In a January 24 Barchart article, I highlighted Bitcoin’s buy-the-rumor and sell-the-fact price action after the SEC approved spot Bitcoin ETF products. I wrote:
Bitcoin prices had been rallying into the January 10 announcement, reaching over $49,000 per token on January 11, the highest price since December 2021. However, prices have decreased after eight spot ETFs began trading, as the approval came with no endorsement and many warnings.
Spot Bitcoin was at just below the $40,000 level on January 24. Bitcoin reached a low of $38,589.97 on January 23 and made higher lows and higher highs over the past weeks. The leading crypto was above the $52,000 level on February 19.
Bitcoin rallies- 2023 was a bullish year for cryptos
Spot Bitcoin prices rose 153% in 2023, moving from $16,581.61 at the end of 2022 to $41,945.15 on December 29, 2023.
As the chart highlights, at the $52,217.70 level on February 19, spot Bitcoin was 24.5% higher in 2024.
Technically, a new record high is the target
The ten-year chart above shows that Bitcoin’s price surpassed the March 2022 $48,187.21 high in January and February 2024, with the next upside target at the November 2021 $68,906.48 record peak.
Bitcoin has experienced explosive and implosive price action since it burst on the scene in 2010. Therefore, given the bullish trend, a challenge of the November 2021 high is likely. Moreover, spot Bitcoin ETF products have increased the leading cryptocurrency’s addressable market, which is a bullish factor. Investors can now purchase Bitcoin exposure in standard equity accounts, without relying on computer wallets or exchanges that have experienced significant problems, including hacking and bankruptcies, over the past years.
$100,000 is the goal for many cryptofiles
When Bitcoin was heading for its November 2021 high, many crypto devotees expected it to reach the $100,000 per token level. A move above the record peak could cause a gap to that level.
On February 19, at around the $52,200 level, Bitcoin’s market cap was just over $1 trillion at the $1.025 trillion level, 51.6% of the cryptocurrency market’s total $1.98 trillion value.
While the value is high, it remains lower than that of leading U.S. companies.
Source: companiesmarketcap.com
As the chart shows, MSFT and AAPL have market caps that far exceed the value of all cryptos. While GOOG, AMZN, and NVDA have market caps around the value of all cryptos, individual values are far higher than Bitcoin.
Bitcoin’s potential as a global currency instrument is significant, and its limited supply could cause a substantial rise from the current price level.
A significant concern as the asset class’s market cap grows
As Bitcoin’s value rises, expect legislators and regulators to sound alarms about systemic risks. In finance, systemic risk is the collapse of an entire financial system or market, as opposed to the risk of any individual entity, group, or system component without harming the total system.
We have already heard warnings from U.S. legislators. In a January 2023 speech, U.S. Senator Elizabeth Warren said:
Our banking regulators are also a part of this fight. Already, crypto-friendly banks like Silvergate have opened the banking system up to greater risk, raising the specter of a crypto collapse in which American taxpayers are left holding the bag. It’s the bank regulators’ job to insulate the banking system – and taxpayers – from the risk of crypto fraud. They have the tools and they need to use them.
Upon approving the spot Bitcoin ETFs, SEC Chairman Gary Gensler gave a highly “qualified approval.” Therefore, regulators and legislators will watch the asset class’s market cap. Expect concerns to increase with the value.
Only invest what you can afford to lose in the market that embraces explosive and implosive price behavior
Excessive price volatility offers massive potential rewards but comes with commensurate risks. If Bitcoin rises to $100,000 per token or higher, the potential for another price implosion will increase.
Bitcoin and other cryptocurrencies have been like a game of financial musical chairs. If the bullish music continues, the profits can be staggering. However, when the music suddenly stops, the losses can be devastating. Anyone involved in cryptos must understand that the risks of incredible profits come alongside the potential for total loss.
Regulators and legislators can decide in the blink of an eye that the potential for systemic risks is a reason to ban the burgeoning asset class. Therefore, buyers must beware and only enter risk positions with explicit risk-reward dynamics and discipline.
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.
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.
