By Stephen V. Kenney, CFA, CFP
Gray Private Wealth, LLC
Interest in cryptocurrencies is once again rising as a result of recent regulatory actions and the record high price achieved by the most popular cryptocurrency, Bitcoin. A longstanding debate continues, however: Can Bitcoin and other cryptocurrencies play a role as alternative forms of currency, worthy of investment? Or are they merely financial products subject to high levels of price volatility and speculation?
Bitcoin launched in 2009 when the first Bitcoin block was “mined.” Today, millions of dollars of Bitcoin and other cryptocurrencies trade daily on cryptocurrency exchanges. The first big wave of Bitcoin interest dates to 2020, when Bitcoin’s value soared from just over $5,000 per token in March of 2020, to over $60,000 just one year later. From that point on, Bitcoin’s value has remained highly volatile, with its price falling from $61,000 per token in November 2021, to just over $16,000 in November 2022.
This extreme volatility led many observers to conclude that Bitcoin would be no more than a speculative investment. Without a guaranteed value backed by a government or a commodity such as gold, having limited acceptance, and with a highly uncertain price, many argued Bitcoin lacked the essential components of a currency.
But beginning in early 2023, the price of Bitcoin again began to surge in anticipation that the U.S. Securities and Exchange Commission (SEC) would approve the applications of several major U.S. financial houses to create exchange traded funds (ETF) that would track the value of Bitcoin. Approval of these ETFs occurred in January 2024, setting off strong buy programs of Bitcoin that pushed it to a record price of $72,000 per token.
The SEC’s approval of the Bitcoin ETFs is likely to continue to broaden its appeal. In his statement on the approval of the ETFs, however, the SEC Chairman made it clear that the Commission’s action did not constitute an endorsement of Bitcoin, and that “investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto.”
Such a warning from our government’s chief protector of the investing public suggests that Bitcoin remains a highly speculative product. Any investor considering an investment in Bitcoin – or any other type of investment, for that matter – should first fully consider the risks involved and determine if an investment is consistent with their financial resources and long-term investment objectives.
Stephen Kenney, CFA, CFP is Chief Compliance Officer & Director of Client Development at Gray Private Wealth, LLC, a wealth management advisory firm located in Canton, MA. He can be reached at (781) 232-2020 or info@grayprivatewealth.com.
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