Bitcoin (CCC:BTC-USD) and its cryptocurrency peers have been all over the map lately. Ever since mid-April, when Coinbase (NASDAQ:COIN) came public, Bitcoin has had trouble rallying.
In fact, Bitcoin hit its high near $65,000 that day and has struggled ever since. We’ve seen some big rallies, but those gains have been overshadowed by the large losses. From peak to trough, the cryptocurrency fell some 52% or so. Currently, Bitcoin is down almost 40% from its all-time high on Apr. 14.
Of course, while it’s hard to imagine a world without cryptocurrencies at this point, it doesn’t mean the volatility won’t persist. It also doesn’t mean that we haven’t seen the low. That’s particularly true given the number of headlines — and tweets — that continue to move the market.
Bitcoin: The Elon Musk Factor
Tesla (NASDAQ:TSLA) CEO Elon Musk has been a big mover of the crypto markets. At times, that’s meant moves for Dogecoin (CCC:DOGE-USD) and at other times, moves for Bitcoin. For the latter, Musk tweeted back in February that Tesla would begin accepting payments in BTC while the company also bought about $1.5 billion worth of it.
Unsurprisingly, that resulted in a big rally for the cryptocurrency. Additionally, it also helped that Microstrategy (NASDAQ:MSTR) and Square (NYSE:SQ) were also big buyers. PayPal (NASDAQ:PYPL) has recently made buying and selling certain cryptos easy for its users as well.
But with Musk and his 57 million Twitter (NYSE:TWTR) followers, he seems to have the ability to move these markets the most. For instance, when he and Tesla reversed course a few weeks later and said the automaker wouldn’t accept Bitcoin payments due to the crypto’s environmental impact, it didn’t sit well with BTC.
“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal […] Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy.”
That resulted in a one-day 13% drop for Bitcoin. Another one of Musk’s tweets from Jun. 13 likely helped give the crypto a boost, too, as it climbed nearly 10% on the day.
Now, I’m not saying that Musk’s influence here is right or wrong. Rather, I’m just pointing out that, depending on the context, tweets from the CEO can either be tailwinds or headwinds. And we don’t want an entire asset that swoons (up or down) based on just one person’s tweets. If he said Tesla will accept Ethereum (CCC:ETH-USD), I’m sure it would rip as well. That shows the power that he can have.
How Sustainable Is Bitcoin?
More and more companies have been getting involved with Bitcoin. That’s true for mining, buying and selling, or holding it on the balance sheet. With billions of dollars floating around at low interest rates and inflation on the rise, it’s hard to blame corporations that allocate a small percentage of their current assets to this space.
Now, though, countries are getting in on the action as well. For example, El Salvador recently announced that anyone with at least three Bitcoins — currently worth about $119,000 — would be offered citizenship. More importantly, the country has adopted Bitcoin as “legal tender.”
While El Salvador is not known as an economic powerhouse, this move helps highlight just how sustainable cryptocurrencies can be as investments. If more countries continue to jump on this trend, it will only drive demand higher for Bitcoin, Ethereum and other names.
Even though the crypto space is in a bear market, I also recently talked about some of the catalysts for Ethereum. One of those catalysts was using Ethereum as a store of value. I also like Bitcoin as a store of value, with it being the best-known cryptocurrency in the world.
Plus, while the Internal Revenue Service (IRS) asking Congress for permission for increased regulations on cryptos recently acted as a negative catalyst (most news does in a bear market), I actually think it’s a good thing. The IRS isn’t asking to kill off cryptos. Neither is Congress, or the U.S. Securities and Exchange Commission (SEC). Rather, the IRS’s move seems like something that adds more legitimacy to Bitcoin and others rather than takes it away.
No doubt, there will be more bumps in the road ahead for BTC. Still, this asset doesn’t seem like it’s going anywhere.
Where to Go From Here with Bitcoin
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To be fair, Bitcoin has been trapped in a bear market for a while now. However, it has been a very good trading vehicle in that time. In fact, just recently, I pointed out that it was looking vulnerable to a pullback.
That dip sent it to $31,000, a major support area. But I also said it’s not out of the woods, as it needs to clear short-term resistance. Bitcoin is doing just that, while rotating over several weeks worth of highs, negating the lower-high pattern we’ve seen lately.
If Bitcoin slips and drops back below its short-term moving averages, we could see a decline back to the $30,000 to $31,000 area. On the upside, though, let’s see if we get a test of $42,000 and the 200-day moving average. Above the 50-day moving average and $48,000 could be possible.
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On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
