Bitcoin’s price drop is forcing investors to revisit why they own it
Bitcoin has lost nearly half of its value since reaching a record high of over $123,000 in July 2025. After years of Bitcoin rewarding those who held on during periods of volatility, the sell-off was the latest test of investors’ mettle.
But Daniel Sotiroff, Associate Director of ETF and Passive Strategies Research at Morningstar, says Bitcoin’s recent decline does not appear to reflect a fundamental change in investing.
“I think a lot of it is crypto being crypto,” he says.
The sell-off in Bitcoin comes amid weakness in a range of assets as investors reassess risk and where to put their money. The Nasdaq Composite and gold retreated from recent peaks, falling 4% and 8% respectively. As of Friday, Bitcoin traded around $63,900.
Sotiroff says the recent decline is likely due to several factors: investors making profit After Bitcoin reached record highs. Expectations that interest rates could stay higher for longer could make investors more cautious about risky assets, including Bitcoin, he says. Other investors may be shifting their money to different high-reward opportunities, including AI-related investments.
While previous Bitcoin sell-offs have often been followed by big recoveries in price, the latest decline may cause some investors to reconsider why they own Bitcoin, Sotiroff says. Here’s what he and other experts say about crypto holdings and how much risk exposure is appropriate for the average investor.
Bitcoin’s role in investor portfolios
“I’ve heard it referred to as a diversifier. That seems like the strongest argument,” says Sotiroff.
Supporters also argue that Bitcoin can maintain its value during periods of economic uncertainty or protect investors from inflation.
Sotiroff is more skeptical of these claims. He says the cryptocurrency’s volatility makes it difficult to view it as a reliable store of value, noting that investors already have other tools to hedge against inflation, including Treasury Inflation Protected Securities, or TIPS.
He says the recent sell-off is a reminder that Bitcoin’s gains can be accompanied by equally dramatic declines. This uncertainty is one reason why many financial planners recommend limiting risk to a small portion of a larger portfolio.
“You can’t really make a decision about which way it’s going to go,” Sotiroff says.
‘A reasonable rule of thumb’ for Bitcoin exposure
For a high-risk asset like Bitcoin, an allocation of 1% to 5% of the investor’s overall portfolio is “an appropriate rule of thumb to reduce risk and still achieve some upside,” says Andrew Herzog, certified financial planner and registered agent with The Watchman Group.
Herzog’s advice is generally consistent with that of other financial planners. We made a recommendation for Bitcoin, but the appropriate amount depends on the investor’s risk tolerance.
“We’re talking low single-digit percentage points,” Sotiroff says. “If you go beyond that, you start to see increased volatility in your portfolio.”
Even as Bitcoin has become easier to own for mainstream investors, including the launch of spot Bitcoin ETFs in 2024, dramatic price swings have remained a defining feature of the asset, underscoring why many financial planners continue to recommend modest allocations.
For some investors, these risks are part of the bargain. They are willing to hold Bitcoin despite massive sell-offs as they believe the cryptocurrency’s long-term rise will outweigh volatility.
“What sales really do is reveal which investors have a plan and which ones are gaining momentum,” says Matt Chancey, CFP at Tax Alpha Companies. “If you owned Bitcoin because of the rise, it was broken, but the situation was never solid.”
Not all financial professionals agree that Bitcoin belongs in a portfolio.
Creighton University finance professor Robert Johnson says Bitcoin is different from stocks, bonds and real estate because it doesn’t provide earnings, interest payments or rental income that investors can use to estimate its value. Instead, its price is largely determined solely by investor demand.
“You can’t invest in Bitcoin, you can only speculate,” he says.
Sotiroff acknowledges that Bitcoin is difficult to value using traditional financial metrics.
“The best analogy I’ve heard is that it’s more like a collector’s item, because it’s basically worth what other people will pay for it,” he says.
Looking to get ahead at work? Then you need to learn how to make effective small talk. In CNBC’s new online course, How to Talk to People at Workexpert trainers share practical strategies to help you use everyday conversations to gain visibility, build meaningful relationships, and accelerate your career growth. Sign up today!
