Love it, hate it, or hodl it, there’s no denying that Bitcoin is back.

After a “crypto winter” that saw a series of scandals, bankruptcies, and a price drop of nearly 77%, Bitcoin finally scaled a new peak on March 5, hitting $69,191.95. It briefly jumped north of $70,000 for the first time Friday and the surge has buoyed other cryptocurrencies, with Ether and even Dogecoin increasing in value.

The rally is being touted as validation for crypto’s true believers, who use the term “hodl,” a misspelling of the word "hold," as a mantra during slumps to remind themselves of digital currencies' long-term prospects. But for the merely crypto-curious, who may have ignored previous peaks and valleys, the question is whether now is the right moment to get in.

New Developments
Bitcoin has been “back” before. After hitting a trough in 2019, prices bounced back with a vengeance in the first year of the Covid-19 pandemic, only to plummet again in the spring of 2021. It rebounded later that year but prices dropped in 2022 in the wake of the infamous FTX meltdown.

Much of the recent price jump has taken place since January 10, when the Securities and Exchange Commission approved spot exchange-traded funds (ETFs), permitting household names such as BlackRock, Invesco and Fidelity to offer them to consumers. And some advisers are taking a slightly more optimistic tone on as retail investors ponder whether the cryptocurrency belongs in their portfolios.

Douglas Boneparth, president of Bone Fide Wealth in New York, senses greater market confidence because of the institutional involvement in spot ETFs, which are designed to track the price of Bitcoin but don’t require individual investors to hold the token themselves.

Put together, these ETFs have recorded more than $9 billion in net inflows since they became available. And while Boneparth, a certified financial planner, wouldn’t recommend clients reconfigure their entire portfolios with the digital asset, he’s comfortable with 5% or maybe even 10% allocated.

“It’s different this time,” he said.

Shifting Landscape
Given crypto’s risks and volatility, many mainstream financial advisers, portfolio managers and investment researchers have been quick to dismiss it. That appears to be shifting, at least slightly. Although many don’t think clients should blindly follow a “diamond hands” strategy, by now money managers have seen everyone from retail investors to sophisticated Wall Street traders make millions on Bitcoin. And a number do think  that — if handled correctly — a little Bitcoin could have a place in the average investor’s portfolio.

“People in a competitive market are trading it and they perceive value in it for one reason or another, so we need to respect that,” said Peter Mladina, the executive director of portfolio research for Northern Trust Wealth Management.

Bitcoin does not form a part of Northern Trust’s recommended portfolio. And Mladina counters some commonly held narratives about the cryptocurrency. It doesn’t fully meet the criteria that make something a currency, he argues, and its volatility makes it a poor store of value. He doesn’t recommend devoting a large amount of a portfolio to Bitcoin, but added that “maybe for some people there could be a small allocation.”

Maximum Allocations
Joseph Boughan, a financial planner at Parkmount Financial Partners in Scituate, Massachusetts, said he typically allows Bitcoin to form up to 5% of his clients portfolios. He worries about the rise of FOMO (fear of missing out) sentiment in today’s market that could be pushing investors to buy simply because prices are high, and not as part of a premeditated strategy. He’s seen clients do really well when they allocate as much as 5%, but he’s also seen them do poorly. The goal for him is setting expectations about Bitcoin’s volatility before getting started.

Such volatility can add up. Research by Morningstar found that adding 2% of Bitcoin to a hypothetical costless 60/40 portfolio changed its return profile by almost as much as adding a 10% stake in stocks. Adding 5% resulted in a risk profile more similar to a portfolio made up of 90% stocks and 10% bonds.

That matters because investors who are “just playing around with some Bitcoin” may end up adding more volatility than expected to their portfolios, said Bryan Armour, director of passive strategies research for North America at Morningstar. The upside of that volatility can be great, but it can be painful for those who need to withdraw during a trough.

Meme Warning
Today’s peak has also brought back familiar phenomena from previous rallies: meme coins and NFTs. Some of the most speculative cryptocurrencies such as Dogecoin have been outperforming Bitcoin. At the same time, the nonfungible token industry, which had been left for dead after crashing spectacularly, is trying to use the latest price resurgence to stage a comeback. Experts are wary. Many of today’s trending assets, they say, have little use beyond pure speculation.

“We’ve been through this before,” Armour said. “I would remind people that if they want to gamble, that’s up to them. But if you look back to 2022, losing is a very real possibility.”

This article was provided by Bloomberg News.