Bitcoin has captured headlines, sparked debates and even inspired dreams of overnight wealth — but what’s behind the hype? As the world’s first decentralized digital currency, Bitcoin promises innovation and disruption, yet its volatility and speculative nature raise serious questions for investors. Before you dive into this modern-day “digital gold rush,” it’s essential to understand both the allure and the risks.

Why some investors believe in Bitcoin

Those who remain proponents of Bitcoin often rely on the following arguments: 

It's digital gold for the modern age.

Proponents argue Bitcoin should be valued like gold markets, with the gap between gold’s total value and Bitcoin’s current value representing massive upside potential. Just as gold has held value for years, they believe Bitcoin has a similar potential.

Scarcity protects your purchasing power.

With only 21 million bitcoins available, believers think built-in scarcity makes it fundamentally different from traditional currencies. As the dollar potentially loses value through inflation, Bitcoin’s fixed supply means your holdings can’t be diluted.

It makes sending money across borders cheaper and faster.

Bitcoin and blockchain technology offer a more efficient way to transfer money internationally, reducing the hefty fees and delays of traditional wire transfers.

It could become tomorrow’s currency standard.

Some enthusiasts envision a future where Bitcoin becomes a currency used by central banks themselves, leading to widespread adoption and potentially driving prices higher.

Edward Jones’ perspective: a measured approach

At Edward Jones, we take a different view. While we recognize some clients may be drawn to Bitcoin, we believe it’s crucial to understand the risks.

Skepticism and inherent risks

We remain skeptical about Bitcoin’s fundamental value. Unlike stocks tied to company earnings or bonds with predictable cash flows, Bitcoin has no physical asset backing it. Its price depends entirely on what someone else will pay for it tomorrow. This speculative nature, combined with fraud risks in the cryptocurrency space, leads us to advise against Bitcoin for most clients.

Volatility and portfolio stability

Bitcoin’s price swings are extreme. Since 2020 alone, Bitcoin has experienced 41 price swings of at least 15% — some happening in just 14 days. For investors building toward retirement or other financial goals, this volatility may destabilize an otherwise well-balanced portfolio.

Risk tolerance and smart allocation

Bitcoin may not be appropriate for everyone. Investors who choose to hold it must be comfortable with speculative investments that could potentially lose substantial value. We recommend limiting exposure to no more than 3% of your total investment portfolio. Beyond 5%, Bitcoin’s volatility may overwhelm the stability provided by your other holdings.

Gaining exposure through ETFs

For those determined to include Bitcoin in their portfolio, we recommend exchange-traded funds (ETFs) as the preferred method, since Bitcoin ETFs provide regulatory protections, simpler tax reporting and the security of traditional brokerage accounts. However, even with ETFs, you’re still exposed to Bitcoin’s underlying volatility.

The bottom line

Although Bitcoin is extremely speculative, we recognize that some risk-comfortable investors may choose to allocate a small portion to Bitcoin. If that’s you, keep your exposure limited, use ETFs and never count on it to meet essential financial goals. Your Edward Jones financial advisor can help guide you.