Bitcoin's latest plunge revives the debate over owning it—and whether it's just 'crypto being crypto'

Bitcoin has lost nearly half its value since reaching a record high above $123,000 in July 2025. After years of bitcoin rewarding those who held through periods of volatility, the selloff is just the latest test of investors' mettle.

But bitcoin's recent decline doesn't appear to reflect a fundamental change in the investment, says Daniel Sotiroff, associate director of ETF and Passive Strategies Research at Morningstar.

"I think a lot of this is crypto being crypto," he says.

Bitcoin's selloff comes amid weakness across a range of assets, as investors reassess risk and where to put their money. The Nasdaq Composite and gold have both pulled back from recent highs, falling roughly 4% and 8%, respectively. As of Friday, bitcoin traded around $63,900.

The recent decline likely reflects several factors, Sotiroff says, including investors taking profits after bitcoin's run to record highs. Expectations that interest rates could remain higher for longer may also be making investors more cautious about riskier assets, including bitcoin, he says. Other investors may be shifting money into different high-upside opportunities, including artificial intelligence-related investments.

While previous bitcoin selloffs were often followed by large rebounds in price, the latest decline may prompt some investors to revisit why they own bitcoin in the first place, Sotiroff says. Here's what he and other experts have to say about the case for holding crypto, and how much exposure is appropriate for the average investor.

Bitcoin's role in investor portfolios

Bitcoin is frequently promoted as an investment that complements more traditional assets in a portfolio. Because it doesn't always move in tandem with stocks, bonds or real estate, the thinking goes, a bitcoin holding could boost returns when other assets decline, Sotiroff says.

"I've heard it referred to as a diversifier. That seems to be the strongest argument," Sotiroff says.

Supporters also argue bitcoin can hold its value during periods of economic uncertainty or protect investors from inflation.

Sotiroff is more skeptical of those claims. He says the cryptocurrency's volatility makes it difficult to view as a reliable store of value and notes that investors already have other tools available to hedge against inflation, including Treasury Inflation-Protected Securities, or TIPS.

The recent selloff is a reminder that bitcoin's gains can be accompanied by equally dramatic declines, he says. That uncertainty is one reason many financial planners recommend limiting exposure to a small portion of a broader portfolio.

"You just really can't make a call on what direction it's going to go," says Sotiroff.

An 'appropriate rule of thumb' for bitcoin exposure

For a high-risk asset like bitcoin, a 1% to 5% allocation of an investor's overall portfolio is an "appropriate rule of thumb to mitigate risk and yet get some upside exposure," says Andrew Herzog, a certified financial planner and enrolled agent with The Watchman Group.

Herzog's recommendation is broadly consistent with what other financial planners have suggested for bitcoin, though the appropriate amount depends on an investor's risk tolerance.

"We're talking about low single digit percentage points," Sotiroff says. "If you went beyond that, you start to see increases in volatility in your portfolio."

Even as bitcoin has become easier for mainstream investors to own — including through the launch of spot bitcoin ETFs in 2024 — its dramatic price swings have remained a defining feature of the asset, underscoring why many financial planners continue to recommend modest allocations.

For some investors, those risks are part of the bargain. They are willing to hold bitcoin through large selloffs because they believe the cryptocurrency's long-term upside outweighs the volatility.

"What a selloff actually does is reveal which investors had a plan and which were riding momentum," says Matt Chancey, a CFP at Tax Alpha Companies. "If you owned bitcoin because it was going up, the case is broken, but the case was never sound."

Not all financial professionals agree bitcoin belongs in a portfolio.

Bitcoin differs from stocks, bonds and real estate because it doesn't generate earnings, interest payments or rental income that investors can use to estimate its value, says Robert Johnson, a finance professor at Creighton University. Instead, its price is largely determined solely by investor demand.

"You cannot invest in Bitcoin, you can only speculate," he says.

Sotiroff agrees that bitcoin is difficult to value using traditional financial metrics.

"The best analogy I've heard is that it's more like a collectible, because it's basically worth what other people are going to pay for it," he says.

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