Bitcoin’s volatility is just beginning, this investor says

Bitcoin has been taking it on the chin of late, including early this week on news that China would be cracking down on cryptocurrency mining and trading. And while the Bitcoin faithful have certainly done well over the past 12 months —it has more than tripled over that period— there’s still a lot of uncertainty inherent to the field of cryptocurrencies, says Brian Battle, advisor at PT Asset Management, who says investors can expect the wild swings in prices to continue.

“As far as cryptocurrency goes on volatility, we’re just at the beginning front edge of digital currencies and cryptocurrencies and there’s a lot of competition, a lot of winners and losers,” said Battle, speaking on BNN Bloomberg on Monday.

“And that’s because it’s so new and so fresh and we’re sort of making it up as we go along,” he said. “It’s a highly hazardous trade and it’s really speculative at this point,” he said.

Bitcoin dropped below $32,000 on Monday morning in part in response to a report from the Chinese Communist Party-controlled news organization Global Times which said Bitcoin mines in China’s Sichuan Province were shut down on Sunday, leading to a 90-per-cent closure of the country’s mining operations as Chinese regulators, who have banned financial institutions from providing cryptocurrency services, look to rein in speculative crypto-trading and the incumbent financials risks.

“The exit window is closing, and we’re scrambling to find overseas mines to place our mining devices,” a Sichuan-based industry insider, who spoke on condition of anonymity, told the Global Times on Sunday.

Bitcoin, which started climbing out of the sub-$10,000 territory later last year, hit an all-time high of $64,829.14 in April but has been on a slide since then, with many in the investment world still starkly opposed on whether Bitcoin or any other cryptocurrency should have a place in one’s investment portfolio. (All figures in US dollars.)

“Sold almost all of my bitcoin. Don’t need it,” said investor Jim Cramer of CNBC’s Mad Money in a segment on Monday responding to the news from China.

Meanwhile, Bitcoin’s ups and downs this year have been in places attributed to Tesla’s investment, with tweets from CEO Elon Musk pushing the currency and other crypto-coins up and down.

In response, Euro Pacific Capital CEO Peter Schiff posted on Twitter in May, “If a single @elonmusk tweet can have so much influence over the price of #Bitcoin how can anyone seriously consider it to be money?”

Yet Bitcoin has its fans, such as billionaires Mark Cuban and Tudor Jones, with Jones saying last week on CNBC’s Squwak Box, “I like Bitcoin as a portfolio diversifier. Everybody asks me what should I do with my bitcoin? The only thing I know for certain, I want 5 per cent in gold, 5 per cent in Bitcoin, 5 per cent in cash, 5 per cent in commodities.”

Battle says the world has yet to decide whether Bitcoin will end up being a real, usable currency or whether it’s to be primarily an asset held much like gold.

“We’re all just learning, but if you don’t like these wild swings [where] Bitcoin could be $25,000 tomorrow or it could be $75,000 tomorrow — that’s just the way a small, really thinly traded market operates,” Battle said.

Battle says a crucial factor to the longevity of cryptocurrencies in general is how sovereign banks worldwide respond, in that as Bitcoin and others gain in value and strength, central banks will think more carefully about whether or not to allow them to continue, much in the way that China is again now hinting it might move.

“There will be, I believe, a Federal Reserve digital currency, so that might compete with all these private cryptocurrencies,” Battle said. “But the part of the story that’s getting missed maybe is the tokenization of assets — the idea that you can take an asset, digitize it and put that on the block — that’s something that’s for real and is coming to market, so let’s make sure we separate those two stories.”

Bitcoin and the others like Ethereum and Zcash took one step further toward legitimacy in some people’s eyes when Coinbase, the largest cryptocurrency exchange in the US with about 50 digital assets trading, became a publicly traded company on the NASDAQ in April. Foregoing the IPO route, Coinbase opted for a direct listing, which gave it an initial market cap of $85.8 billion.

Founded in 2012, Coinbase currently boasts about 56 million users compared to 32 million in 2019. The company’s first quarter 2021 earnings saw revenue triple sequentially to $1.80 billion and earnings per share come in at $3.05 and a profit of $771 million compared to $177 million for the fourth quarter 2020.