On Thursday 5th December, Bitcoin hit a record high price of above $100,000 USD—the cherry on top of a massive resurgence in crypto prices since Donald Trump won the election. So naturally, people have been asking, “Should I buy cryptocurrencies?”
Why is the crypto market suddenly booming?
The resurgence can largely be attributed to the anticipation of a crypto-friendly administration under Donald Trump. The crypto community expects his presidency to bring a more accommodating regulatory environment for digital assets, and here is why:
- Pro-Crypto Legislation: With a Republican-controlled Congress, there’s potential for rapid adoption of pro-crypto legislation.
- Regulatory Appointments: It’s likely Trump will appoint executives, who have favourable views on digital assets, to key positions within the U.S. Securities and Exchange Commission (SEC) and other agencies.
- World Liberty Financial: A venture launched by members of the Trump family is poised to provide borrowing and lending services to cryptocurrency traders.
- National Bitcoin Reserve: Trump’s campaign promised the start of a national bitcoin reserve, in the same way countries have reserves of oil or gold. This has the potential to legitimise digital assets further.
However there are other factors:
Apart from political influences, several other developments have helped confidence in the crypto market:
- In January 2024, the SEC approved 11 spot Bitcoin ETFs, providing traders with regulated and straightforward avenues to invest in cryptocurrencies.
- Major corporations and financial institutions have started integrating cryptocurrencies into their payment systems and investment portfolios.
Before you start buying coins, there are some VERY important considerations:
Despite the current optimism, investing in cryptocurrencies carries huge risks:
- Market Volatility: The crypto market is highly susceptible to sentiment-driven swings, which can create bubbles prone to bursting and potentially result in significant losses.
- Valuation Challenges: Unlike traditional stocks, which are valued based on earnings and other concrete factors, cryptocurrencies often lack tangible assets. Value is usually driven by emotional sentiment.
- Policy Delays: Regulatory changes can be slow, and any failure by the Trump administration to follow through on crypto-friendly policies could lead to sharp price corrections.
Should You Invest in Cryptocurrency?
The allure of significant returns from cryptocurrencies is undeniable but you must approach these investments with extreme caution. Cryptocurrency should ideally be a component of a well-diversified investment strategy, not the sole focus.
As long as you are fully aware of the potential downsides and the speculative nature of crypto investments and have a diversified investment plan to mitigate risks and promote long-term wealth growth, then cryptocurrencies may be part of your portfolio.
Prospective investors must carefully evaluate their financial goals, risk tolerance, and market conditions before diving into this volatile market.
Considering adding cryptocurrencies to your investment portfolio? We are here to help you navigate the complexities of crypto investments responsibly and strategically. Contact us today.
