Bitcoin’s Meteoric Rise
This week’s insight zooms in on one of 2024’s most popular investments: bitcoin.
The world’s largest crypto asset has been in the news for years on end, but its fanfare reached new heights following the reelection of Donald Trump. The soon-to-be 47th POTUS has been outspoken in favor of a so-called bitcoin reserve, though the details of how that might look are not yet known.
Nevertheless, Trump’s win resulted in massive bitcoin buying. One token went from under $70,000 before November 5th to nearly $100,000 by the end of last month. Bitcoin’s total value is now close to $2 trillion. Could there be more room for it to run? Maybe experts think so considering that gold’s collective worth is $18 trillion, and some argue that the two assets should be near parity.
This year was also notable in that January featured the launch of 11 “spot” bitcoin ETFs. These funds invest directly in bitcoin, removing frictions to entry for many investors who didn’t want to bother with creating a digital wallet and “storing” the coins on their own. According to Bloomberg’s Eric Balchunas, US bitcoin ETFs net assets are now $100 billion with YTD inflows of close to $30 billion – double Bloomberg’s estimates from the start of the year. That’s lots of data to say that the bitcoin frenzy’s pitch is more fevered than ever.
It also suggests that investors must be sure to satisfy the tax man come next April. The Wall Street Journal reported that there’s heightened scrutiny on digital asset transactions right now. What’s more, new rules are in place that require brokers to report sales and cost basis data to the IRS. Beginning next year, Form 1099-DA will make it even harder to side-skate the tax authorities.
The good news is that for many bitcoin investors who went the easy route by owning an ETF rather than bitcoin outright, the broker will provide transaction details and easy tax reporting documents as they would any other stock, bond, or fund. Cast in that light, bitcoin and its smaller crypto cousin ether have become almost like traditional holdings for diversified investors.
Where bitcoin goes from here is unknown. We are bullish on its longer-term prospects, but history shows that its price can plunge with zero notice. Furthermore, if you got in early, it’s prudent to consider rebalancing your portfolio to ensure that bitcoin is not an unintended outsized piece of your portfolio.
