Bitcoin, the largest cryptocurrency by market cap, has been on a journey. After reaching its all-time high of over $126,000 in October of last year, Bitcoin has had a turbulent 2026, trading at about half that price for most of this summer.
While we're currently seeing a bounce-back to trading prices we haven't seen since spring, deciding if Bitcoin has a place in your portfolio requires looking beyond today's headlines.
Does Bitcoin belong in your portfolio?
Bitcoin is a risky investment with obvious high volatility. It should only be considered if you have a high risk tolerance, are in a strong financial position already, and can afford to lose some or all of your investment.
If you check all these boxes and do decide to invest in Bitcoin, it’s important to maintain a diversified portfolio. As a rule of thumb, don't invest more than 10% of your portfolio in risky assets like Bitcoin.
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Pros and cons of investing in Bitcoin
Pros
- Bitcoin historically has offered the potential for high returns.
- It’s decentralized, meaning there's no central authority that controls Bitcoin. That said, many people choose to trade and store Bitcoin on centralized platforms.
- Bitcoin has the potential to be a non-correlated asset, similar to gold. This means it may not follow the trends of other assets, like stocks. However, while Bitcoin has had moments of non-correlation with the S&P 500 in the last decade, it has yet to prove itself as a truly non-correlated asset.
» Want to learn more? See the list of the best crypto exchanges and platforms
Cons
- The price of Bitcoin can go up, as referenced above. It can also go down — a lot. Unlike traditional financial exchanges, crypto exchanges don't have circuit breakers, which automatically pause trading when prices dive too quickly. Crypto markets also trade 24/7, and dramatic dips can happen at any time.
- Transactions are irreversible. People have lost millions of dollars of Bitcoin because they lost or forgot their wallet credentials.
- Crypto exchanges lack basic consumer protections found in traditional financial products, like insurance protection from the Securities Investor Protection Corp. and the Federal Deposit Insurance Corp.
🤓Nerdy Tip
If you're worried about keeping your crypto with an exchange, consider moving your digital assets to a separate crypto wallet. Most exchanges allow you to transfer assets to these wallets, which can be online (on a separate platform) or offline (on a thumb drive with added security features).What kind of investment is Bitcoin?
In its more than 15 years of existence, there's been debate over what kind of investment Bitcoin is. Owning Bitcoin is not like owning stock in a company. Unlike a business, Bitcoin doesn't generate revenue by selling products or services. It doesn't issue dividends. It also doesn’t have a CEO, board of directors, or any other centralized group that sets goals or that can be held accountable.
Depending on who you ask, Bitcoin might be described as a security, a commodity or a currency. But a joint interpretation from the Securities and Exchange Commission and Commodity Futures Trading Commission released in March may provide some clarity: Bitcoin (alongside other coins like Ether and Solana) was categorized as a "digital commodity."
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Is Bitcoin a good portfolio diversifier?
Bitcoin is, in form and in function, very different from other investment assets such as stocks, bonds and gold. With that in mind, some financial advisors say that buying a small amount of Bitcoin could be beneficial in terms of investment diversification.
“I think that investors could cap their allocation to crypto at 5%, and long term, they would still be able to reap the benefits of being exposed to the asset class if it does 10x like its biggest proponents hope, but also reduce the chances of being wiped out by it if the asset class goes to zero tomorrow, which is also possible,” Malcolm Ethridge, a certified financial planner and managing partner at Capital Area Planning Group, said in an email interview.
However, it's worth repeating that Bitcoin's price movements are not necessarily independent of the stock market's movements. For example, the S&P 500 index had negative returns in 2022, but so did Bitcoin. Cryptocurrencies are not stocks, but they have often behaved as high-risk, high-potential-reward investment assets — much like certain kinds of stocks.
Is Bitcoin a hedge against inflation?
Some Bitcoin advocates claim that the cryptocurrency could act as a hedge against the erosion of the dollar's purchasing power — in other words, as a hedge against inflation. So how has Bitcoin performed throughout the high-inflation years of the 2020s? Decently well, although not always consistently.
The Federal Reserve generally tries to maintain an inflation rate of around 2%, but for much of this decade, it's been well above that number. The U.S. experienced an inflation rate of 3% or higher from April 2021 through June 2024, according to the Bureau of Labor Statistics, with a peak rate of 9.1% in June 2022. From April 2021 to June 2024, the price of Bitcoin rose about 18%.
However, Bitcoin doesn't always rise in sync with inflation on a short-term basis. The time period from April 2021 (when inflation first rose above 3%) to June 2022 (when inflation peaked at 9.1%) actually saw a sharp drop in the price of Bitcoin — a drop of more than 40%, although the cryptocurrency recovered in the following years.
So while investing in Bitcoin may provide some protection against inflation in the long term, it would be an oversimplification to say that Bitcoin always goes up when the real value of the dollar goes down.
How is Bitcoin taxed?
If you're investing in Bitcoin in a taxable brokerage account or a crypto app, you'll generate a capital gains tax bill when you sell it. If you held your Bitcoin for one year or less before selling it, you'll pay short-term capital gains rates, which are the same as ordinary income tax rates. If you held it for over a year, you'll pay long-term capital gains rates, which are lower.
Until recently, it generally wasn't possible to invest in Bitcoin in a tax-advantaged account such as an IRA — but the launch of spot Bitcoin ETFs in 2024 changed that. If you open a Roth IRA, buy a Bitcoin ETF in it, and then fulfill the conditions for tax-free withdrawals (such as reaching age 59 1/2, or making a first-time home purchase at least five years after funding the account), you could avoid capital gains taxes on Bitcoin entirely.
» More on Bitcoin taxes: Cryptocurrency tax calculator
Bitcoin and volatility
Bitcoin’s exponential growth and ability to maintain its title of most valuable cryptocurrency can mask the fact that its ascent has not been linear.
The upside of buying Bitcoin for a dime in 2010 is clear. But with volatility comes big downsides. Someone who bought Bitcoin in 2013 would have seen their investment tumble 80% — and it wouldn’t be above water for another three years. Recent highs don't carry the promise of continued returns.
Anyone investing in Bitcoin will hope for the best, but they should be prepared for big downturns. While Bitcoin has recovered many times, there's still a possibility that it could fail outright and go to zero — for example, if a cyberattack breaks through the encryption that keeps the whole Bitcoin ecosystem secure.
Neither the author nor editor held positions in the aforementioned investments at the time of publication.
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- 1.Securities and Exchange Commission; Commodity Futures Trading Commission. Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets. Accessed Aug 27, 2026.
- 2.U.S. Bureau of Labor Statistics. 12-month percentage change, Consumer Price Index, selected categories. Accessed Aug 27, 2026.
