Bitcoin has long captivated the imagination of investors, and its potential for explosive growth has made it a topic of intense debate. 

One of the most eye-catching strategies in recent years comes from MicroStrategy, which made a bold decision to go all-in on Bitcoin. Since 2020, MicroStrategy has poured billions of dollars into Bitcoin, accumulating a staggering $14.6 billion worth of the cryptocurrency. To put this into perspective, the company now owns more than 1% of the world’s Bitcoin supply. This move has been a key driver behind the company’s stock more than doubling this year, leaving many wondering whether it would be a smart move to follow suit and make Bitcoin the centerpiece of their own investment portfolios.

One thing for sure is that the appeal of Bitcoin is undeniable, especially with predictions about its future value reaching into the millions. Some even suggest that a single Bitcoin could be worth $13 million by the year 2045, which means that Bitcoin could end up delivering a compound annual growth rate of 30% for the next 21 years – a lofty goal but not one entirely out of reach. 

Also, since Bitcoin has shown incredible performance in the past, with annualized returns of 230% over the last decade, and it is already up 40% this year alone the promise of massive returns can be captivating. Nevertheless, when thinking about possibly investing in Bitcoin, it is important to keep in mind that there is much more to consider behind the excitement.

Be aware that Bitcoin’s potential for outsized gains comes hand-in-hand with volatility that can shake even the most seasoned investors. While it has posted strong gains over time, Bitcoin’s value can plummet just as dramatically. For example, last year, Bitcoin lost 65% of its value, and throughout its history, it has endured multiple crashes where prices dropped by over 70%. These sharp swings are a sobering reminder that the same asset that can make fortunes can also lead to significant losses. Therefore, while the possibility of a $13 million Bitcoin may be exciting, it is essential to consider the risks that come with investing in such a volatile market.

Moreover, it is worth noting that MicroStrategy’s approach to Bitcoin has been nothing short of aggressive. The company’s strategy has turned it into what many investors now view as a proxy for Bitcoin. In fact, more than half of MicroStrategy’s total market value is tied directly to its Bitcoin holdings. For an individual investor, this would be like having over 50% of their portfolio invested in a single, highly volatile asset.

The all-in strategy has paid off for MicroStrategy so far, nonetheless, it raises important questions about risk, especially for those who might be tempted to follow in the company’s footsteps. Keep in mind that to fund its massive Bitcoin purchases, MicroStrategy has even taken on debt, borrowing money through convertible debt offerings to buy more Bitcoin, and this adds another layer of risk because if Bitcoin’s value were to decrease drastically, MicroStrategy could face significant financial difficulties due to its substantial debt.

Now, taking the above into consideration, should individual investors follow MicroStrategy’s lead and go all-in on Bitcoin? The short answer is that although the idea may be tempting, especially with the cryptocurrency’s potential for massive gains, for most people, going all-in on a single asset – especially one as volatile as Bitcoin – is a risky gamble. Remember that Bitcoin’s unpredictable price swings mean that while you could see significant gains, you could also experience severe losses. Thus, as noted previously, diversification should be a key strategy because spreading your investments across different asset classes helps manage risk and smooth out the inevitable ups and downs of the market.

Besides, you should be aware that experts generally recommend that Bitcoin should make up only a small portion of your portfolio – somewhere between 1% and 3% for most investors. This strategy allows you to participate in Bitcoin’s potential growth, but you would not be exposing yourself to too much risk. 

Additionally, let’s highlight that MicroStrategy’s approach, where more than half of its value is tied to Bitcoin, would be considered extremely risky for an individual investor, as while there is no denying that Bitcoin could continue to rise in value, its volatility makes it a dangerous bet for anyone considering putting a large portion of their savings into it.

Furthermore, another important aspect to consider is leverage. MicroStrategy’s decision to take on debt to fund its Bitcoin purchases is an example of using leverage, which can magnify gains, but also losses. In essence, in a rising market, leverage can boost returns, but in a falling market, it can amplify losses. Thus, for individual investors, using borrowed money to invest in such a volatile asset is very risky because if the value of Bitcoin drops significantly, you could find yourself facing steep losses, compounded by the debt you took on to buy the cryptocurrency in the first place.

In the end, the decision to invest heavily in Bitcoin comes down to your own risk tolerance and financial goals. Some investors may be willing to take on more risk in hopes of achieving greater rewards, while others may prefer a more conservative approach. However, for most, a balanced strategy that includes a small allocation to Bitcoin, along with other more stable investments like stocks, bonds, and real estate, is likely the smartest approach. This way, you can still benefit from Bitcoin’s potential growth, but you would be protecting yourself from the possibility of large losses.