by Frank Holmes, CIO, CEO, U.S. Global Investors
In last weekās Investor Alert, our investment team shared with you a report from Morgan Stanley that says bitcoinās price decline since December mimics the Nasdaq tech bubble in the late 1990s. This isnāt earth-shattering news in and of itself. The main difference is that the bitcoin rout happened at 15 times the rate as the tech bubble.
Morgan Stanley has some good news for bitcoin bulls, however: The 70 percent decline is ānothing out of the ordinary,ā and whatās more, such corrections āhave historically preceded rallies.ā Just as the Nasdaq gained back much of what it lost in the subsequent yearsābefore the financial crisis pared losses even furtherābitcoin could similarly be ready to stage a strong recovery.
One research firm, in fact, believes bitcoin and other digital coins, or āalt-coins,ā have likely found a bottom. New York-based Fundstrat, headed by strategist Thomas Lee, issued a statement to investors last week saying that, though a cryptocurrency bull market isnāt necessarily underway, the worst of the pain could be ālargely over.ā
Fundstrat research shows that periods of cryptocurrency consolidation, or āpurgation,ā generally last 70 to 231 days. Bitcoin hit its all-time high in mid-December, almost 70 days ago as of March 26. Taking into consideration Fundstratās estimates, then, itās possible the bear market could conclude sometime between now and early August.
In the meantime, Lee writes, alt-coin investors should stick with larger-cap cryptocurrencies such as bitcoin, Ethereum and Ripple.
Take the Long-Term View
Itās helpful to compare bitcoin with Nasdaq, as Morgan Stanley did, but what about comparing the current cycle with one from the past?
In June 2011, bitcoin peaked at nearly $30 and found a bottom of $2.02 five months later, in November. It would be an additional 15 months before it returned to its former high. This might seem like a long time to some, but investors who managed to get in at the bottom would have seen their position grow more than 1,300 percent.
So can bitcoin do the same today? Obviously no one can say for sure, but what I can say with certainty is that bitcoin, like all digital coins, is highly volatile. Plus, thereās not quite 10 yearsā worth of data, meaning itās been difficult to identify trends.
Cryptocurrencies are also currently facing tougher oversight from several world governments and central banks, not to mention Facebook and Twitterās bans on ads promoting themāobstacles they didnāt have to contend with back in 2011 and 2012.
But I remain bullish. Cryptocurrencies are still in their very early stages. To return to the comparison with tech stocks, we donāt know at this point which digital coins will be tomorrowās equivalent of Amazon, Google, Apple and Facebook. A long-term view is key.
Finally, I still believe in the power of Metcalfeās law, which says that as more and more people adopt a new technologyācell phones, for instance, or Facebookāits value goes up geometrically. A poll conducted in February shows that just under 8 percent of American adults report ever owning or purchasing any cryptocurrencies. Market penetration, then, hasnāt been as pervasive as some might expect, but as people increasingly become more confident in dipping their toes in the space, demand could rise and, with it, prices.
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This post was originally published at Frank Talk.
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