By Anders Bylund – Aug 31, 2023 at 8:23AM
Bitcoin's recent price volatility raises questions, but don't be too quick to sell.
Short-term market squiggles don't define Bitcoin's long-term prospects.
If you're still bearish on Bitcoin, 2024 might just change your mind.
Is the Bitcoin rollercoaster more thrilling than risky? Check out the pros and cons of owning the leading cryptocurrency today.
Bitcoin (BTC -2.45%) has been volatile lately. After hovering near the $30,000 mark for several weeks, a handful of mildly bearish news items drove the largest crypto down to $26,000. Then, a helpful legal verdict briefly pushed Bitcoin past $28,000 again.
These unpredictable price swings beg the question -- is it time to buy Bitcoin at a reasonable price, or time to sell before the coin takes a swan dive?
Let's take a look at both sides of the Bitcoin.
Bitcoin bears have a few arguments in favor of cashing in their coins and moving on. For example:
- Cryptocurrencies started 2023 in fine form, but the rally ran out of steam. The ups and downs of the last five months added up to nothing: Current Bitcoin prices also prevailed in the middle of May. Ergo, the bull run is over and the only way is down.
- Master investors like Warren Buffett still don't see any value in digital currencies. Bitcoin is just a speculative gamble to the Oracle of Omaha, and he's a financial genius. He can't be wrong in the long run, right?
- The long-awaited breakthroughs in regulations and legal codes are still conspicuously absent. You can't expect institutional investors and other heavyweights to put real money into Bitcoin until there's a robust governmental framework for owning and trading it. It's time to give up, since lawmakers and regulators keep dragging their feet.
- Bitcoin is a bunch of numbers, automatically managed by computer programs. Where's the substance? This silly digital contraption shouldn't be worth thousands of dollars per token, because it doesn't really do anything.
- Oh, and the immunity from inflation that many bulls hold up as a great reason to own this digital coin is just an illusion. The lifetime cap of 21 million Bitcoins is just a single value in the system management code, easily changed and forgotten.
On the other hand, bullish Bitcoin investors have plenty of arguments to fuel their digital fires:
- Short-term chart squiggles don't mean much in the long run, and past performance is no guarantee of future returns. Whether the Bitcoin market moves up or down from here, the stalled pricing in the middle of 2023 won't mean much to future Bitcoin investors. But the leading crypto shows market-beating returns over the last three or five years, and the gap only grows if you stretch the timeline further. The Bitcoin community is building a game-changing financial tool here, and it shows in the sustained creation of long-term value.
- Buffett is indeed an investing genius, but he would also be the first to tell you that he makes mistakes, too. In particular, he has been known to stay away from market-beating winners such as Amazon (AMZN -1.86%) and Apple (AAPL -2.72%) for years, partly because he doesn't like being late to the party. Yes, even Warren Buffett is human, and he may change his view on Bitcoin if the digital asset truly evolves into "digital gold." Apple and Amazon have turned into two of his largest investments, after all.
- The legal wheels may grind slowly, but they do keep on moving. The Securities and Exchange Commission's (SEC) lawsuit against XRP's (XRP -1.54%) Ripple has moved on to precedent-setting appeals and trials, with strong support for treating (at least some) cryptos more like currencies than securities. In another legal case, the SEC has been ordered to stop kicking the can and finally review the Grayscale Bitcoin Trust's (GBTC -4.54%) application to convert the Bitcoin fund into a more flexible exchange-traded fund. Both of these moves look like big steps forward, and Congress is also considering bills on crypto ownership.
- Bitcoin is an advanced system for managing transactions and the value each contract represents. It keeps a publicly available record of financial actions on the open internet, protected by a complex system of encryption and a safety-in-numbers approach to transaction security. In Bitcoin's proof-of-work blockchain network, you can't roll back or duplicate transactions unless you control more than half of the global network of Bitcoin's mining nodes. That's an impossibly expensive idea. And this public yet ultra-secure system offers lower fees and faster resolution of transactions than traditional banking services. The blockchain ledger is a real and useful business tool.
- Oh, and the large-scale computing requirements that protect Bitcoin's transactions play a similar role in protecting the anti-inflation cap. In order to change that value, you'd have to convince the owners of more than half of the world's Bitcoin miner machinery to dilute the value of their own current and future Bitcoin holdings. It would also undermine public trust in the whole Bitcoin system -- and cryptocurrencies at large. I don't see that happening.
There's a solid counterargument to every bearish complaint, but I'm not so sure about rebuttals for the bullish arguments. So I'm keeping a close eye on the legal developments and changes on the technical side of things, fully expecting the general price trend to continue upward in the long run. And we haven't even looked at upcoming value drivers such as the "halvening" of 2024 and rising interest in decentralized finance applications.
The conclusion is clear. This would be a terrible time to sell all your Bitcoin and walk away from the crypto market. If anything, Bitcoin's lull looks like a buying opportunity. Given the long-term value creation and advancements on the regulatory front, betting against Bitcoin now may be a decision you'll regret in 2024 and beyond.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Amazon.com, Bitcoin, Grayscale Bitcoin Trust, and XRP (Ripple). The Motley Fool has positions in and recommends Amazon.com, Apple, Bitcoin, and XRP (Ripple). The Motley Fool has a disclosure policy.