The incredible rise in Bitcoin (CCC:BTC-USD) we’ve seen play out in recent years has boggled my mind.
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I mean, the long-term chart doesn’t lie. We’re talking about a digital token that has appreciated more than 10,000% over the past 5 years.
Indeed, there’s a strong long-term bull thesis to be made when it comes to Bitcoin. Considering the turnout for the recent Coinbase (NASDAQ:COIN) IPO, crypto investors are intent on making a statement. Blockchain technology and cryptocurrencies are here to stay.
Sentiment remains strong, particularly among retail investors, in the long-term growth trajectory of Bitcoin. Many money managers disagree, saying animal spirits are driving the party right now.
So, who’s right?
Let’s take a look at both sides of the coin.
Bitcoin: Size Matters
Cryptocurrencies are skyrocketing as a group. However, it’s intriguing to note the amount of interest in Bitcoin among retail investors relative to alt coins.
I think a lot of this has to do with the fact Bitcoin makes up approximately 55% of the total market capitalization of all cryptocurrencies today.
As the largest crypto token in the world, Bitcoin prices are often used as a gauge of the sector’s performance. That said, alt coins are now starting to move in lower correlation to Bitcoin. In recent weeks, a number of alt coins have experienced gains far outpacing those of Bitcoin, suggesting these digital tokens may not move entirely in sync anymore.
Regardless, Bitcoin remains the “gold standard.” In fact, many view this cryptocurrency as digital gold.
There’s evidence that gold’s recent fizzling out has something to do with the rise in Bitcoin prices. Investors are looking for places to park cash right now, and cash, bonds and gold just don’t move very much.
However, Bitcoin does move. Quite a bit actually. The volatility seems to frighten no one, when it’s on the upside.
As a hedge, a store of cash or just simply a speculative investment, Bitcoin appears to be a no-lose proposition right now.
That is, unless you ask big money right now.
Risks Are Real, So Trade Carefully
Despite all these great catalysts, there is real concern that a massive bubble is forming in the cryptocurrency space.
An intriguing report released by CNBC indicates a vast majority of money managers suggest a bubble is more likely than not in Bitcoin right now. The report indicates roughly 74% of money managers surveyed, folks who have a cumulative assets under management of more than $500 billion, are of this belief.
One specific bear that was called out was Bobby Lee, founder of cryptocurrency exchange BTCC. Mr. Lee noted that an 80% to 90% drop could materialize at some point in the near term, after Bitcoin is done appreciating to as high as $300,000.
Other bears have suggested Bitcoin has the potential to fall to zero. A Yale study recently put that percentage likelihood at around 0.4%
Indeed, that’s a small percentage. And every investment comes with some sort of risk of bankruptcy at some point.
However, the polarized view on Bitcoin right now is intriguing. It appears bulls and bears are sitting very far apart today.
Conclusion
My personal take on cryptocurrencies in general is mixed.
On the one hand, I do think there’s a tremendous amount of value in the blockchain technology underpinning cryptocurrencies like Bitcoin. I think it’s a transformative technology with great potential to change how we think about banking, insurance and other industries. There’s a lot of real-world application at play, particularly with Ethereum’s (CCC:ETH-USD) protocol.
On the other hand, the thought of Bitcoin as a store of value or a replacement for gold doesn’t jive with me. I don’t see cryptocurrencies as currency-like at all. Blockchain technology and cryptocurrencies are two separate things, and I think both have been jumbled together right now.
When the dust settles, and blockchain becomes widely used and regulated, I think those betting on blockchain technologies will win big. However, I would consider myself in the bear camp in regards to the long-term upside for Bitcoin or its alt-coin peers.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.