Things Could Get Worse For Bitcoin Before They Get Better

  • Bitcoin (BTC) recently got destroyed in recent comments by Berkshire (BRK.A, BRK.B) legends Warren Buffett and Charlie Munger.
  • So far, Bitcoin is not a hedge against inflation.
  • Bitcoin has only fallen with the markets so far. Now is not the time to buy.
A blue-toned concept image showing Bitcoin (BTC) cracking in half.
Source: Shutterstock

Down 43% from its all-time high reached last November, the fate of Bitcoin (BTC-USD) continues to polarize investors.

Over the weekend, Bitcoin took a bashing from legendary investors Warren Buffett and Charlie Munger who explained in detail at the annual meeting of their holding company, Berkshire Hathaway (NYSE:BRK.A, BRK.B), why they don’t like the world’s biggest digital asset.

“Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything,” Buffett said when speaking of Bitcoin. “It’s got a magic to it and people have attached magic to lots of things.”

Munger was a bit more blunt in his assessment, stating: “In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else – and Bitcoin does all three.”

BTC-USD Bitcoin $38,503.63

Inflation Hedge?

Buffett and Munger’s negative comments come as Bitcoin has struggled to stay above $40,000 per coin in recent weeks. Year-to-date, BTC is down 19% and currently trading at just under around $38,500.

It hit an all-time intra-day high of $68,000 per coin last November, but has been trending lower along with the broader stock market ever since. Analysts have noted that the slump in recent months dispels the previous view that Bitcoin is a hedge against inflation and the equivalent of digital gold. With inflation running at a 40-year high in the U.S., the price of BTC has fallen in tandem with stocks.

In a recently released outlook on the state of the entire cryptocurrency sector, investment bank Morgan Stanley (NYSE:MS) said that the growth in Bitcoin’s market capitalization over the past year has generally tracked growth in the global M2 money supply, and that the growth in BTC has been fueled largely by easy central bank monetary policy.

Morgan Stanley went on to say that Bitcoin has had a high correlation with equities since early 2020 and has had almost zero correlation with gold. Cryptocurrencies overall have been more correlated with media and entertainment stocks in the U.S., as both might be driven by similar catalysts, said Morgan Stanley in its report.

Weakening Trends

Despite the naysayers, Bitcoin’s adoption continues to grow around the world, albeit with mixed results. Panama recently announced that it is following fellow South American country El Salvador and adopting BTC as legal tender. However, while El Salvador was one of the first countries to adopt BTC as a currency, recent studies show the move hasn’t produced the intended benefits.

A study by the National Bureau of Economic Research in Cambridge, Massachusetts found that more than 60% of people in El Salvador ditched the government’s Bitcoin wallet after using the $30 bonus they received, 99% of people have never paid taxes with BTC as was hoped and 60% of citizens did not download the Bitcoin app. Additionally, a majority of Salvadorans have never used a crypto ATM that are installed throughout El Salvador.

At the same time, new data from search engine Google (NASDAQ:GOOG, GOOGL) indicates that retail investors are losing interest in Bitcoin as the digital asset’s price continues to slump. Online search data from Google Trends shows that worldwide searches for Bitcoin were at mid-2020 levels as of April 22 this year.

Internet searches for information about Bitcoin have fallen since hitting a peak in May 2021, according to Google. This shows that interest in BTC among individual investors is waning. The countries where online searches for BTC are highest are Nigeria and El Salvador. The declining interest could portend a further slump in Bitcoin’s price moving forward.

Don’t Buy Bitcoin Right Now

Bitcoin is no longer the bright shiny cryptocurrency on the block. Interest in owning the digital coin or using it for everyday financial transactions is waning with people all over the world. At the same time, the theory that Bitcoin is digital gold and a hedge against inflation has been debunked.

Currently, BTC trades in near lockstep with stocks. And as the markets go lower, so too has Bitcoin. Throughout its history, Bitcoin has always been a speculative investment and a risky bet. But in the current environment, with its price steadily falling, that speculation and risk have been amplified. As such, investors should stay away from this digital coin for the time being. Right now, BTC is not a buy.

On the date of publication, Joel Baglole held a long position in MS. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.  

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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