Bitcoin is the oldest and best known of all crypto coins. Its creator — the ever-anonymous Satoshi Nakamoto — set things up so that there can never be more than 21 million bitcoins in existence.
Unlike other assets that are valued based on tangible components — for example, a company’s goods and services or a natural resource — bitcoin is considered a store of value, the price of which depends strictly on what others are willing to pay for it.
Its pricing is highly volatile — and therefore highly risky. For all its nosebleed ascents, bitcoin also has had some gut-punching plunges. Between November 2021 and November 2022, for example, the price of bitcoin dropped 75%, from $64,455 to $16,196, according to data on coinmarketcap.com.
While it’s called a currency — and in some instances can be used like money — bitcoin is not legal tender in the United States or most other countries. And it is a much more complicated transaction for the individual who uses it to buy and sell things, especially when it comes to reporting the transactions on their taxes.
Its role in your portfolio
When asked what role bitcoin might play in a person’s overall financial investment and savings portfolio — which you might use to buy a house, start a family, pay for college or save for retirement — one strong area of consensus among planners is to not invest any money in bitcoin for anything you must do in the next five years.
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“Due to its volatility, I would definitely avoid using bitcoin for short-term savings goals. And for the same reason, I would recommend only allocating a very small percentage of my long-term investment strategy to it,” said Trent Porter, a certified financial planner and certified public accountant at Priority Financial Partners. He advises his clients who insist on exposure to limit their portfolio allocation to bitcoin to no more than 5%.
CFP Mike Turi, a founding partner of Upbeat Wealth who is also an accredited portfolio management adviser, is more conservative. He doesn’t recommend clients allocate more than 3% to bitcoin, if they allocate any at all.
“I would not recommend using bitcoin as the main strategy to achieve your financial goals. If it’s extra investable money that can help you get there faster? Sure. However, don’t miss out on valuable opportunities by overexposing yourself to an asset that you might not fully understand,”