Financial Insights That Matter
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Despite what evangelists might tell you, there is a bear case for Bitcoin.
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There’s also a strong bull case for the short term.
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The long-term bull thesis is even better than the short-term one.
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With Bitcoin (CRYPTO: BTC) trending above $104,000 as of May 13, the debate over whether to buy or sell the world’s top cryptocurrency is as vibrant as ever. With a highly uncertain cocktail of economic, political, regulatory, supply, and social factors, this coin is being buffeted by headwinds, tailwinds, and crosswinds from practically every angle, and even as some of those subside, others are blowing harder.
But there are a few main narratives for both bears and bulls. Let’s examine those in closer detail so that you will have a compass for your own investments during this turbulence.
The main argument for selling Bitcoin right now is that its price is unsustainably high given the bearish macroeconomic picture in the U.S. This is the result of the ongoing global trade tension, as the U.S. considers implementing wide-ranging tariffs on almost every country, including the country’s most important trading partners.
Such a trade war is very likely to harm the economy by imposing higher costs on businesses, which will then pass their higher costs to consumers, thereby reducing the supply of investment dollars. With investment funding constrained and businesses shrinking due to lower demand as a result of higher costs, riskier investments, like Bitcoin as well as other cryptocurrencies, would be heavily disfavored. Furthermore, so this line of reasoning goes, at least some holders of Bitcoin would likely need to liquidate some of their investments to cover their expenses, especially if the trade war leads to a sharp recession as some predict.
Another element of the sell thesis is that these bearish headwinds are happening precisely when the price of Bitcoin is, in their view, overextended due to the recent gains. Thus the downside risk to holders might be even larger than what’s implied by the trade war alone. The bears may have a point there because the coin’s price is up by 66% during the past 12 months, which many would suggest is a harbinger for a painful reversion to the mean.
The bull thesis for buying or holding Bitcoin is stronger than the bear case because it’s both longer-term in its logic as well as being of at least equal strength regarding the coin’s prospects in the short and medium terms. In the near term, Bitcoin is going to continue to accrue catalysts from new government policies and new regulations in the U.S. and elsewhere, all of which are occurring alongside widespread adoption of the asset in the financial industry at larger scales than ever before.
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