Loud, volatile, impossible to ignore, surrounded by mythology and making enough headlines to make all its competitors jealous, Bitcoin (CCC:BTC-USD) is without question the Donald Trump of cryptocurrencies.
That’s not a political statement, nor could it be. Bitcoin, like all cryptos, has no central government backing it. No tangible asset supports it. No product, service or even tulip bulb roots it in the non-digital world.
In that sense, Bitcoin has more in common with a religion than a conventional investment. It succeeds because investors believe in it. Get enough people to believe in something and it takes on a truth of its own. Now there’s something that politicians and the teenage programmer-aspiring novelist who invented QAnon know all about.
And of late, the Gospel According to Bitcoin just propelled the currency past the $50,000 mark. This makes me … profoundly sad and feeling stupid.
Even while I slammed Bitcoin in my days covering it at U.S. News & World Report, I flirted with buying one or two. But on the appointed day, I needed to post some pictures of my guitar and stuff on social media and got distracted. Besides, two Bitcoins would’ve set me back almost $1500. Gasp! Which is not as much as $104,000. But still…
Dealing With the Bitcoin Willies
BTC baffles me. It is a currency without a home. Its value is explained via mysterious concepts of digital mining that sound like they were lifted from Star Wars fan fiction. The dude who invented Bitcoin may be a dudette, or a bunch of dudes, or maybe a janitor at the Quacker Duckpins bowling alley in Normal, Illinois. The thing is, no one knows for sure.
Meanwhile, Bitcoin remains so volatile that if you throw down a huge chunk of physical coin to buy it, checking its price on a daily basis is sure to make you lose your lunch, breakfast, dinner and hors d’oeuvres. It bends with the wind. Or a sneeze. It plummets like a cannonball shot from a rocket. Then it rebounds like a rocket chasing a cannonball. It has wiped out some and made others wealthy. The question is, are we seeing more of the latter than the former?
This much I know: I am finally smart enough to admit that Bitcoin, even over and above other cryptos, deserves an investment category all its own. This is based on critical mass.
The more people use it — “believe in it,” if you will — the more tangible worth BTC actually attains. Otherwise, owning Bitcoin would be like finding $1,000 in the middle of the Sahara Desert: utterly useless until it can be attached to something else as a means of value exchange. Which brings us to our present reality.
Decoding a Cryptic Crypto
I praised Bitcoin as a crypto play when it was just above $32,000. If I had jumped in, I’d be 62% better off. Still my affection for it grows each time it defies investment gravity.
One facet of Bitcoin that makes it far more credible today than even a few years ago lies in the fact that Wall Street now believes in it, too. JPMorgan recently forecast that Bitcoin’s price could rise above $146,000 in long term.
And yet, Guggenheim Partners Chief Investment Officer Scott Minerd told CNBC that BTC could retreat as low as $20,000. Who’s right? Think of it like this. Both could be. And within months of each other, too.
So where do you get in? Or not get in? Since I’m on the side of getting in, let’s establish a few foundational principles that I think will serve us well.
1) Given a time horizon of at least one-two years, getting in now is a good idea, though waiting a few months won’t disqualify you. Market-timing is a bad idea in general, Bitcoin timing is even worse. Just get in.
2) The critical mass of Bitcoin is no longer debatable. We will only see more adoption in the years ahead, not less.
3) When PayPal (NASDAQ:PYPL) buys up the crypto in bulk, I read it as preparation to accommodate it on their online payments system. PayPal will be an early adopter in this sense and propel a new wave of Bitcoin utility.
4) As long as we have a pandemic on our hands, investors worldwide will treat Bitcoin as a place to store wealth. That also baffles me — the volatile becomes the secure! — but nonetheless we see it happening.
Take a Bite Out of Bitcoin
Finally, I would not in any way limit how high it can fly or how low it can go — though given enough time, Bitcoin will transcend any valley it lands in this year. Oddly, I have more faith in it at this point than my own skills in reading its downsides.
Just weeks ago, I wrote that Bitcoin’s $40,000 peak just wasn’t sustainable short term “and it won’t be revisited in 2021.“ Shows what I know, eh? So what happens if I now urge you to rush out and grab some Bitcoin and it goes all Bear Stearns on you?
Short term, that is indeed possible. But a long-term blowout? Impossible. No one is about to wipe Bitcoin off the map and at this point, its mystery has evolved into certainty and ubiquity. Bitcoin isn’t going anywhere — though the folks who seize on it have a terrific chance of really getting somewhere.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.