Much to the chagrin of the crypto critics, it appears as if Bitcoin and the other cryptos have gotten off the mat and aren’t dead just yet. As after experiencing a massive sell-off and sitting slightly below $7,000 per Bitcoin for the past few weeks, the price burst through the $7,000 mark and over $8,000 over the last 2 days.
(chart courtesy of coinbase.com)
While the price could just as easily go down over the next few days or weeks, it’s interesting to see such a significant rally. And also worthwhile to distinguish between the pricing and the underlying fundamentals.
Primarily because it was interesting to see the commentary as Bitcoin went from $6,000 to $20,000 and then back down to around $6,000. Certainly that’s incredible volatility, and not insignificant to those who were holding positions.
Yet at the same time, very little about the cryptos as an asset class actually changed on a fundamental basis during that period. Sure, there were headlines about more potential government bans and other various news stories. Yet the adoption continued while there is still little to suggest that any of the problems in the current currency system have been addressed.
So all of the reasons that made cryptos a potential solution to the current fiat system are still in place. And if you subscribe to the school of thought that there is a need for this technology that will only increase in the long-term, the investment case for the cryptos remains rather simple.
Because if cryptos are going to represent a large portion of what replaces the failed paper money system, prices are going to have to be a lot higher. Which is why it’s interesting to distinguish between the short-term pricing and the long-term case.
I would assert that the movement over the past several months has more to do with trading, liquidity, and position management than any underlying driving factors. Keep in mind that an estimate of the world stock markets is about $76 trillion, while the entire crypto sector has a market cap of about $300 billion. So one large fund or trading entity can easily move this relatively small market.
So during the decline it was interesting to see all the talk about how the crypto bubble was over. Because while certainly the pricing was fascinating and stunning to watch, I don’t recall reading any news that actually exposed a flaw in the technology, or explained how there is suddenly less need for a non-expandable currency system. Especially one that can function in today’s digital world.
So whether the move up over the last two days was a short-term fluctuation or the beginning of a larger trend remains to be seen. Yet for those willing to invest for the long-term, the equation remains rather simple.
Unless the governments and central banks have some magical plan to fix their dying currency system that they haven’t shared with anyone else yet, there is going to be a need for an alternative system.
Everything I see continues to indicates that cryptos are going to be a big part of that. If that is indeed the case, you can still buy and hold and sleep well at night.
April 13, 2018