Bitcoin (CCC:BTC-USD) has been volatile lately, but that only offers up an opportunity for investors who can shift their focus from the day-to-day price action and focus on the longer-term trajectory.
Cryptocurrencies are going through some growing pains. While many want to look at Bitcoin and discredit its value, the proof is in the charts. Just look at the way it has performed over the last 6 to 12 months.
Its value has exploded in that time, even though Bitcoin is down from its high as I write this article. In that respect, the current dip looks more like an opportunity than a warning sign. If we take advantage of this decline and Bitcoin does go on to reach $100,000, then today’s bears are going to feel like fools.
While Bitcoin is under pressure, other cryptocurrencies are hitting new all-time highs. This looks like a standard rotation throughout the space and it’s healthy for this to occur.
Let’s look at the bigger picture.
Bitcoin Acceptance Continues to Grow
All over the world, Bitcoin continues to gain traction. That is critical for its success, as acceptance is the gateway to more access. When I say “acceptance,” I mean a lot more than just merchants willing to accept it as payment, too.
Instead, what I mean is, more platforms willing to transact Bitcoin, (with friends sending it back and forth, for instance). More merchants willing to accept it. Safer brokerage houses willing to allow the purchase and sale of Bitcoin, new futures contracts available for trading and more companies adding the cryptocurrency to their balance sheets.
We’ve seen several companies adding billions of dollars worth of Bitcoin to their cash and short-term investments. With so much cash on hand and with interest rates so low, these companies have been adding Bitcoin as an alternative.
Further, the largest automaker in the world (by market cap) has made it so that customers can purchase its vehicles with the cryptocurrency. Now if only the largest e-commerce site in the U.S. or the world’s largest technology company (by market cap) would do the same thing, then Bitcoin would really see some strong momentum.
Even without those companies though, Bitcoin is on a new trajectory.
Looking Beyond
Several years ago, many people didn’t understand the technology. Words like “cryptocurrency” and “blockchain” were a mystery to them. To many, they still are. But for millions and millions of people, they are now understanding it.
Of course, it helps that access is so much easier.
It wasn’t that long ago that we were reading about only criminals using Bitcoin and the only way to purchase it was through a potentially sketchy trading platform that ran the risk of being hacked and bankrupted overnight.
Now we have well-known companies transacting in Bitcoin and well-known platforms allowing the purchasing, selling and sending of Bitcoin. Some of these platforms include Venmo, Cash App and Robinhood. Heck, one of the largest trading platforms for cryptocurrency recently went public and now commands a market capitalization north of $55 billion!
Do you see how much the story has changed over just the last few years? With these trends in place — companies don’t invest $1+ billion in an asset if they think it’s going down — I think it’s more than possible to see Bitcoin reach $100,000 and do so by the end of this year.
Bitcoin’s Long-Term Trend
Click to Enlarge
Driving Bitcoin prices is a simple principle of supply and demand.
Since the basis of the cryptocurrency is a limited amount of supply over time, that really leaves demand as the fluctuating calculation. Because of the way Bitcoin mining is designed, it only allows a certain amount of supply to come online. But take away supply and that influences the price too.
In January, a story came out regarding a man who had about a quarter of a billion dollars worth of Bitcoin, but didn’t know his password to access those coins. That fortune has of course risen since. However, it also highlighted just how many people are in the same (surprising) problem. It’s estimated that about 20% of the current Bitcoin supply is locked away in a similar fashion. While that estimate was taken a few months ago, consider just how much that really is.
That’s effectively like having 20% of the stock float held by an insider who won’t sell under any circumstance. I wouldn’t necessarily pin my bull thesis on this fact alone, but it does create an interesting dynamic for the cryptocurrency.
Broadly speaking, we’re bullish. Technically speaking, we can thread the needle a bit more accurately. For now, Bitcoin remains below some of its major moving averages, as well as the $58,500 to $60,000 zone.
That’s not necessarily bearish. Instead, it’s healthy consolidation after such a strong rally. Over $60,000 and that could kickstart a move back to the highs and potentially beyond.
On the downside, a break of $52,600 is not a cause for panic. Instead, it’s a cause for patience. Should we see sub-$50,000 again, Bitcoin could retest the April low near $47,000. Below that and the $43,000 area is possible. None of this indicates a breakdown. Instead it amplifies the consolidation phase.
For long-term investors, nothing beats getting a better price. If this is the option that plays out, be ready to pounce, not panic.
On the date of publication, Matt McCall held a long position in Bitcoin.
The InvestorPlace Research Staff member did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.
