Dubai: When observing how the price of Bitcoin has performed off late, any expert eye would view it as largely uncharacteristic for the top cryptocurrency to exhibit stability as opposed to extreme volatility since its inception. But does this mean the crypto can now be seen as a viable long-term investment?
“The largest cryptocurrency has been largely range-bound this year, held between $65,000 (Dh238,745) and $70,000 (Dh91,826) price levels – a notable stabilisation for Bitcoin, which was once synonymous with volatility,” said Brian Deshell, a UAE-based cryptocurrency trader and analyst.
“Although the price has fallen sharply since a scorching run in 2021 which saw Bitcoin climb as high as $68,990 (Dh257,110), the existing extended period of lesser volatility is widely considered as an indicator that Bitcoin market has settled. But the risky question is – will this persist into 2025?”
Easing volatility is a good sign for new crypto investors
After cryptocurrencies suffered a brutal comedown last year, losing $2 trillion (Dh7.35 trillion) in value since the height of the 2021 rally, the world’s biggest electronic coin Bitcoin was off by 70 per cent from its peak, widely hurting its prospects as an investment. But the sour sentiments are now turning around.
“Many new investors are now treating Bitcoin as a long-term investment option, rather than a short-term speculative asset. As more people start holding on to their Bitcoin for longer periods of time, the demand for Bitcoin will become more stable, resulting in less price volatility,” said Deshell.
“Additionally, this shows a more evolved and developed Bitcoin market. The world's first cryptocurrency is no longer just a niche investment alternative for a few tech-savvy investors. It's now a mainstream investment option for millions of people and even some institutions worldwide.”
Bitcoin's total market valuation is now stabilising further
The combination of these factors helped Bitcoin's total market value rebound and stabilise after plunging last year. The market size of Bitcoin alone is now at almost $1 trillion (Dh3.46 trillion), with the global cryptocurrency market valued at $2.37 trillion (Dh8.7 trillion).
“This makes it harder for large traders or institutional investors to swing the price of Bitcoin, which in turn has reduced its volatility. In other words, the larger Bitcoin's market cap becomes, the harder it is for large buy or sell orders to have an effect on the price,” Deshell added.
“The price plunge or ‘crypto winter’ last year was largely due to aggressive interest rate hikes by central banks worldwide. Large crypto investors with highly leveraged bets were floored by the pressure on prices then, further accelerating the market’s drop. But there is no longer any ice to thaw now.”
Will the ‘cryptocurrency winter’ season come back again?
Multiple research notes from global investment banks have reiterated that with Bitcoin, there is always the threat of a ‘crypto winter’ (price crash) or the price of Bitcoin possibly even surging to $100,000 (Dh367,000) by the end of 2024. But how can this help investors decide whether to buy Bitcoin now?
While some analysts like Deshell suggests that we will barely see any decline in the latest cycle of crypto movements, others like Brody Dunn, an investment manager at a UAE-based asset advisory firm, point to parallels with Bitcoin’s trading in late 2018, when prices steadied for a while before falling steadily.
While Bitcoin soon lost more than half of its value after its historical all-time high in 2018, the crypto has grown investments by 84 per cent in the year so far. This is high compared to other financial markets, such as stocks which has about 20 per cent yield in the year so far.
Should you buy or sell your Bitcoin investments now?
“Regardless of the risk, the short answer to the investor looking to decide whether or not to increase or decrease their investments in cryptocurrencies like Bitcoin, it will be safe to say that the current stability indicates raising your holdings from 5 per cent to 8 per cent, but not more,” said Dunn.
“While there was earlier a lack of confidence among investors with how the market reacted on volatile currency moves, that’s no longer the case, and this will in turn affect long-term price prospects for the top crypto, i.e. Bitcoin.
“Bitcoin is more stable than it's been in years. As the crypto managed to hit the $31,000 (Dh113,865) mark back in July 2023, a tremendous growth of nearly 90 per cent meant that Bitcoin brought huge returns for the investors who decided to buy the dip. So dips still prove to be the perfect time to invest.”
Although Bitcoin remains more volatile than traditional assets like stocks or bonds, there is a clear trend that its volatility has been tempering since the cryptocurrency was invented in 2009, with a considerable decline since the start of 2024.
Key takeaways
Given that rapidly fluctuating prices have been one of the reasons risk-shy investors stayed away from Bitcoin, as the cryptocurrency’s volatility decreases, the level of risk with the investment becomes more akin to that of other traditional assets that are found in most portfolios.
“In time, the cryptocurrency could become a more attractive option for portfolios of all risk levels. Even better, as more investors begin to see Bitcoin as a legitimate asset class, the demand for the cryptocurrency should continue to grow,” added Dunn.
“This will in turn not only help to stabilise its price but cause it to rise as the pressures of increased demand meets Bitcoin's finite supply of 21 million coins. This won't happen overnight, but data show Bitcoin's volatility has been diminishing over the years.”
Bottom line? Ahead of the day when Bitcoin becomes a legitimate asset for investors of all risk levels, it makes investing a promising opportunity with the cryptocurrency, especially when the price of the cryptocurrency drops to affordable levels.
