Bitcoin Update

Written By: Nick Ziarek, CFP®, CFA

Bitcoin has been back in the news lately, as the price has skyrocketed 83% year-to-date. The speculation has been driven by the recent application by some of the largest asset managers in the world including Blackrock, Fidelity, Invesco and Wisdom Tree to launch a Bitcoin ETF based off the spot price of the coin itself.

There have been a handful of ETFs out there that try to track the price of Bitcoin using futures contracts, the first of which was launched by fund manager, ProShares. The ProShare Bitcoin Strategy ETF debuted on October 19^th, 2021 near the peak of Bitcoin hysteria. Not coincidently, excitement for the fund helped drive Bitcoin’s price to an all-time high of $68,789 in November of that year.

Bitcoin ETFs in Client Portfolios

Does easier access to Bitcoin and other cryptocurrencies mean investors should consider adding them to their portfolio?

After Bitcoin’s all-time high was reached in November 2021, it shed more than 75% of it’s value hitting a low of $16,171 just one short year later. And despite the meteoric climb in 2023, it remains nearly 55% below it’s all time today.

The volatility remains maybe the loudest criticism of cryptocurrencies. The 75% drop from it’s all-time high isn’t the largest ever; Bitcoin lost 82% of its value in 2018. In the last 10 years, Bitcoin has lost more than 60% of its value three different times.

A common argument is that Bitcoin provides a store of value – much like gold – and can act as a hedge to inflationary periods. That argument didn’t hold much water in 2022, though, as inflation hit the highest levels in over four decades. Now, as inflation is cooling somewhat, the value is back on the climb.

It’s hard to imagine any currency or long-established asset being accepted as a good long-term store of value with volatility that high. Imagine going to the car dealership with Bitcoin and not knowing if you’ll be leaving with one car, two cars or half a car on any given day. For Bitcoin to be a mainstream currency, it needs more price stability.

Exploring new markets and technologies is exciting and the appeal of being on the forefront of a generational shift could be powerful enough to have many investors dip a toe in the waters. The adoption of even more investment vehicles to ease access will only lead more to wade in.

Remember there are always risks and you should go in knowing you could lose the full value (remember FTX Exchange?) but may also experience considerable growth if the market acceptance of cryptocurrencies further develops.

Shakespeare Investment Philosophy

An investment philosophy is the foundation upon which successful investors build their strategies and make informed decisions. Shakespeare’s philosophy emphasizes disciplined analysis, diversification and a long-term perspective, rather than succumbing to short-term market fluctuations and trends. It helps us stay focused on your goals and make rational decisions, guiding you towards your desired financial outcomes while managing risk effectively. Reach out to your Shakespeare financial advisor if you have questions about your personal situation.