Everyone has heard of Bitcoin, but almost no one pays attention to it. Once every few years the price suddenly jumps, and people start going crazy.
Some folks call this pattern a hype cycle. There is no shortage of crazy-ass traders trying to profit during these short-lived periods of perceived irrationality.
Bitcoin price has become more volatile in the past few days, which doesn’t really say anything, but it gives many people hope that we’ll see some price action in the near future. Does it make sense to buy Bitcoin in the anticipation of a new price rally? It might, but it’s still a huge risk.
What makes more sense is to use rapid price increases to slowly diversify. If Bitcoin spikes and its share of your portfolio rises well past your 15% target, cut it back. It’s easier said than done, but don’t get greedy during those crazy times.
Bitcoin bear markets are tough, and they can last for many years. Make sure you can handle sharp and prolonged price declines. Here are my thoughts on Bitcoin as an asset class and here are more details on the benefits of diversification.