Since the November election, Bitcoin has experienced significant fluctuations. Are you ready to buckle in, or is it time to step out of this ride?
The initial post-election surge pushed Bitcoin past the $100,000 mark, with optimistic bulls speculating that reaching seven digits was on the horizon as President Donald Trump, a supporter of cryptocurrency, prepared to take office. However, the day after the inauguration, Bitcoin began a steep decline of over 20%.
Supporters often say, “buy the dip and watch it rise.” But before jumping in, consider this: What makes crypto ownership appealing to you? Let’s weigh the pros and cons.
Many believe the gains following the election are just the beginning. Crypto companies were major donors to Trump, anticipating less stringent regulations and favorable pro-crypto policies. Trump even has plans for a federal cryptocurrency stockpile!
Will any of this materialize? It remains uncertain. Conversely, is increased government involvement in what is meant to be a decentralized currency truly a positive sign? The decision is yours.
But it’s not just the United States where investors are banking on cryptocurrencies. Cities like New York, Amsterdam, Hong Kong, London, and Tokyo are all vying to become the capital of crypto.
So, what’s the case for you to invest in it? Many view cryptocurrencies as a means to diversify and protect against currency risks. New exchange-traded funds (ETFs) have made purchasing easier than ever. Others see it as a safeguard against inflation, as Bitcoin’s supply is capped at nearly 21 million, preventing endless devaluation like fiat currencies. Additionally, a significant number of Bitcoins are permanently lost, further limiting supply.
Many investors are salivating over the potential for astronomical profits. Since 2010, Bitcoin has averaged a 160% annualized return through the conclusion of 2024. In 2024 alone, it rose by 121.6% and 52.8% from Trump’s victory through the peak on January 21. These figures are explosive.
However, while Bitcoin experiences meteoric rises, it can also plummet. Over the past decade, Bitcoin’s returns have fluctuated dramatically, ranging from a staggering 1,402% to losses of 74% in 12-month periods.
Bitcoin first reached $100 on April 1, 2013, hitting $230 just eight days later. By July, it had dropped 71% to $66. That same year, it surged past $1,000, only to face an 84% drop over nearly two years. The same pattern repeated in 2018, and the post-election wave in 2024 followed a 77% decline in 2022 and 2023.
These declines are reminiscent of the Great Depression crash in the US stock market from 1929 to 1932, recurring multiple times in just ten years. Poor timing could lead to significant losses. Have the new bulls overstepped their bounds? Only time will tell.
Such volatility is not driven by fundamentals; crypto lacks any industrial use, earnings, or yield. Most cryptocurrencies are too unstable to function as reliable currencies, and even stablecoins, which are pegged to major currencies, can experience significant fluctuations.
The crypto space is also plagued by crime and money laundering. Sam Bankman-Fried’s conviction for fraud in November 2023 did not put an end to these issues. North Korea’s Bybit hack last month is considered the largest theft in crypto history.
An inflation hedge? Not exactly. In June 2022, the US consumer price index reached a high of 9.1%, reflecting global trends. Remarkably, during that time, Bitcoin fell 64.2%, failing its only significant inflation evaluation.
Regarding supply: While Bitcoin is capped, the broader crypto market has no such limit. Although Bitcoin was the first, there are now about 10,761 different cryptocurrencies in existence, all competing for relevance. Examples include Ethereum, XRP, Solana, Dogecoin, and even a coin humorously named “flatulencecoin.” What truly distinguishes joke coins from Bitcoin? Mainly, it’s just noise.
So, what triggers these abrupt shifts in the crypto market? Pure sentiment.
Can you predict market sentiment? I can’t. If not, can you withstand a long-term hold when prices drop—say by 80%? Did the most recent decline in stock values unsettle you? Can you endure ten times worse?
Keep in mind that emotions are not helpful. In the face of volatile assets, individuals frequently purchase after significant gains—like those observed in 2024—due to the fear of missing out (FOMO). Conversely, when prices drop, many sell driven by the fear of holding (FOHO), locking in losses.
Buying high and selling low—FOMO and FOHO—are disastrous patterns I’ve witnessed over 50 years with volatile commodities and stocks. And yes, when it comes to volatility, crypto ranks among the wildest, scariest rides out there. Are you prepared for that?
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and a regular columnist in 21 countries worldwide.
