Bitcoin hits new high - should you invest in the cryptocurrency?

Bitcoin has surged to a new record high as the cryptocurrency's bull run continues.

The Bitcoin price surpassed a new record of $112,000 on Wednesday 9 July, before settling back at around $111,300.

The crypto asset has seen its value rise by 18% so far this year and is up approximately 1,100% over the last five years.

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The rise has been attributed to increasing institutional interest in the digital currency, helped by the Securities and Exchange Commission (SEC) approving spot Bitcoin exchange traded funds (ETFs).

US president Donald Trump is also doing his bit for the digital currency.

He is seen as Bitcoin-friendly and hinted at the possibility of a “strategic Bitcoin reserve” while campaigning.

Additionally, his new trade tariffs have prompted many investors to look to alternative assets such as cryptocurrencies due to stock market volatility.

Nick Jones, chief executive of crypto software provider Zumo, said: “The rise is underpinned by increasing institutional adoption and resurgent retail demand, reflecting confidence that crypto has arrived in the mainstream and is now reshaping finance.

“There's also growing corporate interest in Bitcoin as a treasury asset,” he added, highlighting that the United Arab Emirates is making headlines with its decision to integrate cryptocurrency payments in areas such as school fees and transportation.

Jones hopes that the UK will follow suit with its crypto policy.

Despite the increased interest among investors, the asset remains largely unregulated and highly volatile, which means there could be quick and major changes in its price.

This has led some to question how long the bull market can continue – and whether it is worth the risk in the first place.

Why is the Bitcoin price rising?

Unlike stocks that have underlying fundamentals, the main factor driving Bitcoin is sentiment.

Investor interest has increased since the launch of Bitcoin ETFs and Blackrock is now the largest holder of the cryptocurrency, with its iShares Bitcoin Trust (IBIT) owning 700,307 BTC.

Financial Conduct Authority data shows 12% of UK adults now own crypto, despite the City watchdog warning that people could lose all their money from it.

Another factor is supply.

Public and private companies, funds and ETFs now command roughly 3.5 million bitcoin or about 17% of the fixed 21 million supply, up from 2.6 million just a year ago, according to eToro.

Simon Peters, crypto analyst at eToro, said: “This increase in demand is putting further upwards pressure on the price.”

The price has also been helped by Trump having more positive policies towards Bitcoin and has promised to make the US ‘the crypto capital of the planet.’

The US is also heading into ‘Crypto Week,’ where the House of Representatives will be considering three landmark pieces of legislation that, if passed, will provide a massive boost to and further legitimise the sector.

Tesla boss Elon Musk is also a Bitcoin fan and recently announced that his newly launched America Party will fully back Bitcoin.

Lukas Enzersdorfer-Konrad, deputy chief executive of crypto platform, Bitpanda, said that Bitcoin’s rise to new heights has been fuelled by a “perfect mix” of supportive macro conditions and a steady rise in institutional interest.

He said: “As liquidity returns to the market and the money supply expands in both Europe and the US, investors are looking for assets with real potential – and Bitcoin is increasingly seen as one of them.

"We’re seeing growing retail demand, still underpinned by strong ETF inflows and continued institutional adoption. All signs point to Bitcoin’s role as a mainstream asset becoming more firmly established than ever."

Should you invest in Bitcoin?

The returns may look attractive but Bitcoin and other cryptocurrencies are largely unregulated and can be subject to wild price swings and volatility. There are very few market fundamentals behind them beyond supply and demand.

This means you can make large gains but also devastating losses.

There have also been cases of fraud and hacks of trading platforms, resulting in customer money being stolen.

Peters added: “It’s hard not to be optimistic about bitcoin at this moment in time, but the risk of a fall in price or short-term pullback still exists.

“Before investing in Bitcoin, potential investors should evaluate their time horizon and how long they are prepared to be invested for.

“Only invest with money that you can afford to lose and rather than deploying all of your capital at one time maybe consider dollar-cost-averaging (i.e. investing a fixed amount of money at regular intervals) as this could reduce the risk of investing right before a downturn in the price and also lower your average cost basis, giving you a greater return in the long run."

The Financial Conduct Authority (FCA) has warned that cryptocurrency investors should be prepared to lose all their money. It isn’t a good asset for beginners and should not form a core part of your portfolio.

If you understand the risks and are still keen to have some exposure, you could consider a small allocation as part of a broadly-diversified portfolio. Make sure you use a recognised trading platform and be wary of crypto scams.

While cryptocurrencies aren't regulated, platforms that let you buy and sell them should be approved for anti-money laundering purposes by the FCA and should appear on its register of cryptoasset firms.