Bitcoin Is Up 125% in a Year. Should You Buy Now?

This time last year, the long crypto winter was coming to an end. Investor confidence was starting to return, and there was optimism the SEC would approve a spot Bitcoin ETF (exchange-traded fund). That optimism was well-founded -- the SEC green-lit the funds in January 2024.

Indeed, that approval is a big part of the reason Bitcoin surged 125% in the past year. But how does the price surge impact long-term investors? And does strong price action mean now is a good time to buy Bitcoin? Let's look at some of the pros and cons of Bitcoin investing today.

Bitcoin's recovery is reassuring

A year ago, Bitcoin was trading around $30,000. Now, at around $67,000, it's more than double that. Some analysts think it might set a new all-time high in the coming weeks. It might -- but it's also important to keep those extraordinary gains in perspective. Not only do they reflect crypto's volatile nature, but that huge rise would not have been possible without the dramatic losses and upheaval of 2022.

It's certainly reassuring to see Bitcoin trend upward and great that it's erased the losses of recent years. Still, if you're thinking about buying Bitcoin today, don't do it because the top crypto has gained 125% in a year. Only buy if you believe it could perform well in the future. Research its long-term potential and think about what utility it might have in 10 or 20 years.

If you decide to buy Bitcoin, ensure you use a crypto exchange or brokerage you trust and only spend what you can afford to lose. Some crypto platforms, like Robinhood, have extra crime insurance to protect your assets against theft. They also keep the majority of funds offline in cold storage.

Has Bitcoin silenced its critics?

Whenever crypto prices jump, so does market sentiment. The bulls say it proved the critics wrong and cryptocurrency is on its way to the moon. Potential investors get nervous they've missed the boat. They dive in, which helps propel prices even higher.

But the reason skeptics aren't into Bitcoin has nothing to do with its price. Their main concern is that it has no intrinsic value. They argue that not only is it a speculative investment, but it's one that consumes huge amounts of energy and funds illegal activities. Those critics haven't gone away just because the price has recovered.

To silence the critics, Bitcoin needs to show that it's here to stay. It needs to establish itself as a form of digital gold. It needs to show its worth as a global digital currency -- particularly when it comes to the international money transfer market. It needs to make inroads into adoption and technical development. Progress is being made, but only time will tell.

One of the things that divides speculation from investment is whether people are looking for short-term profit or long-term value. Another has to do with productivity -- Bitcoin doesn't generate dividends in the way some stocks do. So, the longer Bitcoin is around and the more progress it makes in establishing value, the less speculative it becomes.

Should you buy Bitcoin today?

The decision to buy cryptocurrency has as much to do with your financial situation as it does crypto itself. Outside of the price rollercoaster, Bitcoin is making progress on several fronts. Spot Bitcoin and Ethereum ETFs have opened the door to a lot more institutional investors. That helps build confidence and goes some way to establishing crypto as a more mainstream investment.

But it's still a risky investment, and it's impossible to know how it will unfold. For example, we don't know how regulatory changes will impact retail investors. There's not a lot of investor protection right now. The technology is still new and under development. All of this is to say that your investments could soar, but they could also fall to nothing.

If you want to invest in Bitcoin, you need to be comfortable with the risk and volatility. That means having solid financial foundations such as an emergency fund and a solid retirement account.

Bitcoin and crypto should never make up a large proportion of your asset allocation. That way, if crypto collapses, it won't derail your wealth-building or plans for your old age.