In a February 19 Barchart article, I wrote:
Bitcoin looks set to challenge the November 2021 high, but make sure you do not get caught holding the bag when the bullish music stops.
Spot Bitcoin was at the $52,217.70 level on February 19, and the bullish music has not stopped over the past month. In fact, it got a lot louder as Bitcoin eclipsed the November 2021 high and rose to uncharted territory.
Bitcoin makes a new high
On March 11, 2024, Bitcoin reached a new peak of over $20,000 per token, higher than the February 19, 2024, high.
As the long-term chart highlights, spot Bitcoin rallied to $73,662.76 on March 14, a new record high and an incredible 41% above the price less than one month before.
Another parabolic rally
Bitcoin’s boom-and-bust price action has led to several parabolic rallies over the last few years.
The five-year chart shows three significant rallies over the past five years:
- Bitcoin rallied 1550% from $3,925.27 in March 2020 to $64,789.27 in April 2021.
- Bitcoin rallied 138% from $28,957.79 in June 2021 to $68,906.48 in November 2021.
- The latest rally took the leading cryptocurrency 372% higher, from $15,613.01 in November 2021 to the most recent high of $73,662.76
Bitcoin traded at a five cents per token low in 2010, so its price appreciation has been routinely parabolic. Meanwhile, the price corrections over the past years have been equally dramatic.
Spot Bitcoin ETFs provided the fuel
Bitcoin’s first explosive move, which that took the crypto to nearly $20,000 per token in late 2017, came after the Chicago Mercantile Exchange listed futures contracts, expanding Bitcoin’s addressable market. The latest move to a new record high came after the U.S. Securities and Exchange Commission approved spot Bitcoin ETF products. Bitcoin’s price dropped after the initial approval as the SEC issued a “qualified” opinion, warning that “Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering…sanction evasion and terrorist financing.”
However, the price took off on the upside once the ETF products became available to a broad segment of the investing public. Investors, traders, and speculators can now own Bitcoin in standard equity accounts.
When do the regulators and legislators get worried?
Bitcoin is the 800-pound gorilla in the cryptocurrency asset class. After falling below the $1 trillion level, the market cap rose to over the $2.52 trillion level as of March 18. While many cryptos are floating around in cyberspace, Bitcoin’s over $1.3 trillion market cap was 52.1% of the enter asset class.
The all-time high market cap was around the $3 trillion level, a significant sum. However, the market caps of the leading publicly traded companies show that Bitcoin and cryptos could have more upside.
The chart illustrates that MSFT, at nearly $3 trillion, remains more valuable than all cryptos. Moreover, six of the top seven companies have a higher valuation than Bitcoin.
Meanwhile, the asset class’s excessive volatility could mean that regulators and legislators in Washington, DC, and other world capitals will begin to worry about systemic risks when the market cap rises above the $3 trillion level. Moreover, the higher the value increases, the more likely we will see objections. After all, governmental power comes from controlling purse strings. Since Bitcoin and cryptocurrencies pose an existential threat to governments’ money supply control, the higher they rise, the more governments will oppose their existence.
Be careful: Bulls and Bears can make money, while Pigs often become bacon
The parabolic rallies over the past years have made Bitcoin and other cryptocurrencies highly attractive for speculators and market participants seeking significant gains. Considering that $1 invested in Bitcoin in 2010 at five cents was worth over $1.45 million at the March 11 high, the potential for wild speculation is frenzied, with some crypto supporters forecasting a substantial rise from the current all-time peak.
In all markets, trends are your best friends until they bend. However, bulls and bears using discipline and plans for trading and investing tend to achieve long-term success, while ignoring risks can lead to financial disaster. While there are many stories of fantastic riches in the crypto asset class over the past years, there have also been devasting losses. The music continues to blast in cryptos, but when it stops and prices correct lower, latecomers could be left holding costly tokens with massive mark-to-market losses. Be careful in cryptos, as the most significant threat will come from government regulations and potential bans if the market cap continues to rise. Governments will not give up control of the money supply without a fight.
Like any investment or trade, careful attention to risk-reward dynamics is critical. More volatile assets require significant discipline. When it comes to volatility, Bitcoin and cryptos have displayed unprecedented price variance, which is not likely to end any time soon. Meanwhile, over the past weeks in Q1 2024, this week’s lows in Bitcoin continue to be last week’s highs.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
