Should investors sell everything — and, no, not just stocks and bonds — but everything and buy bitcoin? The obvious answer is a resounding “no,” but it makes you wonder what the potential is for cryptocurrencies and bitcoin prices.
For the record, selling everything and buying bitcoin is precisely what one family did. Didi Taihuttu, his wife and three children are all in it together. They’ve stuck with the so-called “strategy” for a few months and, so far, don’t regret it. They sold their cars, motorcycle and, yes, even their house and put it all in bitcoin. Some family members have called the Taihuttus crazy — and I agree with them!
Essentially, Mr. Taihuttu believes we’re still in the early stages of a currency revolution. “Money has to evolve, and it’s evolving now to cryptocurrency,” he says.
While I wouldn’t recommend following directly in his footsteps, is Taihuttu right about currency evolution?
Bitcoin Prices and Volatility
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Bitcoin is roughly six times as volatile as the S&P 500 — you can use the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) for a close measure. That’s assuming the index’s average volatility, not the historically low volatility we’ve seen so far this year. Heck, the markets haven’t had a 5% correction in more than a year, or even a 3% correction in almost 8 months.
For a refresh on bitcoin prices, remember that they began the year at about $1,000. Now, though, the cryptocurrency is trading above $5,300. No big deal, just a casual 475% gain so far this year. Too bad Taihuttu didn’t sell everything last year!
While those gains are astronomical — and that’s not considering the near-47,000% return it’s had over the last five years — it masks the volatility bitcoin has been marred by as well. It fell more than 20% in two weeks in January and more than 25% in two weeks in March. On Sept. 1, bitcoin prices were near $4,950. Sept. 14? Bitcoin prices were at $3,250, a fall of 34%.
The bitcoin price chart has been bonkers, but to its credit and the credit of the bulls, it’s been sharply higher all year. Also to bitcoin’s credit, it’s not the most volatile name around. For example, the ethereum price chart completely lost its bottom, as the cryptocurrency plunged from $300 to a dime in a flash crash earlier this year.
Will It Change the World?
If I knew that I wouldn’t be here. Because it can only be mined in limited quantities, there’s actual supply/demand metrics and a sort of “scarcity” with bitcoin. In that sense, it’s like gold. However, unlike gold, it doesn’t have thousands of years of historical significance — nor is it tangible.
I don’t know that bitcoin will change the world, but I also don’t think it’s the fraud JPMorgan Chase & Co (NYSE:JPM) CEO Jamie Dimon has called it. Fundstrat’s Tom Lee — who has been a total stud on the stock market over the last few years — said bitcoin prices could race to $20,000 by 2020.
Now that’s a bold call.
Right now, it just seems to be a situation of “who’s willing to pay more?” I don’t like being in those situations. But maybe I will prove to be the broke loser without any bitcoin in my virtual pockets. The way Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) are pushing the world from cash and check to debit and credit, maybe 20, 30 or 50 years from now, bitcoin will be the currency of choice. Maybe it will replace the U.S. dollar as the staple of commerce. I know someone like my dad would never embrace bitcoin, nor would plenty of others. But younger generations will be more open, I’m sure.
The Bottom Line on Bitcoin
If you find yourself heading to Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Googling “how to buy bitcoin,” you should probably do some more research before finding a broker. Chinese regulations have smacked the cryptocurrency around quite a bit. Further regulations could cause similar short-term pains, especially as the U.S. and other countries start to embrace bitcoin.
The good news, though? It’s becoming regulated. Regulated markets are safer for their participants and while it can be painful in the short term, it may be the ticket to long-term gains.
So, I can’t say that in 25 years we’ll be ordering McDonald’s Corporation (NYSE:MCD) via Apple Inc. (NASDAQ:AAPL) iPhones and only paying with Bitcoin. But I don’t think it’s going away any time soon, either.
I’m not sure how long Taihuttu plans to live the bitcoin-only lifestyle, but I wish him luck. So far, he’s up on his move.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a long position in V and MA.
