Bitcoin Hype Casualties in 2024

Late last year we wrote that perhaps it would be a good idea to buy on the rumor and sell on the news with Bitcoin spot price ETFs. That turns out to have been good advice. Bitcoin popped up by 10% in the days prior to the SEC giving an OK to ETFs that will track the spot price of Bitcoin. After the OK was given, Bitcoin fell by 20% over the following ten days. Bloomberg noted that as Bitcoin ETF hype wanes there are more Bitcoin ETF hype casualties than just the token itself.

Effect of Bitcoin Price On Bitcoin Trading

Bitcoin is a speculative asset similar to gold. When the price is going up folks get all excited and want to be part of the show. They jump in and buy even when market indicators suggest that selling would be a better idea than buying. Folks who make money when Bitcoin is being traded, like the Coinbase exchange, do well during such times. In fact, the value of Coinbase stock increased to more than two and a half times its November 2023 value by the end of the year. But, as of the end of January 2024 the stock had lost a third of its value in just a month. Thus, on of the casualties of the most recent hype and disappointment of Bitcoin is the biggest US crypto exchange.

Bitcoin Hype Casualties in 2024

Where Is the Spot Bitcoin ETF Enthusiasm?

As applicants waited for the SEC to rule on their prospective spot price Bitcoin ETFs, all we seemed to hear was how this would tap into a flood of investors. These folks, the story went, wanted to invest in Bitcoin but were deterred by the fact that they needed a crypto wallet and were afraid of North Koreans hacking their Bitcoin exchange. Little if nothing was said about the body blow to crypto dealt by a prolonged crypto winter in which billions were lost. Amidst all of the hype there was nothing said about leaders of the crypto industry like Sam Bankman-Fried awaiting prison time for fraud.

Bitcoin As a Long Term Investment

The fundamental reason for investing in Bitcoin is that it is programmed with an eventual top limit of 21 million tokens. Today there are fewer than 20 million and the actual number goes up about once every ten minutes as blocks of 6.25 Bitcoin are mined. Because of this upper limit, Bitcoin will never be subject to inflationary demise such as with the 1920s German mark. And, the argument goes, it will maintain its value as the dollar, euro, yen, and other world currencies inflate themselves out of existence. Bitcoin is thus like gold as an investment. You cannot make more and more of it. It is unlike a bond that pays interest or a stock that appreciates as its company makes more profitable products and services.

Bitcoin As a Speculative Asset Versus a Long Term Investment

Fortunes have been made with Bitcoin. The biggest are those who got into Bitcoin when it was a fraction of a cent or even a fraction of a dollar. But others have done well by successfully timing the wild swings of the Bitcoin market. The problem for long term investors at this point in time is that they cannot benefit from those wild swings if they simply want an investment with which they can make money and sleep well at night. Those folks need to be convinced that a spot Bitcoin ETF will do better over the longer term than an ETF that tracks the S&P 500. Otherwise we will continue to see Bitcoin hype casualties into 2024 and beyond.

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