I’ll admit it: I don’t see the use case for Bitcoin (CCC:BTC-USD).
The former case — that Bitcoin would be a useful currency — has been replaced by the argument that Bitcoin is a “store of value.” That seems like a red flag so soon after its development, and only a few years after adoption began in earnest.
Plus, the environmental impact is real, even if adherents argue that impact will be minimized over time. And Bitcoin’s volatility is a problem, even if that volatility has (mostly) gone in one direction over the past few months.
All told, there is no shortage of reasons to be skeptical of Bitcoin. But at a certain point, those reasons cease to matter.
As skeptical as I am toward BTC, I’m starting to wonder whether we’re at that point.
An Ugly Setup
If Bitcoin was going to crash, now would be the time.
In the equity markets, we’ve seen ‘hot’ retail favorites in sectors like electric vehicles and of course, cryptocurrency mining, take big hits since February. Riot Blockchain (NASDAQ:RIOT) is off by nearly half, Marathon Digital (NASDAQ:MARA) is down 40%, and SOS Limited (NYSE:SOS) has plunged 72% (admittedly, its highs were rather bubbly).
Tesla (NASDAQ:TSLA), which made headlines and drove the BTC price higher when it put Bitcoin on its balance sheet, announced this week that it had sold nearly $300 million worth of the crypto in Q1. Plus Crypto investors — at least until Apr. 20 — were more focused on Dogecoin (CCC:DOGE-USD), potentially soaking up a bit of incremental demand for Bitcoin.
Amidst all that, Bitcoin itself saw a reasonably big crash, falling 25% in less than two weeks.
This seemed like a perfect storm for doubts to arise and holders — some of whom are sitting on big profits — to exit. But that’s not what happened.
BTC-USD has bounced about 15% just in the past few days. It’s still off nearly 16% from the highs, yes, but it’s easy to see that short-term trading could have been much, much, worse.
The Inevitability of Bitcoin
From a long-term perspective, that short-term trading may well matter.
After all, the “store of value” argument only requires that a decent amount of people believe in the value.
Gold is the perfect example. Gold bulls will talk up its thousands of years of history, and the yellow metal has industrial uses as well as a key role in jewelry.
But even the value of gold in jewelry is based at least in part on the accepted societal belief that gold is valuable. In the financial markets, the fact that gold not only is considered a source of value, but a “safe haven” as well, shows how powerful that belief is.
Bitcoin seems to be acquiring some of that belief. Adoption and ownership has spread from a relatively small group to institutional investors and corporations. Some of those corporations accept payments in Bitcoin (even if those efforts are more of a marketing strategy than anything else).
As that adoption grows, a point is reached where Bitcoin is valuable simply because enough people believe it is valuable. The trading of late suggests we’re at least closer to that point.
Of course, that case — that the value of the crypto comes from the perception that value — is precisely the argument that skeptics make. It sounds like the logic behind a bubble. It’s not far off from the “greater fool theory,” the idea that an investment should be owned because soon enough someone else will pay a higher price.
Bulls would retort that logic is precisely what underpins gold — and, in the modern world, fiat currency. Meanwhile, Bitcoin’s supply cap creates a deflationary effect, rather than the inflation that eats away at the purchasing power of the U.S. dollar over time.
The debate obviously isn’t over. It isn’t going to be over for a very, very long time.
But it does look like Bitcoin bulls have at least enough power to hold in the face of seeming adversity. At the least, that might be enough to suggest that predictions of a massive crash in the cryptocurrency are unlikely to pass.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.