I have to admit, when I first pitched this piece, the title I was going after was “Will Bitcoin Hit Five Digits Before It Makes a New All-Time High?” Well, Bitcoin did just do that this week, faster than I could possibly type.
The moves in the crypto sector have historically been violent, and rallies to the upside and downside have the kind of momentum that’s hard for investors in other asset classes to truly understand. It’s as if the catalysts driving the crypto sector are viewed as all-or-nothing events, with narratives completely shifting week to week or even day to day, depending on the mood of the market and how they perceive certain pieces of news as they flow in.
For the world’s largest cryptocurrency Bitcoin (CRYPTO:BTC), which is now trading just a hair shy of $100,000 per token at the time of writing, it’s been a rocky road in recent weeks. After hitting an all-time high of $126,270 on October 6 (right around one month ago), this token has since lost a little more than 20% of its value over this time frame. If Bitcoin were a stock, that would be considered a bear market for this particular project.
Here’s what to make of this recent decline, and how much more downside may be ahead.
Macro Factors Really Driving the Narrative Right Now
Bitcoin’s value, or more precisely what that valuation should be, is a point of discussion that seems to be never-ending among those with opinions on the internet. There are forever Bitcoin bulls such as Michael Saylor or Cathie Wood who have put forward seven-figure price targets for Bitcoin in the past who believe this token is worth buying at almost any price. And then there are the more conservative traders and others who believe that near-term catalysts are much more important to watch, and timing Bitcoin purchases and sales is more important than holding long-term.
In that sense, there’s a philosophical difference among certain proponents of Bitcoin that’s important to parse out to know where the particular person assessing this token stands. Personally, I’m of the view that Bitcoin is likely to continue to head higher long-term, though I am aware that over the near-term, anything is possible.
As most investors who are able to read a chart will note, Bitcoin has had many (and I mean many) declines of more than 50% over the course of its decade-and-a-half long history. These declines have come via various factors, with underlying fundamentals such as demand and user/wallet/transaction growth most closely watched.
However, as Bitcoin is priced in U.S. dollars, currency fluctuations matter a great deal. And due to this token’s status as a store of value outside the monetary system, how Bitcoin is valued relative to gold (which has also been surging in value this year) matters a great deal. The decline in the price of gold, coupled with a stronger U.S. dollar, appear to be playing into this recent weakness in a big way.
Catalysts On the Horizon?
A number of changes to Bitcoin’s blockchain, in which smart contracts and other functionality have been added, has provided a boost to investors looking for a utility argument for holding this token long-term. Other competing blockchains such as Ethereum (CRYPTO:ETH) and Solana (CRYPTO:SOL) have benefited from a flurry of developer activity, with decentralized application growth largely driving these networks’ adoption in recent years.
We’ll have to see if Bitcoin can build a more sustainable utility argument for investors over time. I’d argue that many of the initiatives being put forward by the Bitcoin community are compelling, but need time to play out. As such, it’s hard to find potential catalysts that don’t have at least some ties to a macro narrative to jump on with Bitcoin. For some investors, this can be frustrating.
I do think Bitcoin will remain the representative token of the overall crypto sector for years to come (with thousands of challengers yet to truly take up the mantle and compete). If the Bitcoin community can indeed drive more usage and utility on this blockchain, perhaps this dominant position will become even more insulated. That’s up to individual investors and the market to ultimately decide over time.
Where Will Bitcoin Go From Here?
In my view, Bitcoin’s ability to stay above the six-figure level for so long (this is the token’s first drop below $100,000 since June) is encouraging for those bullish on this token. That said, now that this key psychological level has been taken over, there are undoubtedly going to be some bears out there who will call for four-digit Bitcoin next.
We’ll have to see what transpires, but even in the doldrums of the so-called “crypto winter” of 2022, Bitcoin didn’t come close to this level. A drawdown of 50% from its peak (to around $60,000 per token) could certainly be possible. But I wouldn’t bet on a drawdown that’s steeper than that key level.
For investors thinking long-term, legging into a position as Bitcoin continues to decline may be the way to go. For momentum investors looking for catalysts to jump on, we’ll have to see if any sort of new catalysts emerge to drive this token higher. But I’d argue that when such bullish momentum returns, this is a token that will likely take off once gain. New all-time highs is the name of the game for Bitcoin, at least that’s historically been the case.
Bitcoin may have a lot more downside before this token rips once again. But I’d argue that between $60,000 and $100,000 per token, Bitcoin is still a buy from here. I still think new all-time highs are more likely than not over the long-term.
