Bitcoin’s Underlying Value Remains Appealing Despite Its Volatility

Bitcoin (CCC:BTC-USD) has been highly volatile in the past year. But this does not mean that BTC crypto has lost its appeal to many investors. They do not see the volatility as indicative of equal variance in its underlying value for the long term.

Piles of gold Bitcoin tokens stacked together.

Source: kitti Suwanekkasit / Shutterstock.com

That is the conclusion that the CEO of Paxos, Charles Cascarilla, told CNBC last week in a televised interview about Bitcoin. Paxos is a cryptocurrency and fintech company that raised $300 million at a $2.4 billion valuation in April 2021.

He believes the fundamentals of cryptocurrencies like Bitcoin have not changed just because the BTC crypto price has gone down a good deal. He said that he has seen a huge change in institutional investors’ interest in cryptos like Bitcoin. He said that the amount of mainstream interest in cryptos is “tremendous … [t]hat’s exactly why you can’t look at the price and say, ‘a change in price equals a change in fundamentals.'”

Where This Leaves Bitcoin Going Forward

Since peaking at $67,566.83 on Nov. 7, Bitcoin has slowly drifted down throughout the rest of the year. By the end of 2021, it was at $47,686, down almost $20,000 from its peak. As a result, BTC crypto dropped 29.4% from its peak to the end of 2021.

However, by Jan. 19, Bitcoin was down further to $41,926.69, so it has fallen by 12.1% already so far year-to-date (YTD). However, Bitcoin is close to a previous trough that BTC crypto had on Sept. 20 at $40,693. In other words, it looks like the cryptocurrency could be close to a bottom.

That is why institutional and mainstream investors are looking to average down into Bitcoin. This way their average cost in the asset can be lowered over time so that the crypto investment can eventually show a profit.

Microstrategy’s Investment in Bitcoin

For example, on Dec. 9 MicroStrategy (NASDAQ:MSTR) decided to buy more Bitcoin. Between Nov. 29, 2021, and Dec. 8, 2021, it purchased 1,434 Bitcoins for about $82.4 million in cash.

Then, it reported the same thing on Dec. 30, when Microstrategy bought 1,914 Bitcoins between Dec. 9, 2021, and Dec. 29, 2021, for approximately $94.2 million. It paid an average of $49,229 in the second tranche, compared to $57,477 in the first tranche. As a result, it now owns 124,391 BTC crypto tokens at an average price of $3.75 billion or $30,159 per BTC, inclusive of fees and expenses.

This makes Microstrategy one of the largest institutional owners of Bitcoin, worth about $5.2 billion as of January 19, 2022. I suspect that the company will continue to purchase more of the crypto as its price falls.

This is an interesting amount, since it essentially equals the market capitalization of the whole company, now at $4.98 billion, according to Seeking Alpha. Yahoo! Finance says that the market value of MSTR stock is $5.16 billion. As a result, you can see that the value of its Bitcoin holdings is greater than the market value of MSTR stock. This means that the business is selling for “free.”

What to Do With BTC Crypto

Investors should consider following the lead of MicroStrategy averaging down into the crypto. This also applies to new investors in cryptocurrencies. They might want to get in now by buying BTC crypto at these advantageous prices for the crypto.

Of course, there is no guarantee that Bitcoin won’t stop falling. But as I have pointed out above, the volatility of Bitcoin is probably not indicative of any major decline in the value or fundamentals in the crypto. In the long run, Bitcoin will act as a decentralized asset store of value, rather than a vehicle or platform for transactions to occur. Despite its volatility now, this is likely to be its long-term function.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.

Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.


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