On Tuesday, the cryptocurrency community scored a victory, with news Bitcoin hits all-time high $69,210. Those celebrations were tempered just hours later when Bitcoin’s value dropped a full 8%, but it marked a stunning recovery from the 2022 cryptocurrency crash. For Bitcoin fans, Bitcoin’s rally proves that the cryptocurrency is a good investment after all. There’s just one problem: Adjusted for inflation, Bitcoin is actually worth less than it was three years ago.
Let’s do the math. The last time Bitcoin broke records was on November 10, 2021, when the price of one Bitcoin hit $68,982.20. But maybe you’ve heard that inflation has soared over the past few years.When you adjust for inflation using data from Bureau of Labor Statistics, which is approximately $76,544.11 in today’s dollars. In other words, when Bitcoin hit its recent peak, it was worth $7,334 less than it was in 2021, if the real purchasing power of the U.S. dollar is taken into account. The difference is approximately 9.6%.
One of the arguments in favor of Bitcoin is that it can serve as an inflation hedge. The idea is that, in the long run, if you put your money in Bitcoin, your money will be worth more than if you put it in a bank or make more traditional investments. To be sure, Bitcoin’s gains are staggering when you look at the cryptocurrency’s 15-year history of prices.However, many experts say the dramatic rise and fall Making Bitcoin Too Volatile As a safe investment of any kind that makes sense. In fact, if you kept your money in a traditional, boring portfolio, you would have done better over the past few years.
For example, we can compare the price of Bitcoin to a fund that simply tracks overall stock market performance, such as the SPDR S&P 500 ETF. When you adjust for inflation, the fund’s value on Tuesday was a little more than 1.5% lower than it was three years ago. This means that if you bought $10,000 in Bitcoin at its peak, your money would be worth about $9,050 today. If you also purchased $10,000 of the SPDR S&P 500 ETF, it would be worth $9,850. Inflation affects traditional investments just like it does Bitcoin, but this time, you’d be better off investing in the regular old stock market. Storing your money in Bitcoin means you effectively lost $800.
Of course, buying when an investment is hitting an all-time high is a mistake. The motto is buy low and sell high. If you could predict the future, you could do that with Bitcoin, and you’d clean up. Bitcoin’s value has increased by 45% this year alone, but there’s no guarantee this trend will continue. This year, the court approved cryptocurrency ETFs, which essentially allow investors to mix Bitcoin and other digital currencies with more traditional assets. But if this decision goes the other way, Bitcoin’s value will almost certainly fall. Generally speaking, you can use more tools to evaluate stock investments than you can to predict fluctuations in the Bitcoin market.
Either way, the sad truth is that many people made the mistake of putting money into cryptocurrencies when they broke records, the result of ill-informed investors giving in to the fear of missing out. This is a great way to lose money if you get scared when prices drop and cut your losses.
The bottom line is that investing is always a coin toss. But if this week’s Bitcoin “records” prove anything, it’s that cryptocurrencies are as much of a gamble as ever.