Actually, Bitcoin Didn’t Hit an All-Time High If You Adjust for Inflation

The crypto community took a victory lap Tuesday with the news that the price of Bitcoin hit an all-time high of $69,210. Those celebrations cooled when the value dropped a full 8% just a few hours later, but it marked a stunning recovery from the crypto crash of 2022. For the fans, Bitcoin’s rally was evidence that cryptocurrency is a good investment after all. There’s just one problem: adjusted for inflation, Bitcoin is actually worth less than it was three years ago.

Let’s do the math. The last time Bitcoin broke records was on Nov. 10, 2021, when the price of one Bitcoin hit $68,982.20. But perhaps you’ve heard about skyrocketing inflation over the past few years. When you adjust for inflation using data from the Bureau of Labor Statistics, that’s about $76,544.11 in today’s dollars. In other words, when Bitcoin hit its most recent peak, it was worth $7,334 less than it was in 2021 if you consider the actual buying power of the US dollar. That’s a difference of about 9.6%.

One of the arguments for Bitcoin is it works as a hedge against inflation. The idea is that over the long term, your money will be worth more if you put it in Bitcoin than if you left it in a bank or put it in more traditional investments. To be sure, Bitcoin’s gains are spectacular when you look at the price of the cryptocurrency over its entire 15-year history. However, many experts say the dramatic rises and falls make Bitcoin too volatile to serve as any kind of meaningfully safe investment. In fact, you would have done better over the past few years if you put your money in a traditional, boring portfolio.

For example, we can compare Bitcoin’s price to a fund that just tracks the performance of the overall stock market, like the SPDR S&P 500 ETF. When you adjust for inflation, that fund was worth a little over 1.5% less on Tuesday than it was three years ago. That means if you bought $10,000 of Bitcoin at its peak, your money would be worth about $9,050 today. If you bought $10,000 of the SPDR S&P 500 ETF at the same time, it would be worth $9,850. Inflation hits old-school investments the same way it hits Bitcoin, but this time around, you would have been better off investing in the regular old stock market. Parking your money in Bitcoin would have meant you effectively lost $800.

Of course, it’s a mistake to buy into an investment when it’s hitting all-time highs. The maxim is buy low, sell high. You could have done that with Bitcoin if you could predict the future, and you would have cleaned up. This year alone, the value of Bitcoin jumped 45% but there’s no guarantee that trend will continue. This year, the courts approved cryptocurrency ETFs, which basically allow investors to mix in Bitcoin and other digital currencies with more traditional assets. But if that decision had gone the other way, Bitcoin’s value would have almost certainly tanked instead. In general, you have many more tools at your disposal to evaluate stock investments than to predict the swings of the Bitcoin market.

Either way, the sad truth is many people make the mistake of putting their money in cryptocurrency right when it’s breaking records, the effect of less informed investors giving in to the fear of missing out. That’s a great way to lose money if you get scared and cut your losses when the price falls.

The bottom line is investing is always a coin toss. But if there’s anything that this week’s Bitcoin “record” proves, it’s that crypto is just as much of a gamble as it always has been.

The crypto community took a victory lap Tuesday with the news that the price of Bitcoin hit an all-time high of $69,210. Those celebrations cooled when the value dropped a full 8% just a few hours later, but it marked a stunning recovery from the crypto crash of 2022. For the fans, Bitcoin’s rally was evidence that cryptocurrency is a good investment after all. There’s just one problem: adjusted for inflation, Bitcoin is actually worth less than it was three years ago.

Let’s do the math. The last time Bitcoin broke records was on Nov. 10, 2021, when the price of one Bitcoin hit $68,982.20. But perhaps you’ve heard about skyrocketing inflation over the past few years. When you adjust for inflation using data from the Bureau of Labor Statistics, that’s about $76,544.11 in today’s dollars. In other words, when Bitcoin hit its most recent peak, it was worth $7,334 less than it was in 2021 if you consider the actual buying power of the US dollar. That’s a difference of about 9.6%.

One of the arguments for Bitcoin is it works as a hedge against inflation. The idea is that over the long term, your money will be worth more if you put it in Bitcoin than if you left it in a bank or put it in more traditional investments. To be sure, Bitcoin’s gains are spectacular when you look at the price of the cryptocurrency over its entire 15-year history. However, many experts say the dramatic rises and falls make Bitcoin too volatile to serve as any kind of meaningfully safe investment. In fact, you would have done better over the past few years if you put your money in a traditional, boring portfolio.

For example, we can compare Bitcoin’s price to a fund that just tracks the performance of the overall stock market, like the SPDR S&P 500 ETF. When you adjust for inflation, that fund was worth a little over 1.5% less on Tuesday than it was three years ago. That means if you bought $10,000 of Bitcoin at its peak, your money would be worth about $9,050 today. If you bought $10,000 of the SPDR S&P 500 ETF at the same time, it would be worth $9,850. Inflation hits old-school investments the same way it hits Bitcoin, but this time around, you would have been better off investing in the regular old stock market. Parking your money in Bitcoin would have meant you effectively lost $800.

Of course, it’s a mistake to buy into an investment when it’s hitting all-time highs. The maxim is buy low, sell high. You could have done that with Bitcoin if you could predict the future, and you would have cleaned up. This year alone, the value of Bitcoin jumped 45% but there’s no guarantee that trend will continue. This year, the courts approved cryptocurrency ETFs, which basically allow investors to mix in Bitcoin and other digital currencies with more traditional assets. But if that decision had gone the other way, Bitcoin’s value would have almost certainly tanked instead. In general, you have many more tools at your disposal to evaluate stock investments than to predict the swings of the Bitcoin market.

Either way, the sad truth is many people make the mistake of putting their money in cryptocurrency right when it’s breaking records, the effect of less informed investors giving in to the fear of missing out. That’s a great way to lose money if you get scared and cut your losses when the price falls.

The bottom line is investing is always a coin toss. But if there’s anything that this week’s Bitcoin “record” proves, it’s that crypto is just as much of a gamble as it always has been.