As Bitcoin continues its turbulent journey post the November elections, investors are left wondering: should they buckle up for the ride or step off the rollercoaster? Notably, Bitcoin surged past the $100,000 mark, sparking optimism that it could reach seven figures with the pro-cryptocurrency policies promised by then-President Donald Trump. However, after Trump's inauguration, Bitcoin tumbled sharply, dropping over 20% in just one day.

Advocates of Bitcoin often chant the mantra, "buy the dip and watch it soar." But before diving in, it's essential to evaluate the justification for holding cryptocurrencies in the first place.

The optimism surrounding Bitcoin's post-election gains is fueled by substantial donations to Trump’s campaign from crypto firms, leading them to anticipate a reduction in regulation and the potential for pro-crypto legislation. Trump even hinted at establishing a federal crypto stockpile! But will these promises materialize? The answer remains uncertain. Increased government involvement in decentralized currency could have mixed implications—it's certainly a topic of debate.

The global interest in cryptocurrencies isn't limited to the United States. Financial hubs like New York, Amsterdam, Hong Kong, London, and Tokyo are fiercely competing to emerge as the capital of the cryptocurrency industry.

What's the case for possessing Bitcoin? Many investors view it as a way to diversify their portfolios, effectively insulating themselves from currency risks. The introduction of new Exchange-Traded Funds (ETFs) has simplified the investment process, drawing in more participants. Others perceive Bitcoin as an inflation hedge. With its supply capped at 21 million coins, it isn't subject to the same devaluation that traditional currencies face. Furthermore, many Bitcoins are believed to be lost forever, further constraining supply.

The allure of astronomical gains has not gone unnoticed. Since its inception, Bitcoin has showcased remarkable annualized returns of 160%, with a staggering 121.6% increase in 2024 alone. Despite its explosive growth, investors must also contend with its notorious volatility. Bitcoin's returns have fluctuated dramatically, swinging between impressive highs and dismal lows, with a record 74% downturn recorded in various 12-month periods over the past decade.

In 2013, Bitcoin first crossed the $100 threshold, only to reach $230 shortly afterward, before plummeting to $66 just a few months later. It then peaked again at over $1,000 before facing an unprecedented decline of 84% that lasted nearly two years. The same pattern repeated in 2018, with the recent post-election surge following significant losses in 2022 and 2023. Such drastic declines echo the catastrophic stock market crash during the Great Depression in the late 1920s and early 1930s.

Critically examining these dramatic swings reveals that they are often driven by investor sentiment rather than the underlying fundamentals. Unlike traditional assets, cryptocurrencies typically don’t generate earnings or possess industrial applications. Volatility is the name of the game for most coins, with even stablecoins sometimes deviating from their pegs.

Moreover, cryptocurrencies are often associated with illicit activities and money laundering–as witnessed during the November 2023 fraud conviction of major player Sam Bankman-Fried and the recent $1 billion hack of Bybit attributed to North Korean operatives.

Claims that Bitcoin serves as an effective hedge against inflation were severely tested during 2022 when the Consumer Price Index in the U.S. reached 9.1%, a time when Bitcoin effectively lost 64.2% of its value.

While Bitcoin’s supply may be constrained, the broader crypto landscape is anything but limited. Currently, there are over 10,761 different cryptocurrencies in existence, each vying for relevance and survival. This includes contenders like Ethereum, XRP, Solana, and even the infamous Dogecoin. The distinct characteristics of these “jokecoins” often blur the line of differentiation from Bitcoin, humorously suggesting that only hot air separates their value propositions.

What drives the wild fluctuations in cryptocurrency prices? The answer lies primarily in public sentiment. Timing these mood changes is virtually impossible. Thus, the crucial questions for potential investors are: can you endure long-term downturns of significant percentages? Are you prepared to navigate through price volatility that might reach dizzying lows?

Emotions play a substantial role in the trading of volatile assets. This leads to a common pattern where investors buy after significant increases—driven by fear of missing out (FOMO)—and sell when prices plunge, fearing further losses (FOHO). This detrimental cycle has been witnessed not only with Bitcoin but with numerous other commodities and stocks, and it highlights the pressing question: Can you handle the emotional turmoil that comes with the thrilling yet perilous world of cryptocurrencies?

As cryptocurrencies continue to shape the landscape of modern finance, would-be investors are encouraged to proceed with caution, understanding both the tantalizing prospects and the lurking dangers that lie beneath the surface.