On Tuesday morning, Bitcoin briefly reached an all-time high of $69,210, according to Coin Metrics. It fell later that afternoon, but remained near $66,400 as of 5 p.m. Wednesday.
The new record has been long awaited. More than two years have passed since the cryptocurrency reached its all-time high of approximately $68,982 on November 10, 2021.
One factor that appears to be driving Bitcoin's recent rally is the debut of Bitcoin ETFs. In January, the Securities and Exchange Commission approved 11 spot Bitcoin exchange-traded funds, allowing investors to buy Bitcoin ETFs through their brokerage accounts, buy and store them themselves, or invest in cryptocurrencies through virtual currency exchanges. You can now gain exposure to cryptocurrencies without having to buy them.
The rise in the digital token also contributed to the rise in the price of other virtual coins such as Ether, which reached its highest level since January 2022 on Wednesday.
Bitcoin's recent success may make you want to buy it, but think carefully before adding Bitcoin or other cryptocurrencies to your investment portfolio. Here's why:
Unlike stocks and bonds, the value of cryptocurrencies is not derived from an underlying entity and is therefore subject to volatile fluctuations and declines.
“There's no business or real product to back this up other than just supply and demand and how much people are willing to pay for it,” says certified financial planner and president and founder of Born Fied Wealth. Douglas Voneperth, an expert on the topic, told CNBC Make It. . Boneparth invests in Bitcoin and other cryptocurrencies.
The volatile nature of cryptocurrencies can be “stomach-wrenching” for new investors, he said.
“If they're not comfortable with it, they might be released on bail,” Vonepers said. “This is something that if you believe in it and have a belief, you need to hold onto it for a long time.”
Even if you can tolerate volatility, it is wise to tread carefully if you are considering purchasing cryptocurrencies.
It starts with understanding that Bitcoin and the entire crypto market have taken a huge hit over the past two years. Bitcoin lost more than 60% of its value in 2022, just one year after hitting an all-time high. In the same year, the cryptocurrency market lost more than $2 trillion in value.
Bitcoin's value has increased by about 45% since the beginning of the year, but like any financial asset, current performance should not be used to predict future trends.
Due to the unpredictability of cryptocurrencies, financial experts advise against investing more funds in digital tokens than you can potentially lose.
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