It finally happened. Bitcoin (BTC -1.19%) smashed through the (mostly psychological) $100,000 barrier, just 14 years after it passed the $1 mark for the first time. That is an absolutely incredible ascent.
The moment comes as Bitcoin is in the midst of a nearly 50% rally since early last month. Several catalysts are likely responsible, but the most recent is certainly the election of Donald Trump. The incoming administration appears likely to be friendly to crypto based on statements from the campaign trail, like his promise to make America the "crypto capital of the planet."
President-elect Trump's recent pick of Paul Atkins to head the Securities and Exchange Commission signals a sharp departure from the previous administration -- a welcome one for the industry.
As anyone who has followed Bitcoin's journey even slightly knows, however, this excitement and euphoria can turn sharply. Already, Bitcoin has pulled back a bit below the $100,000 mark as of the morning of Dec. 6. The past is never a guarantee of the future, but at some point, this rally has to end -- the question is when. So, with Bitcoin smashing records, is now still a good time to buy?
Bitcoin ETFs and institutions are playing a big role
Optimism around the incoming Trump administration's attitude toward crypto is hardly the only factor at play here. In January, the SEC approved spot Bitcoin ETFs, broadening access for all investors and adding legitimacy to the market. These ETFs, traded like traditional stocks, simplify buying and selling Bitcoin by bypassing crypto exchanges, allowing more traditionally minded investors to use their normal broker.
The stamp of approval from the chief regulatory agency of financial markets has helped to change minds in what I suspect was a profound way, opening the door to capital too afraid to join in previously.
In part because of these ETFs, institutional investment has increased, further legitimizing the market. The greater buy-in from institutions enhances liquidity and aligns Bitcoin's price more closely with its true value -- what is referred to as an efficient market -- which in turn brings more institutions into the fold.
Institutions are critical for the future of Bitcoin's growth as it is still a rather niche investment for the average American; less than 15% of adults own digital assets, compared to two-thirds that own stocks. About 63% of U.S. adults doubt crypto's safety. This is a lower number than it once was, but it is a far cry from being in the mainstream. Institutions can change that. And, if you are already invested, it's a great thing; there is a whole lot of capital still on the sidelines.
Things look good for Bitcoin, but is now the right time to invest?
Warren Buffett's famous advice is to be "fearful when others are greedy and greedy when others are fearful." With Bitcoin near $100,000 and up 150% from earlier this year, it seems greed may have taken over. Now might seem like the time to be fearful, but as I said, almost two-thirds of Americans are still fearful of crypto, and the vast majority do not own it, so maybe now is the time to be "greedy."
I'll say this: The approach you should take depends largely on the kind of investor you are. You can get into trouble trying to time a market, and the truth is, the impact of buying in at all-time-highs isn't as severe as you might think -- if you don't sell. This is the key. I don't mean not selling ever; I mean not selling after a major correction or crash, as these will come. Many people who invested at the top in 2021 are kicking themselves right now because they lost faith and sold in 2022, netting as much as a 75% loss. If they had instead held to today, they would be up 50%.
If you are a risk-tolerant investor and you know you can avoid selling if Bitcoin's value crashes, don't avoid buying in now just because it is hovering around an all-time high.
