Based on a proposal by the Biden Administration to hike the capital gains tax, digital currencies, including Bitcoin, took a hit on Friday. It was not only Bitcoin, other digital currencies also plunged, wiping an estimated $200 billion off the value of the crypto market.
Although some investors are suggesting a correction may be in the offing, the Bitcoin bulls are not fazed. Michael Venuto, Amplify ETF portfolio manager, and Chief Investment Officer at Torso Investments says, “In my opinion, this disruption will be short-lived.” He went on to say that digital currencies were still considered a new asset class and volatility is to be expected and there is every reason to believe we will see Bitcoin hit $100,000 this year. This sentiment was seconded by one crypto-bull who sees this as a minor disruption.
Bitcoin, the best known of all digital currencies, has been the topic of increased interest from within the investing community, as well as financial service providers. Bitcoin breached the $60,000 threshold in March, rising to nearly $65,000 before dropping back. Bitcoin is currently trading around $54,000.
Too Much, Too Fast
The long-term view taken by Greg King, CFA/CFO of Osprey Funds is bullish. He sees it more as fixing a problem that many may not have known existed.
JPMorgan Chase investment strategists see vulnerabilities to swings in momentum that could extend the slide. Scott Minerd, Chief Investment Officer of Guggenheim Partners believes Bitcoin will eventually be worth upwards of 10 times the value it is currently trading at, although in the short term, it may drop considerably.
Mr. Minerd suggests that the money going into crypto is “too much, too fast,” and that this phenomenon will lead to a significant correction in Bitcoin.
Others suggest a different point of view. Chris Kuiper, CFRA Research VP of Equity Research argues that technical market levers are causing the current slide in value, which includes the unwinding of some futures contracts as well as the power supply disruption at a major Chinese Bitcoin production hub. Citing an ever-increasing adoption by institutions and an ever-growing support infrastructure around digital currencies, Kuiper went on to say, “the fundamentals are all still there,”
Both Visa and MasterCard are showing signs of warming to the support of Bitcoin on their payment systems. Venmo has already done so by giving users the opportunity to buy and sell Bitcoin. Earlier this year, PayPal provided a feature allowing users to purchase and sell Bitcoin, Etherum, and Litecoin. This has now been expanded, and PayPal users can now make purchases with Bitcoin.
Elon Musk, CEO of Tesla, has gone even further. In February, Tesla, Inc. purchased $1.5 billion worth of Bitcoin. In March, Musk stated that buyers of the vehicle could consummate the purchase using Bitcoin.
This week saw WeWork announce that it will now accept Bitcoin and a few other cryptocurrencies as payment. WeWork said that it will begin making payments to landlords and selected third parties using the digital tokens.
As Services Mature, Some Predict an Increase in Investors
As the number of financial services related to digital currency matures, Bitcoin investors are betting that ordinary investors will warm to the opportunity. Mr. Venuto suggests that, even in its current volatile state, more investors will see Bitcoin as a hedge against the eroding effect of inflation on dollar-denominated savings.
Several investment professionals are comparing the adoption path of cryptocurrencies with the pre-dot-com crash days of the Internet. “We’ve been in the $50,000 and change range for a while now. With a 150 percent increase in value in less than six months, a pullback of 20 to 25 percent is “very much a natural thing,” King said.
“I think Bitcoin has to prove itself a little bit more, but we are seeing widespread institutional adoption now, which is new to this bull cycle… As a natural part of that process, there are ups and downs.”
Chris Kuiper of CFRA Research tends to favor Bitcoin as the trend among the investment community is shifting from just trading to holding. He sees more coins moving off exchanges, suggesting they are being put into cold storage. As there is a 21-million limit on Bitcoin, Kuiper said a rise in holding the crypto in investors’ portfolios which, in turn, will increase scarcity, which can only drive the value progressively higher.
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