Bitcoin (BTC) has disrupted the financial market, soaring close to a whopping $104,000, marking the highest trading price in history. It was close to a 150% increase in 2024. With this rise, Bitcoin almost cemented its legitimacy as the leading market force, and its growth has eclipsed the AI giant Nvidia in the past six months. However, although it all sounds exciting, such a rise in Bitcoin definitely raises concerns about whether or not investors should buy, sell, or hold Bitcoins.
Will 2025 be a Bullish Year for Bitcoin?
However, the new year 2025 is expected to bring a fortune with Bitcoin. The price of this cryptocurrency is likely to rise to $150,000 by the end of the year. There are various reasons behind such optimism, such as increased institutional adoption and regulatory backing, and the asset will also attract investors as a hedge against geopolitical and economic uncertainties.
The unimaginable growth of Bitcoin came with the support of policies by the Donald Trump administration, surpassing the $100,000 mark. Now, a bill propounding a strategic reserve of Bitcoin in the Senate is adding further legitimacy to the idea of the cryptocurrency. If such legislation is passed, it would allow the U.S. Treasury and the Federal Reserve to buy up to 5% of the total supply of Bitcoin within five years, shifting the position of Bitcoin from a daring speculative asset to a tool of strategic financial instrument.
Institutional Adoption Hits New Highs
The acceptance of Bitcoin by major financial players has once again set the record for Bitcoin ETFs, showcasing a stellar performance this year. Launched in January 2024, the BlackRock iShares Bitcoin Trust ETF has raised over $45 billion in assets under management. A little more than a year and a half later, private companies and public and private ETF vehicles controlled over 1.2 million units of Bitcoin, or 6.29 percent, of the cryptocurrency’s total supply. Public companies’ holdings of Bitcoin have also tripled this year to reach approximately $20 billion.
The growing interest of financial institutions in Bitcoin has brought the cryptocurrency wider recognition as a legitimate asset in the market. This recognition, combined with regulatory modifications, is inviting more investors, thereby driving further price rises.
Bitcoin as a Hedge Against Uncertainty
While the world is witnessing geopolitical and economic uncertainties, investors are turning to Bitcoin as a hedge against fiat currency volatility. Countries grappling with hyperinflation are becoming increasingly dependent on Bitcoin for financial stability. For instance, Bitcoin accounted for 9% of remittances in Venezuela in 2023, and its adoption accelerated in response to oil sanctions.
Even governments and central banks are following this trend, including Bitcoin in their asset diversification strategies. The capped supply of 21 million coins and the halving mechanism of Bitcoin reduces the price of newly issued coins every four years. That’s how the limited supply of Bitcoin offers a unique value proposition compared to traditional fiat currencies.
Risks and Volatility Exist
Despite its impressive performance, Bitcoin continues to be a volatile asset. Market sentiment heavily impacts its price, making it susceptible to unpredictable fluctuations. Historical records also show this vulnerability on two occasions between 2021 and 2022, when Bitcoin’s value dropped nearly 50%.
The limited supply of Bitcoin also allows large financial players to manipulate its price. Cybersecurity risks and environmental concerns related to Bitcoin mining have further complicated its adoption. The cryptocurrency’s inability to outperform broader market indices, such as the S&P 500, reflects the inherent risks of investment.
Is Diversification a Smarter Alternative?
Diversification can be a wise strategy for investors seeking returns without bearing the inherent risk of Bitcoin’s volatility. For instance, the Trefis High Quality (HQ) Portfolio, which consists of 30 carefully selected stocks, has consistently outperformed the S&P 500. Since its inception, the HQ Portfolio has delivered over 91% returns with lower risk, making it a lucrative alternative among risk-aversive investors.
What Should Investors Do?
Bitcoin’s shift from a speculative digital currency to a legitimate financial asset is a milestone. The growing acceptance of the cryptocurrency among major financial institutions, combined with regulatory support and limited supply, is attracting the spotlight and drawing long-term investors. Despite its promising growth, the risk associated with volatility and unpredictable price fluctuations cannot be ignored.
High-risk tolerance investors can choose Bitcoin for its significant upside potential, especially when political and institutional developments seem favorable. However, the idea of diversified portfolios should be considered as a proven strategy to stabilize returns.
