Bitcoin (BTC 2.37%) started 2025 out hot, hitting record highs along the way and eventually reaching a peak of more than $126,000. But by the end of the year, it was down about 5%, underperforming the S&P 500, which was up by more than 16%.
The first few days of 2026 have thus far been encouraging ones for the top cryptocurrency, as it has been rising and has climbed above $90,000. But can Bitcoin bounce back to its previous highs and potentially hit new ones in 2026?
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Why Bitcoin could bounce back this year
Bitcoin is coming off a disappointing year in 2025. Last year was its first decline since 2022, when the markets crashed, and the cryptocurrency declined by 65%. This past year wasn't nearly as bad, but it was nonetheless a sign that investors may be growing concerned about Bitcoin's high valuation.
The good news is that all it can take is a single catalyst to give the cryptocurrency a boost. The announcement of a new Federal Reserve chairman later this year, one who's eager to cut rates, for example, could be what's needed to entice investors to take a more bullish view of Bitcoin in the near future.
It was, after all, a pro-Bitcoin stance by President Donald Trump and favorable government policies that helped the cryptocurrency reach record highs last year. The White House announced the establishment of a Bitcoin reserve last year, and if it accumulates Bitcoins, that could be just one way it helps give the cryptocurrency a boost again this year.
What could limit Bitcoin's rally in 2026
Even if there are favorable government policies in place for the crypto market in 2026, there are still concerns related to the economy and the overall stock market, which may weigh on retail investors and their appetite for risky investments, such as Bitcoin. The unemployment rate hit 4.6% in November -- the highest it's been since 2021.
Bitcoin's drop in value late last year seemed to suggest that the cryptocurrency is not the safe asset that investors may have hoped it would be. While gold continued to rally as the year went on, Bitcoin didn't, suggesting that investors may see it as more of a speculative investment than a sound store of value or a hedge against inflation.
This suggests that if economic conditions don't improve this year, there may not be a surge in Bitcoin's value, even if the government remains bullish on crypto as a whole.
CRYPTO: BTC
Key Data Points
Should you add Bitcoin to your portfolio?
In five years, Bitcoin's value has risen by about 175%. But with a staggering market cap of almost $1.9 trillion, which is far higher than the next largest cryptocurrency (Ethereum at $381 million), investors may be wondering if it has become too expensive. And as investors grow concerned about rising valuations, there could be room for even more of a pullback in Bitcoin's price this year.
Although there are some outlandish and overly bullish forecasts for Bitcoin eventually rising to more than $1 million, it can be dangerous to rely on such assumptions. At the end of the day, this is an entirely speculative investment with no competitive moat. Bitcoin is simply the most popular cryptocurrency in the world today, but that doesn't mean that it will always be the case.
There's a ton of risk with Bitcoin, especially given its high valuation, and I don't think it will end up bouncing back to its previous highs this year. Although it's generated some impressive gains over the years, many investors have also been burned due to its wild swings and volatility. The safer option may be to simply invest in growth stocks rather than take a chance on such a highly unpredictable investment as Bitcoin.
