waiting to burst. Undoubtedly, MicroStrategy’s embracing of Bitcoin is a major reason its stock has been heating up of late. And though there are hefty risks of betting big on Bitcoin as a store of value, primarily due to its extreme volatility, one has to think that other firms out there are envious of MicroStrategy’s crypto strategy, with the desire to place a big bet on Bitcoin as a store of value and a potential hedge against inflation.

Indeed, Bitcoin and other cryptos could easily eclipse new heights in 2025 as the Trump administration gets to work. And with Elon Musk and other crypto-friendly folks by Trump’s side, I wouldn’t be too surprised if the U.S. government were to follow through with creating a strategic reserve of Bitcoin. Indeed, many consider Bitcoin to be some form of digital gold. If it is, it certainly makes sense to consider stashing away some of the assets as a store of value and a hedge against further inflationary pressures that may come to be as a result of tariffs imposed on allied nations.

Bitcoin has many tailwinds behind it going into the new year.

With plenty for Bitcoin investors to get excited about in 2025, don’t be too surprised if some of the outlandish Bitcoin price targets out there end up being hit. At the end of the day, the crypto markets will continue to be a wild place fit for those with steel stomachs. While increased regulation could continue to bolster the case for buying a bit of Bitcoin as a portfolio diversifier, many investors, like Warren Buffett, will likely continue to hold off. And there’s absolutely no problem with not chasing Bitcoin on any sort of bounce.

Personally, I’m inclined to view Bitcoin as trading like more of a hyper-volatile high-growth tech stock rather than a defensive, risk-off (or safe haven) asset like gold. Sure, they may share some characteristics (they’re both intriguing, even fun stores of value), but they can zig when the other zags, especially when broader stock market volatility picks up.

Just because Bitcoin is volatile and has an uncertain future does not mean it’s headed for financial disaster in the new year or even the next few years. Of course, like stocks, there are going to be some wild swings lower. And investors must know how to keep their cool when the next “crypto winter” or bear market sets in. If you’re a new Bitcoin investor, you could be in for a shocker once the next decline hits. As an asset that moves wildly in response to macroeconomic events, you could easily find your investment up or down by high double-digit percentage points in the next week.

Just because crypto is a choppy ride with no intrinsic value doesn’t mean it’s headed for disaster.

Crypto volatility will be offputting for many, but with so many believers and backers of Bitcoin (the gold standard in crypto), I don’t think it’ll ever be “lights out” for the asset, even if the next economic crisis were to hit hard.

Now, Bitcoin could quickly shed half or even more than 80% of its value come the next big sell-off. That said, with increased global adoption, the odds of the asset falling to or around zero, I believe, have gotten slimmer. Indeed, Bitcoin will probably be sticking around for the long haul. But just because the talking heads will continue discussing the asset does not mean you need to initiate a position. You can certainly do well without riding the wave, which may end in a nasty wipeout at some point in the future.

I think nibbling some Bitcoin on weakness for the sake of portfolio diversification can be a smart move, provided you understand the nature of the asset. Just don’t overexpose yourself to an asset that could easily go either way. If you’re serious about considering crypto as a part of your portfolio, I’d contract a financial advisor so they can better understand your risk tolerance. In the meantime, check out this quiz to see if you’re on the right track with your retirement plan. (Sponsored)