Dubai: When observing how the price of Bitcoin has performed historically, any expert eye would view it as largely uncharacteristic for the top cryptocurrency to exhibit stability as opposed to extreme volatility. But does this mean the crypto can now be seen as a viable long-term investment?
“The largest cryptocurrency has been largely flitting between the $20,000 (Dh73,500) and $25,000 (Dh91,826) price levels in the past one year now – a notable stabilisation for Bitcoin, which was once synonymous with volatility,” said Brian Deshell, a UAE-based cryptocurrency trader and analyst.
“Although the price have fallen sharply since a scorching run in 2021 which saw Bitcoin climb as high as $68,990 (Dh253,405). But for the past many months, Bitcoin’s price has bounced stubbornly around $20,000 in a sign that volatility in the market has settled.”
Easing volatility is a good sign for new crypto investors
Cryptocurrencies suffered a brutal comedown last year, losing $2 trillion (Dh7.35 trillion) in value since the height of the 2021 rally. A year ago the world’s biggest digital coin Bitcoin was off around 70 per cent from its peak, but a wider perception surrounding the crypto is changing currently.
“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.
“In addition, the Bitcoin market is maturing. 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.”
Many new investors are now treating Bitcoin as a long-term investment option, rather than a short-term speculative asset
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 $600 billion (Dh2.2 trillion), with the global cryptocurrency market valued at $1.08 trillion (Dh3.97 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 current so-called ‘crypto winter’ is largely the result of aggressive interest rate hikes by central banks worldwide. Large crypto investors with highly leveraged bets were floored by the pressure on prices, further accelerating the market’s drop. However, the ice may now be beginning to thaw.”
Has the ‘cryptocurrency winter’ season comes to an end?
A research note from British multinational bank Standard Chartered also predicted that the prolonged crypto winter has come to an end, with the price of Bitcoin likely surging to $100,000 (Dh367,000) by the end of 2024 – implying it would be profitable for investors to buy Bitcoin now.
Top investment bank Goldman Sachs recently suggested we may be close to the end of declines in the latest cycle of crypto movements, with analysts at the bank suggesting there were parallels with Bitcoin’s trading in November 2018, when prices steadied for a while before rising steadily.
While Bitcoin has lost more than half of its value after its historical all-time high, 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.
“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, a tremendous growth of 90 per cent, meaning that Bitcoin brought huge returns for the investors who decided to buy the dip. So now might well 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 2022.
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 today a promising opportunity with the cryptocurrency still almost 60 per cent below its all-time high.