There Are More Wild Swings Ahead for Bitcoin

Bitcoin (CCC:BTC-USD) is the most widely watched cryptocurrency. With a market capitalization of over $712 billion, BTC-USD is also the largest digital asset.

A render of bitcoin surrounding a smartphone.
Source: Wit Olszewski/Shutterstock,com

BTC-USD hit an all-time high of $64,863.10 in mid-April, pushing many other altcoins to record highs as well. But what a difference a couple of days can make. Investors enjoyed the rally until Tesla (NASDAQ:TSLA) CEO Elon Musk used Twitter’s (NYSE:TWTR) platform on May 12. He told his followers Tesla “suspended vehicle purchases using bitcoin” due to concerns over climate crisis and the “rapidly increasing use of fossil fuels for bitcoin mining.”

His words were enough for many crypto traders to hit the sell button. On May 18, China also announced the country would ban financial institutions and payment companies from providing services related to cryptocurrency transactions. Following the negative sentiment, Bitcoin went as low as $30,321.04 in the past several days. As I write, it is just shy of $38,800. Yet, despite the steep decline, so far in 2021 BTC-USD is still up about 32%.

The cryptocurrency market is young and still evolving. In other words, it is far from efficient. Assessing the true value of Bitcoin is not easy. Therefore, potential investors in BTC-USD should be ready to embrace short-term volatility. But buy-and-hold investors with two- to three-year horizons could consider investing in cryptos like Bitcoin. Here’s why.

Are You New to Cryptos?

Back in 2009, Bitcoin was regarded more as a concept. Within a decade, it has become an asset class followed by millions worldwide. It is now the poster child of cryptocurrencies. If you are just becoming interested in BTC-USD, you may want to know that Bitcoin can be thought of as digital cash. Each Bitcoin is a computer file stored in a digital computer wallet.

For instance, such peer-to-peer (P2P) digital wallets allow you to send money to others. Digital currencies like Bitcoin are regarded as very safe because every transaction is recorded on blockchain, or a decentralized public ledger. Put another way, no centralized third-party, like the banking system or a central government, gets involved in the transaction.

The total number of Bitcoins that can be mined is capped at 21 million. There are currently about 18.72 million Bitcoins in circulation, leaving 2.28 million yet to be mined. Therefore, the attention has moved from mining to speculating in Bitcoin. Meanwhile, many other altcoins have entered the scene.

For instance, Ethereum (CCC:ETH-USD), and its Ether crypto, is up over 283% in 2021. It launched in 2015 as a programmable blockchain. In early 2016, ETH-USD was around $2.50. Then the price hit almost $1,100 in January 2018. In March 2020, it plummeted to about $100. Now its around $2,800.

Meanwhile, meme coins, which started as a joke, are now valued at billions of dollars. The prime example is Dogecoin (CCC:DOGE-USD). It is up nearly 6,000% in 2021, and its market cap stands at $45 billion.

Those who watch the cryptocurrency market might also notice that as Bitcoin investors take profits, they tend to move some of their cash to other altcoins. But we should warn readers that their prices are also extremely choppy, with daily price swings of 10% to 20% regarded as “normal.”

Short-Term Bitcoin Bears Are Increasing

Bitcoin has made many early investors extremely wealthy. Yet the bull/bear debate on BTC-USD continues every day. Some banks and fintech firms have already integrated blockchain technology into their operations. They include firms like MonzoRevolut, PayPal (NASDAQ:PYPL), Square (NYSE:SQ) and Palantir (NYSE:PLTR).

But every several weeks, gravity puts pressure on most cryptos, especially those as volatile as BTC-USD. Given the price increase, especially over the past year, many believe Bitcoin is in a bubble, being artificially pumped higher by retail investors.

Furthermore, in addition to environmental concerns highlighted by Musk and others, there are several other hurdles for Bitcoin to get through. Governments are worried about the growth in cryptocurrencies, mostly because they cannot “control” the decentralized nature of it. Many feel that this increases money laundering, making it impossible to track down the source of funds. Seasoned investors, such as Warren Buffett, have also been quite skeptical of Bitcoin’s viability.

JP Morgan Chase (NYSE:JPM) has recently altered its positive outlook on BTC-USD. The banking giant said, “The bitcoin flow picture continues to deteriorate and is pointing to continued retrenchment by institutional investors. Over the past month, bitcoin futures markets experienced their steepest and more sustained liquidation since the bitcoin ascent started last October.”

The Bottom Line on BTC-USD

Bitcoin will continue to be a hot topic for the rest of the year. Putting capital into the highly volatile cryptocurrency market may not appeal to everyone. But for investors, it’ll be important to keep abreast of the developments in digital assets as well.

There could be more individuals who take paper profits in Bitcoin soon. In June, I expect BTC-USD to trade in a range, mostly between $30,000 and $40,000. A decline toward $30,000 or even below could give potential investors a better entry point. However, longer term, I remain bullish on the growth of cryptocurrencies and the underlying blockchain technology.

Those market participants who do not want to experience the daily choppiness in BTC-USD could consider investing in exchange-traded funds (ETFs), which hold shares of companies leading the financial technology (fintech) revolution.

Examples of such ETFs include the Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK), the ARK Next Generation Internet ETF (NYSEARCA:ARKW), the First Trust Indxx Innovative Transaction & Process ETF (NASDAQ:LEGR), the Innovation Shares NextGen Protocol ETF (NYSEARCA:KOIN) or the Siren Nasdaq NexGen Economy ETF (NASDAQ:BLCN).

On the date of publication, Tezcan Gecgil is both long and short PLTR. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. 

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