Bitcoin and Cryptocurrency: Risk Behind the Rally
Back in 2015, I was at a 4th of July party, and a friend of a friend was discussing that he had purchased a quarter of a bitcoin for his two-year-old nephew’s birthday. His comment was, “who knows, maybe that could be his college tuition.” Fast forward to today, when that child is 12, and that quarter of a bitcoin is worth approximately $21,900* as of December 2nd, 2025, at 9 am. That child is still 6 years out from starting school, and there is no way to predict what the value of Bitcoin could be then, assuming the unlikely case that the owner was able to weather the extreme volatility of cryptocurrency over the past decade.
*Value is subject to significant change.
What is Crypto?
Cryptocurrency is a form of digital asset that exists outside the control of governments and central authorities. There is far more nuance than that, but generally, it is imperative to understand that cryptocurrencies have no intrinsic value because their price is based on the underlying technology, and supply and demand, rather than being a legal tender authorized by a government or being a commodity-based currencies (such as those tied to gold or silver).
Bitcoin was the first cryptocurrency, created by a group of programmers known as Satoshi Nakamoto in 2009. While cryptocurrency has been around for more than 15 years, it is very new compared to the other traditional currency and investments. As such, analysts, managers, and investors are still working to understand how it functions in the market and portfolios.
Cryptocurrency exists outside of the classic investments and as such, its future trajectory remains extremely unpredictable.
Fast Forward to Today
On December 1st, 2025, Bitcoin had its largest daily decrease since March 3rd, falling 6.4% in a single day. Coupled with decline earlier this fall, Bitcoin has fallen over 25% from October 6th to December 1st, completely erasing its year-to-date gains. This marks the most recent downturn for the notoriously volatile asset, which has posted an average annual (peak-to-trough) drawdown of 41% over the current decade (See chart below).
With that in mind, Bitcoin is still up over 1200% since the beginning of 2020, so investors capable of tolerating the highest highs and the lowest lows have benefited.
Why The Rollercoaster?
This heightened volatility is likely due to investors buying and selling at less-than-ideal times, in addition to the pitfalls of an asset that exists outside of established markets.
At Meridian, we invest in assets that we can reasonably value; that offer transparency and defined liquidity; and finally, that we can be confident are subject to a reasonable amount of regulatory oversight and legal protection to minimize the risk of price manipulation. We have a very difficult time applying any of these criteria to Bitcoin and cryptocurrencies because the factors driving their value do not align with more traditional investments.
Mike Dickson, Ph.D. at Horizon summarized the major influences on the behavior of Bitcoin and other crypto currencies as:
- “Crypto is its own asset class: Much like gold, Bitcoin and other cryptocurrencies don’t generate earnings or cash flows (as stocks do), so their price movements are driven by factors such as investor sentiment, speculation, and interest from large financial institutions. This year’s run-up, for example, was largely fueled by sentiment driven by the crypto-friendly Trump administration policies.
- Crypto is risky by historical measures: Using traditional risk measures such as volatility, crypto risk is extreme. Example: Since 2020, Bitcoin volatility has averaged nearly 3x that of the S&P 500 and nearly 4x that of gold. As seen in the chart, big drawdowns are the norm rather than the exception. Note, too, that this year’s peak-to-trough decline of -28% is actually smaller than the drawdowns during several recent years.
- Crypto’s correlation to stocks is inconsistent: In the past, Bitcoin has been uncorrelated with stocks during some periods of equity market weakness. However, it currently shows a significantly positive correlation with stocks—often selling off aggressively when stock prices fall—and therefore provides less portfolio diversification than it did previously.”
TL;DR: Cryptocurrency does not pay your to own it, its price is highly influenced outside factors, it is riskier than the S&P and gold, and does not provide the diversification that it has historically.
Special Note: Be Wary of Fraud
Bitcoin and other cryptocurrencies carry significant risks of fraud due to their largely unregulated nature, high volatility, and the irreversibility of transactions. Scammers use a variety of tactics to exploit these characteristics, including phishing and impersonation, fake offerings, scams offering high returns, hacking, and more.
Where Are We Now?
Sarah Yakel closed a 2021 blog about cryptocurrency with the following, “While we certainly do not discount Bitcoin and other cryptocurrencies as stores of value and mediums of exchange in the future, we would be interested in them as an asset class as they begin to behave more as an investable asset (with reduced volatility and ability to act as currency—both of which are not unattainable in the future).” Here we are, four years later and crypto has remained in the headlines and is still attracting the attention of investors, but is still not functioning as an investable asset.
Our advice remains the same – we encourage those interested in Bitcoin or crypto currency to continue to evaluate their risk tolerance, be aware of how precarious the value is, and if adding exposure to cryptocurrency to a portfolio, be prepared for a rollercoaster, and don’t invest anything you don’t mind losing half of every now and then.
One might say that I am a bit of an adrenaline junkie – I ride horses, have jumped out of airplanes, and if a hike isn’t listed as strenuous, I am probably not interested. But much like investors should, I evaluate those risks, and put safety measures in place to protect myself. At the very end of September, I summited one of the most dangerous hikes in the United State, Half Dome in Yosemite National Park. While it is a risky hike, I made sure I was fit enough to safely ascend, kept a close eye on the weather, and wore a climbing harness for the 45 degree rock face section. Taking on risk should be done with care, be it in investing or hobbies.
