You’ve been contemplating buying some Bitcoin (CCC:BTC-USD) because that’s all your friends are talking about. Cryptocurrency this, Bitcoin that. There’s no question FOMO (fear of missing out) exists.
CNBC investment pundit Jim Cramer just sold half his Bitcoin holdings to pay off a mortgage. He said it was like “phony money paying for real money.”
Who wouldn’t want to pay off their mortgage with profits from a successful Bitcoin trade? I know I sure would.
On April 14, Bitcoin hit an all-time high of $64,863.10. Within four days, it had fallen by almost 19% from those highs. As I write this, we are about to enter a new week in the markets. Volatility seems ready to hit record levels as everyone goes cuckoo for Bitcoin. It’s trading down around $56,000 this morning.
If you’ve never owned Bitcoin and are thinking of buying it, you might want to wait. Here’s why.
Bitcoin Drives Coinbase Hysteria
There’s no question the initial public offering of Coinbase (NASDAQ:COIN) put a massive $86-billion valuation on the cryptocurrency exchange.
I was even more wildly optimistic, suggesting its pre-IPO valuation of $68 billion would double on its first day of trading — I counted 299.3 million shares outstanding if you include 113.3 million shares to be issued in the future — it actually closed at $342 for a first-day valuation (based on 299.3M outstanding) of $102.4 billion.
Benzinga contributor Adrian Zmudzinski reported on New Constructs research analyst David Trainer’s thoughts on the Coinbase IPO several days before its direct listing.
“According to New Construct’s analysis, to be worth $100 billion Coinbase’s revenue would need to reach 1.5x the combined 2020 revenues of two of the most established exchanges in the marketplace, Nasdaq Inc. (NASDAQ:NDAQ) and Intercontinental Exchange Inc (NYSE: ICE), the parent company of the New York Stock Exchange,” he wrote.
Zmudzinski suggested Trainer believed the actual value should be slightly less than $19 billion, a far cry from $100 billion. Morningstar has it with a current market capitalization of $66.4 billion. The actual number varies depending on the media outlet.
According to page 202 of Coinbase’s prospectus, 196.8 million shares were outstanding as of March 15. That’s $67.3 billion. So, who knows.
The point is that Bitcoin has a lot to do with the Coinbase hysteria. If you look at the market caps of the Coindesk 20, Bitcoin’s $1.06 trillion is worth 62% more than the other 19 combined.
As Bitcoin goes, so goes Coinbase.
Why Not Buy Bitcoin Right Now?
Since Bitcoin’s creation in 2009, it’s had some major drawdowns. A big one was at the end of 2017, when the cryptocurrency came within dollars of $20,000, before falling as low as $3,200 a year later.
Fast forward to 2021. The price of Bitcoin has already had four reversals in the first four months of the year.
First, it got as high as $41,420.19 in mid-January before falling back 30% to below $30,000. The second saw it hit $58,330.57 on Feb. 21 before falling back 26% by the end of the month. In mid-March, it blew through $60,000 for the first time before losing 18% of its value by the end of the month.
Finally, the latest correction seems to have found a bottom after losing more than 18% of its value.
Would I be surprised to see a few more corrections before the end of 2021? I would not.
InvestorPlace’s Chris MacDonald recently reported that “74% of professional money managers see crypto assets as being in a bubble right now.” InvestorPlace Assistant News Writer Brenden Rearick filled us in on five experts calling for the crypto bubble to burst.
Rearick mentions that crypto hedge fund CEO Ulrik Lykke believes the coming correction could be bigger than the 2017 correction that saw Bitcoin lose more than 30% of its value.
At current prices, that’s more than $17,000 down the drain.
I think the current volatility suggests you’ll be able to buy Bitcoin for a lot less than $57,000 at some point in 2021.
Jim Cramer was brilliant to use some of his profits to pay off a mortgage. Anyone who bought at $12,000, as Cramer did, ought to do the same. There’s no crime in taking a profit.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
