Investing During a Bull Run: Is It Too Late to Join the Rally?

Bitcoin hit a new all-time high in November 2024 after Donald Trump, generally considered the pro-cryptocurrency candidate, won the US presidential election. Media coverage of rallies tends to boost demand for bitcoin, although some investors may wonder whether they have left it too late to enter the market and benefit from the returns and diversification it offers.

This article reviews short to medium-term price forecasts for bitcoin formulated by finance industry professionals before exploring the different options for gaining exposure and why investors might also consider holding altcoins.

The Perennial Question: Is it Too Late to Invest into Bitcoin?

Bitcoin has experienced several eye-catching rallies (not to mention crashes) since Satoshi Nakamoto mined the first block of transactions at the start of 2009. While projecting its future trajectory is difficult because so many factors come into play, forecasts by professional investors suggest it still has room to grow. Research firm Bernstein expects bitcoin to reach $150,000 in 2025 as capital flows into the spot exchange-traded funds (ETFs) approved by the Securities and Exchange Commission in early 2024. British bank Standard Chartered believes the cyclical nature (recurring patterns) of the market could propel bitcoin to $250,000 by the end of 2025. The most optimistic outlook comes from Cathie Wood, founder of Ark Investments, who predicts bitcoin could be worth as much as $3.8 million by 2030 due to institutional adoption and demand for spot ETFs. For the sake of objectivity, JP Morgan claims bitcoin’s true value is $45,000. However, Anthony Scaramucci of alternative asset manager Skybridge Capital, who forecasted bitcoin would hit $100,000 in 2024, expects the Wall Street giant to change its mind as regulations evolve.   

Returning to StanChart’s thesis, CoinShares has previously discussed how some of bitcoin’s unique characteristics have driven its price cyclicality. For instance, roughly every four years, the block reward paid to miners falls by 50%, events the crypto community calls ‘halvings’. As long as demand remains constant, the subsequent fall in supply should boost bitcoin’s price. The chart below shows this effect in action, and how it’s most potent in the months preceding and following halvings.  

This pattern tends to attract the attention of investors seeking returns and portfolio diversification, which should theoretically push up the price further. 

Discover bitcoin’s market cycles.

When is the Best Time to Invest? Time the Market or DCA?  

Investors have two options when adding a new holding to their portfolio. Investing a lump sum offers the potential for substantial gains if timed right, but it can also feel like an emotional rollercoaster, especially with an asset that fluctuates as much as bitcoin, referred to as volatility. The alternative is to drip-feed capital into the market, a strategy known as dollar cost averaging (DCA).

DCA involves regularly investing in an asset or product regardless of the market’s direction. The size of the trade can be a fixed value or quantity, while the intervals are typically monthly. The theory behind DCA is that investors purchase more of an asset when the price is low and less when it’s high, which should lower the average cost per unit. It also removes emotion from decision-making during a bear market as the temptation to sell a holding recedes. Incidentally, crashes may present opportunities to purchase assets at a steep discount. Of course, there are disadvantages to this approach that investors should consider too. Holding cash in a bull market means missing out on returns, while frequent trading fees make DCA more expensive than investing a lump sum.

Learn about dollar cost averaging.

How does Bitcoin Fit into a Balanced Portfolio?

Bitcoin’s volatility means investors must carefully consider how much they hold. Research by CoinShares suggests a relatively small allocation is optimal, which is borne out by the impact on performance observed among several model portfolios, including strategies designed by some of the world’s most successful professional investors. As the table below shows, allocating between 4% and 7% to bitcoin significantly increases each portfolio’s annualised returns while having a limited impact on maximum drawdown (the biggest single drop from peak to trough) and volatility. Meanwhile, holding bitcoin improves portfolio diversification as revealed by the correlation score, a metric that measures the degree to which different assets move in the same direction.

Learn how bitcoin enhances real-world portfolios.

Many Altcoins Lag Bitcoin: is this an Opportunity for Diversification?  

While bitcoin is the largest crypto by some distance, accounting for 59% of the overall market capitalisation (as of November 22, 2024), altcoins can provide further portfolio diversification. However, not all altcoins are created equally. The crypto universe consists of over ten thousand coins, according to CoinMarketCap. Some have been issued by legitimate projects like Ethereum and Solana and have proved durable, but others have little utility or value. Research shows that between 2013 and 2022, nearly 2,300 coins became obsolete, primarily due to low trading volume, but fraud also played a notable role.  

Conclusion

Given the strength of the latest rally, investors may question whether it’s too late to gain exposure to bitcoin. While predictions are an inexact science due to the number of factors influencing the market, various analysts believe it has room to grow.

Investing a lump sum could lead to attractive returns, but it can be emotionally draining, so entering the market using an approach known as dollar cost averaging, which involves drip-feeding money into the markets regardless of the conditions, may be more appropriate.

A bitcoin allocation of between 4% and 7% could diversify a portfolio and boost returns while slightly increasing volatility. But the crypto universe is vast, so investors could also consider holding altcoins for diversification.