Does Bitcoin (CCC:BTC-USD), the coin that sparked the cryptocurrency revolution, have a path back to its high-water mark? Or will it remain spinning in circles, bouncing between $30,000 and $40,000?
Right now, it’s looking like the latter. Why? Two reasons. First, the calls for increased crypto regulation have put pressure on the digital asset class. Talk of a crackdown in China may have been the cause of the May meltdown. But, U.S. governmental scrutiny is just heating up. Politicians like Senator Elizabeth Warren and senior officials like IRS Commissioner Charles Rettig have recently called for more regulation.
Second, there is a shift in focus away from BTC, and towards altcoins, which are now taking center stage. Retail investors have made the pivot. The so-called “smart money” is starting to make the shift as well. With both factors at play, it’s going to be hard for Bitcoin to make a comeback in the near-term.
So, what does that mean for investors looking to go long today? The coin’s inherent scarcity helps support the case that it’ll increase in value over time. Yet, future gains may come in at a slower pace than seen in the past. Considering the risk inherent to all crypto, and the potential for only subpar returns, it may be best to hold off buying Bitcoin for now.
Bitcoin and Regulatory Risk
So far, news of El Salvador making BTC legal tender has outweighed regulatory chatter. But, the conversation of increased scrutiny isn’t going away. And, the talk of regulation isn’t only about regulating it like stocks, or requiring the reporting of big transactions to tax authorities. Central banks around the world may start laying down more stringent requirements as well.
If this talk turns to action, what does that mean for the price of Bitcoin, Ethereum (CCC:ETH-USD), and the rest of the altcoins? The initial news of increased regulation could cause similar volatility as we saw last month. Yet, it may not cause long-lasting harm for this digital asset class.
At least, according Brian Feinstein and Kevin Werbach, professors of legal studies and business ethics at the University of Pennsylvania’s Wharton School of Business, discussed in a podcast released back in April. The duo sees the possible U.S. approach to regulation, focused around investor protection, as something that could bolster trust in the nascent asset class.
Regulations may not be bad in the long-run. But, it’s probably not something that’s going to boost prices. Add in the increasing disinterest in BTC, relative to other coins, and it’s hard to see there being a path to a rebound in the near-term.
Bitcoin: The Shift to Altcoins Could Dampen Future Returns
Younger investors may now dismiss Bitcoin as “boomer coin.” But, is their flippant attitude a sign of further declines to come? It may not mean lower prices lie ahead. But, it could mean it’s going to produce sub-par returns going forward.
Why? It’s clear that rival platforms, and their native coins, stand to gain further ground from what remains (for now) the most valuable cryptocurrency by market capitalization. Ethereum’s blockchain, as well as up-and-coming blockchains like Cardano (CCC:ADA-USD) are much more suitable for DeFi (decentralized finance) transactions. This advantage comes from things like smart contract capabilities, as well as from faster transaction times.
Also, some analysts, including those at Goldman Sachs, are starting to think ETH will supplant it as a store of value. Recent institutional inflow/outflow data suggests that the “smart money” is following retail’s lead, and is no longer placing all of their crypto eggs in the Bitcoin basket.
So, will BTC sink because of this? Probably not. Instead, it may remain stuck in neutral. Yet isn’t exactly a signal it’s time to buy. If all crypto is at risk of future volatility due to possible future regulations, why buy one that has less potential to gain?
Bottom Line: Future Performance May Fall Short of Expectations
Altcoins give Bitcoin a run for its money. Institutional investors are starting to spread their crypto bets more widely. With both factors in play, it’s hard to tell where BTC prices are heading next. The risk of increased regulations around the corner muddies the waters as well.
Its fixed supply could still make it a solid alternative to the U.S. dollar, if recent inflation winds up not being “transitory.” This may mean it’ll still rise in value over time. Yet, other coins, not to mention other asset classes (like stocks), may provide you with superior returns going forward. In short, there’s little reason to dive into Bitcoin at today’s prices.
On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.