Bitcoin has been on a roller coaster since the November election. Should you be strapping yourself in, or should you unbuckle and climb out of the car?
The post-election boom pierced $100,000, leading bulls to speculate that seven digits were next as “pro-crypto” President Donald Trump prepared to take office. Then, a day after the inauguration, a slide of more than 20% began.
Bulls say “buy the dip and watch it rip.” But before diving in, ask yourself this: Why should you own crypto? Let’s tally up the cases for and against.
Many claim the post-vote gains are justified – just the start. Crypto firms were big Trump donors. They expect lighter US regulation and pro-crypto legislation. Trump touts plans for a US federal crypto stockpile!
Will any of this happen? Unclear. Contrarywise, is increased government involvement in a supposedly decentralized currency actually bullish? Your call.
It’s not just the US where investors are pinning hopes on cryptocurrencies and related innovation. New York, Amsterdam, Hong Kong, London, Tokyo – virtually every financial hub vies to be crypto’s capital.
But what is the case for you to own it? Many see crypto as a diversifier, guarding against currency risks. And new ETFs make it easier to buy. Others envision an inflation hedge. Since Bitcoin supply is capped at a now-approaching 21 million, it can’t be endlessly devalued like dollars. Plus, many Bitcoins are lost, likely forever, shrinking supply.
Many downright drool over astronomical gains. Since 2010, Bitcoin soared 160% annualized through 2024’s close. It rose 121.6% in 2024 and 52.8% from Trump’s win through Jan. 21’s high. Explosive.
But while Bitcoin booms, it also bombs. In rolling 12-month spans this decade, Bitcoin returns ranged between 1,402% and negative 74%.
Bitcoin first hit $100 on April 1, 2013. It peaked at $230 eight days later. By July it fell 71% to $66. Later in 2013, it topped $1,000. After that, a nearly two-year, 84% drop ensued. 2018 repeated that. 2024’s post-election boom followed a 77% drop in 2022 and 2023.
These declines approximate US stocks’ 1929 – 1932’s Great Depression crash – happening multiple times in just over 10 years. Poor timing could leave you hung out to dry. Have new bulls hung themselves now? Who knows.
Those swings aren’t about fundamentals. Crypto has none – no industrial use, no earnings, no yield. Most “coins” are too volatile to be currencies. Even stablecoins (pegged to a major currency) aren’t always so “stable.”
Crypto is rife with criminality and money laundering. Sam Bankman-Fried’s November 2023 fraud conviction didn’t end that. North Korea’s Bybit hack last month was crypto’s biggest heist ever.
Inflation hedge? No. In June 2022, America’s consumer price index galloped to a high of 9.1%, mirroring global trends. That was during a year in which Bitcoin plummeted 64.2%, failing its one and only inflation test.
As for supply: Yes, Bitcoin is capped – but nothing limits crypto overall. While Bitcoin came first, data show that 10,761 “cryptocurrencies” exist globally now…all competing for survival. There is Ethereum, XRP, Solana, Dogecoin, Trump’s coins … even a crypto impolitely named “flatulencecoin.” What differentiates jokecoins and Bitcoin? Hot air.
So what explains crypto’s swings? Pure sentiment.
Can you time the mood swings? I can’t. If not, can you hold long term when it nosedives – say 80%? Did stocks’ latest drop churn your gut? Can you handle 10 times that?
Note that emotions don’t help. With volatile assets, people often buy after big gains, like 2024’s, on fear of missing out (FOMO). When prices fall, they sell from fear of holding on (FOHO), crystalizing losses.
Buy high, sell low. FOMO, FOHO. I’ve seen many repeat this disastrous pattern with volatile commodities and stocks for 50 years. And yes – when it comes to volatility, crypto is right up there with the wildest, scariest roller coasters around. Can you stomach that?
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 21 countries globally.
Credit: Source link
