Bitcoin's journey in the financial world reached a new zenith in December 2024. It soared to an all-time high of $103,647, leaving investors in awe. This remarkable milestone came on the heels of former President Donald Trump's reelection and his crypto-friendly policy promises. The approval of spot Bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission in January 2024 opened up new avenues for mainstream investors, allowing them to access this asset through traditional brokerage accounts.

Unraveling Bitcoin's Post-Election Rollercoaster

Bitcoin's New All-Time High

The surge from around $70,000 before the election was a sight to behold. Investor exuberance ran high as they anticipated a more favorable regulatory environment under Trump. His appointment of Paul Atkins as the SEC chair and the addition of other crypto-friendly personnel to his administration further fueled this optimism. Atkins, with his background and stance on regulation, was seen as a boon for the cryptocurrency sector.However, it's important to remember that such rapid price movements are not without their risks. Bitcoin's history is marked by massive price drops, as evidenced by its 70% crash after the 2021 high. This serves as a stark reminder of the need for caution and risk management.

Should You Invest in Bitcoin Now?

Wealth advisor Peter Hughes of Evolve Investing emphasizes the importance of staying mindful of Bitcoin's historical volatility. When faced with a post-election run-up like the one we've seen, clients often show increased interest. But Hughes is quick to show them the drawdown risk. He points to the cryptocurrency's previous peak in November 2021 and the subsequent more than 70% decline over the following year.For those comfortable with the risk, Hughes suggests allocating no more than 5% of their portfolio to cryptocurrencies. Studies have shown that a Bitcoin or crypto allocation above this threshold can significantly increase the volatility of an overall investment portfolio.For newer investors, Aditi Kapadia of Wealth IQ recommends starting with small allocations to spot ETFs or regulated platforms. This is a prudent first step that allows them to dip their toes into the cryptocurrency world while maintaining a long-term perspective and keeping emotions in check during volatile periods.

The Bottom Line

Investing in Bitcoin after its post-election surge is enticing, but it's crucial to stay grounded. The cryptocurrency's volatility is a fact that cannot be ignored. Investors should focus on balancing risk and reward, maintaining a long-term perspective, and avoiding impulsive decisions driven by market hype.Hughes offers a sobering reality check. If you're feeling bullish on Bitcoin after this incredible run, consider how you would react if the price dropped by half. Your answer will reveal whether you're truly prepared for cryptocurrency's inherent volatility.In conclusion, while Bitcoin's recent success is remarkable, it's essential to approach it with a rational and cautious mindset. By doing so, investors can navigate the volatile waters of the cryptocurrency market more effectively.