Reading time: 12 minutes
Published: January 11, 2025
Modified: January 15, 2025
I’ll admit it—FOMO (Fear of Missing Out), a common sentiment in investing, has me reconsidering Bitcoin. With headlines about its incredible rise, surpassing $100,000 for the first time in December of 2024, and trillion-dollar asset managers throwing their support behind it, it’s hard not to feel the temptation to dive in. But what’s the truth about Bitcoin—its risks, rewards, and potential as an investment?
I’ll also admit that I haven’t fully wrapped my head around cryptocurrencies, in general. For years, I looked at this asset as yet another speculative bubble, like Tulip mania ↗ in the 1600s or the Beanie Baby ↗ craze in the 1990s.
Still, recent developments have given me pause. Bitcoin seems to have hit a turning point, especially after the 2024 presidential election: Bitcoin ETFs are gaining traction, corporations are adding it to their balance sheets, and there’s even talk of a national Bitcoin reserve.
Is it too late to get in? Or is this just the beginning of a new era for cryptocurrency? Let’s uncover the truth about Bitcoin together.
The answer might depend on whether you consider your investment style to be that of a tortoise or a hare.
Key Takeaways
- Bitcoin’s Growth Potential: Despite its volatile history, Bitcoin’s capped supply and growing institutional adoption position it as a unique long-term investment opportunity.
- Balance Risk with Strategy: Dollar-cost averaging (DCA) and limiting your allocation to your portfolio can help manage Bitcoin’s risks.
- Explore Safer Options: Bitcoin ETFs provide an easier and less risky way to gain exposure to Bitcoin without directly owning it.
- Do Your Research: Bitcoin and cryptocurrency investments require a clear understanding of risks, potential rewards, and your own financial goals before diving in.
Understanding Cryptocurrency and Bitcoin
Cryptocurrencies, including Bitcoin, are digital currencies secured by cryptography and powered by blockchain technology. Bitcoin, launched in 2009 by someone who uses the pseudonym Satoshi Nakamoto, was designed to operate without intermediaries, enabling peer-to-peer transactions. Over time, Bitcoin has evolved from a niche experiment to a legitimate asset class embraced by institutional investors and retail adopters like you and me.
A defining feature of Bitcoin is its capped supply of 21 million coins, which creates built-in scarcity. As of early 2025, approximately 19.8 million bitcoins have been mined, leaving only a fraction yet to be created. New bitcoins are introduced through a process called mining, where powerful computers solve complex mathematical problems to validate transactions and add them to the blockchain. However, mining becomes progressively harder as more bitcoins are mined, thanks to a mechanism called the halving. Approximately every four years, the reward for mining Bitcoin is cut in half, reducing the rate at which new bitcoins enter circulation.
This diminishing supply dynamic adds to bitcoin’s allure as a scarce digital asset, often likened to digital gold. It also means that the final bitcoin won’t be mined until around 2140—though 20.9991 million bitcoins will be mined in 2069—ensuring that issuing more bitcoins will be gradual and finite.
Of all the attributes of Bitcoin, it is the limited supply that compels me most to consider investing in it, as its capped supply positions it as a potentially valuable store of wealth over time, especially in an era of inflationary concerns.
Here is the real-time value of bitcoin:
Why Consider Investing in Bitcoin Now?
Some experts liken investing in bitcoin today to buying into the S&P 500 or real estate decades ago. While its price has skyrocketed from mere cents in 2010 to over $100,000 in 2024, its growing institutional adoption and use as a hedge against inflation make it more than just a speculative asset.
However, I’m not bought into that analogy. The S&P 500 and real estate have tangible assets behind them in revenue-generating corporations and physical property, like land, apartments, and commercial and private building structures.
I’m inclined to view Bitcoin as more similar to investing in gold Exchange Traded Funds (ETFs):
- Both assets derive their value from scarcity and market demand rather than generating revenue or dividends.
- The more scarce the asset, the more it tends to appreciate.
- Both of these assets are considered hedges against inflation.
That said, Bitcoin’s past performance is not indicative of future results, and its extreme volatility can lead to significant losses.
Why I’m Ambivalent About Investing in Bitcoin
Let’s look at what I like and what concerns me about investing in bitcoin.
What I Like About Bitcoin
Bitcoin has many positive attributes to consider:
- Scarcity: Approximately 19.8 million bitcoins have already been mined as of early 2025, with the remainder to be mined over the next century, ensuring limited supply.
- Inflation Hedge: Bitcoin’s capped supply of 21 million coins makes it resistant to inflation, unlike fiat currencies like the dollar, which central banks can print in unlimited quantities.
- Potential for High Returns: Bitcoin has historically offered substantial gains to long-term investors (see the bitcoin price graph below, which shows you its price from 2017 to year-end 2024). Its all-time return is over 1,900%.
- Portfolio Diversification: Bitcoin’s lack of correlation with traditional markets can improve risk-adjusted returns.
- Institutional Legitimacy: Increasing support from major asset managers adds credibility to Bitcoin as an asset class.
- Accessibility: Bitcoin is easy to purchase through exchanges or ETFs, making it accessible to a global audience.
- Global Adoption: Countries like El Salvador have adopted Bitcoin as legal tender, broadening its legitimacy.
- Liquidity: High trading volume ensures ease of buying and selling.
- Technological Innovation: Investing in bitcoin leverages and supports blockchain adoption.
- AI Integration Potential: Bitcoin has the potential to play a pivotal role in enabling transactions within AI-driven economies. It’s easy to imagine automated AI-driven bots conducting transactions using non-fiat currencies, such as Bitcoin, rather than traditional currencies like the dollar.
What Concerns Me About Bitcoin
While Bitcoin has positive attributes, there are negative attributes to consider:
- Extreme Volatility: Bitcoin’s price can fluctuate dramatically, leading to potential losses and making it unsuitable for investors with low risk tolerance or those prone to emotional decision-making. In the graph above, between September 30, 2021 and November 30, 2022, the price dropped from $61.3K to $16.5K, a drop of 73%!
- Regulatory Uncertainty: Changes in government policy could impact Bitcoin’s viability.
- Security Risks: Holding bitcoin directly comes with risks of hacking or losing access to private keys. However, you can mitigate this risk by investing in a Bitcoin ETF; see Ways to Invest in Bitcoin below.
- Environmental Concerns: Bitcoin mining consumes significant energy, raising sustainability concerns.
- Lack of Intrinsic Value: Critics argue bitcoin’s value is speculative, based only on market perception.
- Market Manipulation: Bitcoin’s relatively unregulated markets are vulnerable to manipulation.
- Complex Taxation: Owning bitcoin directly requires tracking each transaction for tax purposes, including purchase prices, sale prices, and dates, which can become cumbersome for frequent traders.
- Technology Dependency: Managing bitcoin requires technical knowledge, which may deter some investors.
- Risk of Loss: Platforms like FTX have failed, highlighting risks for exchange-based holdings.
- Association with Illicit Activities: Bitcoin is sometimes used for ransomware payments, dark web transactions, and other illegal activities, which raises ethical concerns and invites regulatory scrutiny that could impact its long-term adoption and price stability.
Dollar-Cost Averaging: A Beginner-Friendly Approach
Dollar-cost averaging (DCA) is a beginner-friendly strategy that simplifies investing by spreading purchases over time. This approach reduces the stress of trying to time the market and helps smooth out the impact of Bitcoin’s price swings. It’s a strategy perfectly suited for the tortoise in all of us—slow and steady, with a focus on long-term gains rather than quick wins.
By investing a fixed amount at regular intervals, you automatically buy more Bitcoin when prices are low and less when prices are high, averaging out your cost over time.
This strategy aligns well with Bitcoin’s potential as a long-term investment, allowing you to build a position gradually while minimizing the emotional rollercoaster of price fluctuations.
How Much Should You Invest?
Allocating a small percentage of your portfolio—such as 1-2% for conservative investors or up to 5% for more aggressive ones—not only limits potential losses but also complements traditional investments in stocks and bonds.
Experts universally agree: Only invest what you can afford to lose entirely. Bitcoin’s extreme volatility means any investment should be approached with this mindset.
One strategy I’ve found effective is starting with a small, fixed amount—say $1,000—in a Bitcoin ETF. By tracking its performance over time, you can gauge your comfort level with the asset and its behavior in various market conditions before committing more funds.
Ultimately, this technique will either make you more comfortable with upping your investing or convince you that the asset isn’t something you’re comfortable investing in.
Ways to Invest in Bitcoin
For beginners, Bitcoin ETFs provide exposure to bitcoin’s price movements without the complexities of managing private keys or navigating cryptocurrency exchanges. They also mitigate risks like hacking and exchange failures, making them an ideal entry point for cautious investors:
- iShares Bitcoin Trust ETF ↗
- Fidelity Wise Origin Bitcoin Fund ↗
- Grayscale Bitcoin Trust ETF ↗
- ProShares Bitcoin ETF ↗
To directly own bitcoin, you can buy it through centralized or decentralized exchanges. Centralized exchanges are more user-friendly and provide customer support, while decentralized exchanges offer greater privacy and control. However, decentralized platforms come with higher risks, such as the lack of customer support and the potential for user errors that could lead to lost funds.
Direct ownership allows you to store Bitcoin securely in a private wallet and transact without relying on third parties, but it requires technical know-how and vigilance to protect your private keys.
Other Cryptocurrencies
Lesser-known cryptocurrencies often present opportunities for outsized gains due to their smaller market caps, but they also carry significant risks, such as lower liquidity and the potential for rapid devaluation.
Established Cryptocurrencies
- Ethereum (ETH): Launched in 2015, Ethereum introduced smart contracts and decentralized applications (dApps) to the blockchain ecosystem. Its native cryptocurrency, Ether, is the second-largest by market capitalization.
- Solana (SOL): Known for its high-speed transactions and low fees, Solana has become a prominent platform for decentralized finance (DeFi) and non-fungible tokens (NFTs).
- Cardano (ADA): Cardano emphasizes a research-driven approach to blockchain development, aiming to provide a secure and scalable platform for the development of dApps and smart contracts. It has been identified as a cryptocurrency on track to surpass a $100 billion market cap.
Emerging Cryptocurrencies with Growth Potential
- Render Token (RNDR): Render Token allows users to rent out extra GPU ↗ power, facilitating decentralized rendering solutions for digital content creators. It has been utilized in major media projects and is considered a cryptocurrency with significant growth potential in 2025.
- Dogecoin (DOGE): Initially created as a meme, Dogecoin has gained substantial popularity and a strong community. It has been identified as a cryptocurrency on track to surpass a $100 billion market cap.
- Emerging Tokens with High Potential: New cryptocurrencies often explore innovative use cases, such as decentralized storage or advanced privacy features, offering potential for high returns if successful.
Conclusion
Bitcoin’s journey from obscurity to a prominent, though still peripheral, position in the financial world has been nothing short of remarkable. Take, for example, Laszlo Hanyecz ↗, who in 2010 spent 10,000 BTC—worth roughly $1 billion today—on two pizzas! While this story is often shared with a chuckle, it underscores Bitcoin’s incredible transformation and the unpredictable nature of its value.
For me, Bitcoin feels like a departure from the practical, tried-and-true principles that define Raining Pennies. It’s not the kind of asset I typically write about or consider as part of a balanced portfolio. Still, I see enough potential in Bitcoin’s scarcity and growing institutional support to make a small, cautious investment in a Bitcoin ETF. My plan is simple: start small, observe how it performs, and decide later whether to go further.
Stories like the Bitcoin Pizza Guy’s remind us that investing is as much about timing and conviction as it is about patience and prudence. As Bitcoin continues its journey, I’ll be watching closely—not just for gains but for lessons in how this digital asset reshapes the financial landscape.
And remember, it’s always a great idea to chat with your financial or tax advisor to make sure your decisions are right on track and aligned with the latest guidelines and laws.