In a May 3, 2024, Barchart article on Bitcoin, I concluded:
Always remember that your risk position is long or short at the current market price, not at the original execution price. Bitcoin, Ethereum, and cryptos are exciting assets, but their volatility means that discipline is critical for success. Only invest what you are willing to lose because the potential for substantial profits comes with the risk of commensurate losses.
New highs in Bitcoin are possible, but so are the odds of another implosive correction.
On May 3, Bitcoin was trading at $61,689.03 per token. On July 31, the leading cryptocurrency was trading over the $66,000 level as it consolidates below the mid-March high with a bullish bias.
Bitcoin remains the leading crypto with over half the asset class’s market cap
Bitcoin reached its most recent record high in mid-March at the end of Q1 2024. The leading cryptocurrency moved 13.23% lower in Q2 but was still 43.10% higher at the end of the first six months of 2024. Bitcoin settled Q2 at $60,188.13 and has moved higher over the first month of Q3.
The chart shows the rise to over $66,000 per token in late July. On July 31, Bitcoin’s market cap was over $1.31 trillion, 54.9% of the asset class’s total value.
The boom-and-bust history suggests the next move is a coin toss
On July 23, spot Ethereum ETF products began trading after the SEC’s approval. Since Bitcoin burst on the financial scene in 2010, the leading cryptocurrency has experienced boom-and-bust price action.
The long-term chart highlights the rise from 5.0 cents in 2010 to $1,135.45 in 2013. Bitcoin then declined to below $200 in early 2015 before exploding to $19,862 in late 2017. The incredible volatility continued with implosive declines and explosive rallies, leading Bitcoin to its latest record $73,662.76 peak in March 2024. After a correction to $53,963.27 in July 2024, the price was back around the $66,000 level on August 1.
Bitcoin’s volatility is in a class of its own, as the price action has been a roller coaster over the past fourteen years. At $66,400 per token, its next move is anyone’s guess.
The case for new highs
Bitcoin, the king of the cryptos, has gone from an obscure alternative asset to an alternative currency and store of value. Futures, ETFs, high-profile support have increased its addressable market and liquidity. The case for higher highs includes:
While the market cap is over $1.3 trillion, Bitcoin remains a smaller asset than the leading stocks.
The top six companies by market cap are larger than Bitcoin, a currency and an asset.
- An increasing number of politicians have realized that Bitcoin is an alternative currency, supporting the demand for the crypto.
- The bifurcation of the world’s nuclear powers and the potential for a BRICS currency that challenges the U.S. dollar’s reserve currency status increase the demand for alternative means of exchange. Bitcoin is a global currency, transcending international borders and creating an apolitical means of exchange.
- In any market, the trend is always your best friend. Bitcoin’s fourteen-year path of least resistance remains higher.
- As the addressable market grows, the demand for limited Bitcoin supplies suggests higher prices.
- Bitcoin’s boom-and-bust price history attracts lots of speculative interest, increasing liquidity.
As a liquid alternative investment vehicle, institutional investors have embraced Bitcoin with capital allocations. Central banks, monetary authorities, and governments recognize the leading crypto and its highly liquid cousins as they have become a significant factor in the worldwide financial system.
The case for another bust
While Bitcoin’s profile has increased, more than a handful of influential voices continue to reject its intrinsic value and future. One of the world’s most respected value investors, Warren Buffett, called Bitcoin and cryptocurrencies “financial rat poison squared.” In 2018, he said he wouldn’t pay $25 for all the Bitcoin in the world. There is no indication he has changed his mind. The case against Bitcoin and crypto is:
- Since they are anonymous, their use for nefarious purposes such as human trafficking, drug and arms dealing, and other criminal ventures has caused significant pushback from governments.
- Governments’ control of the money supply and control of the purse strings is critical for maintaining power. As the crypto market cap rises, it dilutes government power. Therefore, political and legislative regulatory pressures will likely increase with the asset class’s market cap.
- Each bust period causes significant speculative losses, which could deter many market participants who cannot stomach the volatility.
- Computer hacks, lost computer wallets, exchange issues, such as those witnessed with Mount Gox and FTX, and other technical problems are warning signs that crypto holdings can disappear into thin air.
- The technology could lead to government digital currencies that compete with the cryptos and increase the odds of bans or stringent regulations that drain value.
Volatility creates a paradise of opportunities but is a nightmare for passive investors. The threat of government intervention and even bans is a significant roadblock for Bitcoin and the cryptocurrency asset class.
The odds favor new highs, but a rally could lead to another substantial decline
While Bitcoin has a $1.3 trillion value, and all cryptos are worth around $2.4 trillion at current prices, the asset class remains small compared to stocks, bonds, commodities, and fiat currencies. The current size is a mixed blessing, as, on one hand, there is considerable room for growth. On the other hand, the higher the market cap rises, the greater the odds of governmental and legislative actions to protect control of the money supply. Therefore, expect the boom-and-bust price action to continue. The current upside target is the $100,000 level and a $3-4 trillion market cap. The company with the leading market cap is currently Apple, worth around $3.5 trillion. If Bitcoin or the asset class exceeds this level, expect government forces to slow the ascent with a coordinated effort to create another bust period.
Only invest capital in Bitcoin and cryptos that you are willing to lose. Always remember that the potential for oversized rewards comes with commensurate risks.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
