Across digital-asset markets, the leading cryptocurrency by total value has taken a winding path. On Dec. 4, 2024, its price first climbed above $100,000, a milestone many linked to the election of Donald Trump. Through 2025, that threshold was occasionally lost, yet fresh peaks emerged, including a move past $124,000 in August.
To judge whether this digital asset fits your portfolio, it helps to look beyond splashy headlines and consider longer-term risk and allocation choices.
Should You Invest in Bitcoin in Your Portfolio?
Given its sharp price swings, this investment sits at the speculative end of the risk spectrum and is best approached only by investors with high risk tolerance, a strong financial foundation, and the ability to withstand a total loss without jeopardizing essential goals.
If you do buy, consider keeping a diversified mix of assets to reduce overall volatility. A common rule of thumb is to keep exposure to riskier holdings like BTC to roughly a tenth of your portfolio.
Learn more about investing in cryptocurrencies.
Bitcoin Pros in the Crypto Market
- Potentially large gains have appeared in its historical record, making the digital asset attractive to growth-seeking investors.
- A decentralized network underpins the system — though many participants still trade and store coins on centralized platforms and a cryptocurrency exchange.
- At times, performance has drifted apart from broad equity benchmarks much like gold can, yet reliable, long-term non-correlation with the S&P 500 has not been firmly demonstrated.
Want more detail? See the best crypto exchanges and platforms.
Bitcoin Cons and Risks of Cryptocurrencies
- Steep sell-offs can arrive at any hour because crypto markets run 24/7, and most venues lack the circuit breakers used by traditional stock exchanges.
- Transfers can’t be undone; losing a seed phrase or bitcoin wallet credentials may permanently separate an investor from their coins.
- Safeguards common to brokerage and bank accounts — such as SIPC or FDIC coverage — typically don’t apply on a cryptocurrency exchange like Coinbase or similar brokers.
What Kind of Cryptocurrency Investment Is Bitcoin?
Unlike a traditional company stake, owning BTC does not grant claims on revenue, dividends, or management decisions, and there is no CEO or board directing strategy.
Some observers argue it should be treated as a security, while others contend it functions more like a commodity.
Commodities often include metals, grains, and other raw materials, and their markets are overseen by the Commodity Futures Trading Commission, a regulator that also polices certain foreign-currency trading and is active in crypto oversight.
Another camp views it as a currency usable for payments; although a number of businesses accept it, everyday purchases with it remain uncommon.
With a hard cap of 21 million units and blockchain technology securing the ledger, many see a distinct digital asset class taking shape and a potential store of value unlike other digital currencies.
Is Bitcoin a Good Portfolio Diversifier in Crypto?
For investors comparing assets such as stocks, bonds, and gold, this cryptocurrency behaves differently, which is why a small slice can sometimes help with investment diversification.
One financial planner suggests allocating around five percent to crypto so investors could benefit if it multiplies dramatically, while keeping downside contained if the asset category were to fail.
Another practical guideline is to keep combined exposure to speculative plays — including individual stocks and crypto — near ten percent, with the remainder in broad index funds.
However, correlations can show up. In 2022, for instance, both the S&P 500 and this digital asset declined, underscoring that crypto can behave like other high-risk, high-reward investments.
Can Bitcoin Serve as a Hedge Against Inflation?
According to advocates, this cryptocurrency might offset erosion in the U.S. dollar’s purchasing power, though real-world results during the 2020s show a mixed but sometimes favorable picture.
The Federal Reserve aims for inflation near two percent, yet from April 2021 through June 2024 the rate generally ran above three percent, peaking near 9.1% in June 2022 per the U.S. Bureau of Labor Statistics; during that span, the asset’s price was up roughly eighteen percent overall.
Over shorter windows, the relationship has not been consistent. From April 2021 until the mid-2022 inflation peak, prices for the coin fell by more than forty percent before recovering in subsequent years.
In short, long-horizon investors may find partial inflation protection, but it would be too simple to claim it always rises when the real value of the dollar falls.
How Is Bitcoin Taxed on Transactions?
From a tax standpoint, selling coins in a taxable account generally creates capital gains or losses. Holding for about a year or less triggers short-term rates similar to ordinary income, while keeping it for more than a year typically qualifies for lower long-term rates.
For more details on crypto taxes, consider using a cryptocurrency tax calculator.
Until recently, tax-advantaged accounts rarely held this asset directly. The arrival of spot Bitcoin ETFs changed that, allowing investors to buy an ETF in a Roth IRA; if withdrawal rules are met — for example, reaching age 59½ and satisfying the five-year rule or qualifying for a first-home exception — growth can be accessed without capital gains taxes.
Bitcoin and Volatility in the Crypto Market
Over long stretches, value creation has been dramatic, but the path has rarely been smooth or linear.
Buying a coin for mere cents in 2010 would have delivered enormous upside; however, someone who entered in 2013 endured an approximately 80% drawdown and waited years to break even, and fresh highs never guarantee future returns.
Prudent investors should plan for large setbacks alongside potential gains. Despite multiple recoveries, a severe cascade — say, broad platform failures and a rush to the exits — could, in the worst case, drive values toward zero.
At the time this article was published, neither the author nor the editor held positions in the investments mentioned.
