Crypto markets had a rough 2022, and Bitcoin (BTC -0.16%) was not spared – the cryptocurrency fell almost 65% last year. But 2023 has become a comeback story as Bitcoin is up 83% since January.
Bitcoin Mega Supporters and MicroStrategy Co-founder Michael Saylor recently announced that his company bought 6,455 Bitcoin in late March, a transaction valued at $150 million.
Should Investors Follow Saylor’s Example? One shouldn’t base their investment decisions on someone else’s, but there are some good reasons to add Bitcoin to your portfolio today. Here’s what you need to know.
A big vote of confidence
While investors should make their own decisions, there’s no denying the impact big-name investors like Warren Buffett can have on a stock’s sentiment. Saylor is arguably the Buffett equivalent of Bitcoin investors, and his recent $150 million investment is more of a vote of confidence.
MicroStrategy now owns a total of 138,955 Bitcoin worth nearly $4.2 billion. The company’s average bitcoin cost is $29,817, just a little less than today. In other words, you could argue that Saylor sees Bitcoin’s value at its current price; A $4 billion investment would imply an expectation that the asset’s value will increase over time.
However, one shouldn’t automatically mirror Saylor’s views on Bitcoin, just as one shouldn’t buy blindly Coke Stocks just because Buffett owns them. Instead, think of it as an invitation to reconsider your investment thesis.
Rethinking Bitcoin’s Investment Case
The overarching theme for Bitcoin is that it is a store of value, much like gold or silver. Ideally, Bitcoin can protect investors from two critical problems of the fiat-based financial system. First, Bitcoin has a limited supply of 21 million coins, a hedge against inflation that continually devalues the fiat currency as more is created. Second, it is decentralized, independent of central control like the US financial system, which is dominated by the Federal Reserve.
In addition, banks use a fractional reserve system, in which they use their deposits to lend more money than they have. That’s fine until too many people try to pull their money out of the banks at once. Bitcoin’s scarcity and independence from people or parties controlling it has fueled demand and fantastic investment returns. Bitcoin has easily surpassed that S&P500 despite the coin’s dramatic decline in 2022.
Data Source: YCharts Bitcoin Price
Some may wonder if bitcoin’s volatility disqualifies it as a store of value, but bitcoin appears to be no more volatile than silver and gold. You can see below that gold and silver have seen similar declines from their highs, a reminder that asset prices fluctuate.
Data Source: YCharts Gold Price in US Dollars
Yes, bitcoin has been more volatile than gold, but it’s a lesser-known commodity than a precious metal that has been sought and prized for thousands of years. Perhaps bitcoin will become less volatile as it ages — at least that’s a valid question.
Is Bitcoin’s comeback just beginning?
For now, markets appear to be pricing bitcoin as a riskier asset that will diminish as investors flee to safety. Gold is close to its all-time high while Bitcoin is far from it. Bitcoin’s comeback in early 2023 could signal that what some are calling the crypto winter is nearing its end.
Investors won’t know for sure until after the fact, but it appears that bitcoin’s long-term appeal is still intact, especially after the near-due to another crisis in the modern banking system. Bitcoin will likely remain a volatile asset, but there could be more days up than down if market sentiment turns positive toward riskier assets.
Justin Pope has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.