Bitcoin has slowed down its role since hitting 20,000. After surging 70% in two months, the Crypto King is always around 9% off the intraday high.
He is not showing signs of reversing yet, but is having some trouble breaking through the 2017 record and that is noteworthy. In fact, Bitcoin always traded on record for a brief moment, but tech analysts like to draw lines with markers instead of biros for good reason. At the moment, the best way to describe the act is that bitcoin is experiencing its highest ever – it hasn’t broken out yet, and that means there is still some tension in this market.
In an article this weekend at Barron’s, Niall Ferguson made the bullish case for bitcoin. He, like almost every other bitcoin believer I’ve ever talked to, quotes a critical piece of crypto canon:
“You could argue, if you were a skeptic like my old friend Nouriel Roubini, that this is just another bubble. But the adoption of new financial technology tends to be quite volatile, and every time Bitcoin rallies and then folds, it folds to a higher level than the time before. “
In other words, bitcoin must trend higher. This is why the next step is so crucial. The bitcoin bible makes it very clear that bitcoin needs to make a new high in this latest push after the crash of 2018. It has already been put at an ultra-low level, which is good, but to fail above 20k is a major problem for the bullish bitcoin narrative.
It would also be a red flag for stock investors.
That’s because bitcoin’s strongest use case is still a measure of risk tolerance in the market. Even the most devout bitcoin believers will always tell you to be prepared for a 10-20% disadvantage at any time, and that essentially makes it a risky asset, as most people can’t tolerate that kind of volatility. Bitcoin has the potential to become a store of value one day, and believers argue that this boom cycle is an essential setup for that future. In my opinion, that future has become more compelling lately. But the likelihood of it is still so low that we have to consider it a high-risk asset – an effective lotto ticket for investors. Even if adoption odds were doubling, say from 2% to 4% (don’t hate me, coiners), it’s still very low.
In this context, it is not surprising to see bitcoin always trying to break through highlights, and struggling, at the same time as the Nasdaq
So if 1) bitcoin fails to break out into new highs, it should make tech stock bulls second-guess their own confidence. This most likely holds the other way too – if 2) bitcoin takes another leg higher, stocks are likely clear as well. If 3) bitcoin breaks down but stocks do not, there is likely to be a huge vote of confidence that the economic recovery is stable and strong. And if 4) bitcoin bursts out to new highs but stocks break down, that would be a huge event I would argue that makes bitcoin an essential asset. More on that if we get there.