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Bitcoin Hitting All-time Highs Again, Is This Time Different?

Bitcoin - Hand Holding Cellphone

Buried beneath all the world-ending news we’ve recently been dealing with, you may have noticed that Bitcoin values are back pushing new highs. The last time this happened was in December of 2017. Even though that was merely three years ago, it seems more like a decade due to everything that has happened since. 

Looking back, your memory is probably invoking images of a strange mania that was gripping the financial world. A short-lived crypto frenzy that turned broke college students into millionaires.  Hundreds of confusing crypto coins being created daily after dogs, cats, celebrities, dictators and even hamburgers. Maybe you even remember your neighbor trying to dig up old computers so he could try and mine Bitcoin in his garage. But as fast as the hysteria came and swept the nation, it was gone. Most of the ridiculous crypto coins folded and even Bitcoin, the bellwether of crypto, crashed over 50% in sixteen days from its high of $19,783. By December of 2018, a year later, it had fallen all the way down to $3,300 and many thought it was only a matter of time before it completely collapsed.

Three years later, here we are again with Bitcoin and other cryptocurrencies at all-time highs. In contrast, this time around the hype is not as prevalent.

One reason could be is that there is such a copious amount of breaking news going on, that it just does not seem as important. Additionally, the fact that even though Bitcoin is back at new highs, it still pales in comparison to the percentage gains that we saw back in 2017. A major difference this time is that the “get rich quick” neighbor is not trying to set up a digital mining facility next door. Instead he has probably moved on to buying Nikola stock on his Robinhood account. A large part of this bull run has been driven by institutional money, not retail. 

The infrastructure of buying and storing digital currency for the “professionals” has finally been built out. Laying the groundwork for some of the biggest hedge fund managers such as Bill Miller, Stan Druckenmiller, and Paul Tudor Jones to buy Bitcoin in their funds. Large endowments and family offices are now starting following suit. CEO’s of billion-dollar companies like Jack Dorsey of Square and Michael Saylor of MicroStrategy are putting Bitcoin on their company’s balance sheets. Even longtime skeptics, Jamie Dimon of JPMorgan Chase and Ray Dalio of Bridgewater, are changing their tune on crypto. It looks like there is a new wave of “smart money” coming into the space and it is not slowing down.  Some people see this as a shift from speculation to allocation.

One of the biggest differences that we see today, is central bank involvement. Central banks around the world, including the United States, are laying out a framework for digital currencies. These central banks are developing digital currencies that are backed by their country’s paper money, which are called stablecoins. Even though stablecoins differ from Bitcoin or Ethereum, the central bank backing is a major step in legitimizing the entire cryptocurrency space.

Does this mean that the volatility of digital assets is behind us, and we are past the 80% price drops? Do we at least know that the major crypto assets like Bitcoin are here to stay? Well, no, these are still speculative investments and their future is still uncertain.

The point of this article is not to convince you that Bitcoin is an asset you should put your money in. I am simply suggesting that this time seems different.

Cryptocurrencies are moving out of the fringes of the financial industry and are starting to be more accepted. The prior drawdowns have shown the resiliency of some of these assets. Could 2017 in crypto be a replay of the great dot-com boom and crash where we saw companies like Webvan.com or Broadcast.com hit billion-dollar valuations only to close their doors two years later, but through the aftermath emerged the tech giants like Amazon and Google? It remains to be seen.

Cryptocurrency can be a very confusing subject to read about, much less invest in. As it enters the mainstream and increasingly makes headlines, we want to keep you informed and pull back the curtain of mystery surrounding cryptocurrency. In future articles, I will dive a little deeper into the questions that anyone interested in issues affecting global finance should be asking. What role will cryptocurrency play? How can cryptocurrency be valued?  Is it secure?

If you have any questions, regarding Bitcoin, Ethereum, Litecoin, or Tether (the list is long and growing), please don’t hesitate to reach out to a member of your Baker Boyer team. We’re here to make the complex a little simpler.

About the Author

Tyson Romanick, CFA®

Tyson Romanick, CFA®
Assistant Vice President
Portfolio Manager

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