You might have heard a lot lately about the meteoric rise of bitcoin. On April 1, 2020, the world's most famous cryptocurrency traded for just over $6,500 per coin. Today you'd have to pay nearly $59,000 to get your hands on one.
Cryptocurrencies are one of several asset classes that have seen skyrocketing prices over the past year as retail investors have piled disposable income into markets. And as with so-called "meme" stocks and nonfungible tokens, old-school investing types have expressed skepticism over bitcoin's nosebleed valuations and have warned retail investors against overexposing their portfolios to volatility.
Last year, Warren Buffett reaffirmed his longtime aversion, telling CNBC, "Cryptocurrencies basically have no value and they don't produce anything." He added, "I don't have any cryptocurrency, and I never will."
Other financial gurus are more bullish on bitcoin's prospects, though. One fan: bestselling author of "The Money Class" and host of the "Women & Money" podcast Suze Orman. "Bitcoin is a legitimate investment and you should absolutely be buying it," she says. "Of course you should."
Here's how she says you can invest safely.
Orman acquired some bitcoin several years ago through Coinbase, one of several sites where users can buy crypto, and found that experience frustrating. "I didn't understand the wallets and secret codes — what if I lose it?" she says. "And when I tried to get my money out, it didn't work. I hated it."
Although more and more businesses, including Microsoft and AT&T, are accepting bitcoin as a form of payment, Orman doesn't think folks should be using the digital currency for day-to-day transactions. Bitcoin, and its spinoff currency bitcoin cash (designed to be easier to use in transactions), are too much of a pain for everyday purchases. "I'm not into it as a currency," she says. "It's still way too complicated. In terms of the number of transactions that can be done on the blockchain? It's just complicated."
Video by Stephen Parkhurst
If you do buy bitcoin, hold onto it as a long-term investment, she says. "I'm an advocate that bitcoin can be a replacement for gold or silver and takes a position in your portfolio as a legitimate investment versus using it as a currency."
Using bitcoin as a replacement for gold or silver means that it should serve a special purpose (rather than a starring role) in your portfolio, and like the shiny stuff, the reasons for holding it may vary from person to person. Like gold, bitcoin can serve as a store of value if you think that a disaster, financial or otherwise, could significantly hurt the value of paper currencies.
More likely, you can use crypto as a portfolio diversifier — an asset that will behave differently than the stocks and bonds you own, which move based on factors such as corporate earnings growth and changes in interest rates. Having a broadly diversified portfolio will smooth your investment returns over time.
Remember that bitcoin is an extremely volatile asset and should be treated as such, Orman says. The amount she says you should consider investing: "Any amount you can afford to lose."
"In the same way that it could go to $62,000, it could be at $5,000 before you know what hit you," she says. "So I told my listeners on the 'Women & Money' podcast, do $100 per month and dollar-cost average into it. As long as you know you can lose that $100 a month and won't care."
Video by Helen Zhao
By dollar-cost averaging — the practice of buying into an investment or group of investments for the same price at fixed intervals — you ensure that you buy more shares (or coins) when prices are low, and fewer when prices are high.
As for her own portfolio, Orman remains a long-term investor in bitcoin, holding a chunk through her PayPal account. She doesn't expect it to go up forever. "You should absolutely expect it to go down for a while from here," she says. "Then it will recycle and probably go back up again."
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